An early and harsh winter is proving to be good for utilities – and the Canadian economy.
The economy expanded for a fifth consecutive month in November, with gross domestic product growing 0.2 per cent, according to Statistics Canada.
The growth puts the economy on a course to grow at a solid annual pace in the fourth quarter, 2.5 per cent to 3 per cent. That is in line with the Bank of Canada's forecast, and close to the pace of recovery in the United States.
"Canada's economy is growing nicely," said Bill Adams, senior international economist at PNC Financial Services. "Solid energy production and consumer spending are outweighing the correction in real estate."
That pattern was clearly evident in November. Expansion was led by utilities, which grew 2.1 per cent – the sector's best month in nearly seven years as cold weather caused utilities to generate more power to meet brisk heating demand. Other bright spots included the mining and oil and gas sectors (up 1.7 per cent) and retailing, where output was up 0.8 per cent.
Meanwhile, output fell in the construction, agriculture and manufacturing sectors.
Over all, goods-producing sectors grew by 0.4 per cent in November and service industries grew 0.2 per cent.
The economic data suggest the Bank of Canada's next move will be a rate hike, not a rate cut, according to PNC's Mr. Adams. "The case for a rate hike should become clearer in the next few months as growth continues and a weaker loonie makes imported gasoline and produce more expensive in Canada," he said.
The central bank dropped its bias toward raising rates in October, warning that inflation is running ominously below its official 2-per-cent annual target. The bank has said its next move – up or down – would be dependent on economic data.
Solid November GDP growth gave the Canadian dollar a boost of 0.22 cents (U.S.) on Friday to 89.78 cents. But it is down about 10 per cent in the past year.
The pace of growth in November was in line with the consensus forecast of Bay Street economists.
But the sources of strength – utilities and the resource sector – surprised some. Oil producers are getting around pipeline bottlenecks by shipping more crude by rail.
"While looking somewhat deep into the rear-view mirror, the decent month continues to point to a sturdy end to 2013 for the Canadian economy," said chief economist Douglas Porter of Bank of Montreal.
"The three-month trend in growth is now running at a nifty 3.8-per-cent annualized clip, and output is up 2.6 per cent from a year ago," he said in a research note.
But Mr. Porter expects December to be weaker, in part because of the late-December ice storm that knocked out power to hundreds of thousands of people in Ontario, Quebec and New Brunswick.