Economy likely contracted in July

Canada's economy is braking so rapidly that it likely contracted in July for the first time in almost a year, according to a consensus of economic forecasters.

The news may come as a surprise to many Canadians, who are constantly reminded by the government that their economy is among the strongest in the industrialized world.

But analysts note that Canada's strong rebound occurred mostly at the end of 2009 and the early part of 2010.

Since April, the economy has largely been treading water.

Now the consensus of economists is that Statistics Canada will report Thursday that output pulled back 0.1 per cent in July, the first contraction since August, 2009.

That doesn't mean Canada is falling back into recession, they caution.

By definition, it takes two full quarters of negative growth to constitute a recession, and analysts expect July to be a one-month blip caused by poor exports and the introduction of the harmonized sales tax in Ontario and British Columbia.

What it does mean is that growth going forward is likely to be very incremental as U.S. economic woes continue to weigh on Canada.

By many measures, Canada remains a rock of stability compared with many industrialized countries.

The economy has created 430,000 jobs since last July and recouped virtually all lost output. The United States, by comparison, remains seven million jobs shy of its pre-slump level.

Meanwhile, a new consumer confidence survey released Tuesday shows Americans getting more pessimistic about their future prospects.

The Conference Board index dropped more than expected to 48.5 in September, the lowest it's been since February and down from a revised 53.2 in August. Economists surveyed by Thomson Reuters had been expecting a reading of 52.5.

It takes a reading of 90 to indicate a healthy economy - a level not approached since the recession began in the U.S. in December 2007

CIBC chief economist Avery Shenfeld says Canadians shouldn't panic, but have a right to be disappointed that the recovery has slowed so quickly barely a year after the end of the recession.