How do you find a silver lining in Canada's minuscule economic growth in the fourth quarter? It ain't easy, but let's give it a shot.
Yes, real gross domestic product grew at an annualized rate of just 0.6 per cent last quarter, even worse than the 0.7 per cent in the third quarter, which already had economists crying in their spreadsheets. A pretty lousy six months, most any way you slice it.
Or was it?
First, let's put the headline number in some perspective. Douglas Porter, chief economist at BMO Nesbitt Burns, pointed out that as bad as it looks, it's still the best fourth-quarter growth in the Group of Seven. So at least we have that going for us.
And when we look a little deeper, the report looks much less dismal than it does on the surface.
The big one is final domestic demand – up a healthy 2.6 per cent annualized in the quarter. How good is that? It's the biggest number in two years.
Household final consumption was up 2.7 per cent. So much for the supposed stagnation of the Canadian consumer that we had fully expected to see in light of the recent retail and housing data.
Meanwhile, business inventory accumulation fell off a cliff. The inventory plunge, by itself, sliced 2.5 percentage points off the annualized GDP growth. Now, inventories are a pretty volatile component of GDP, but it's not often that it's going to be that big a drag on quarterly growth.
Statistics Canada's data over the past 10 years show that typically, inventory retreats on that scale are followed in short order by at least some degree of recovery (the last recession notwithstanding).
It was also nice to see that capital investment among businesses climbed at a 2.4-per-cent annualized clip – hardly stellar, but better than many had expected, given the eroding economic outlook. The Bank of Canada should be pleased; it has been hoping businesses would start putting their cash holdings to work, as that would go a long way to helping the broader Canadian economy ride out a housing slowdown.
Also encouraging was that mining and oil-and-gas extraction gained 2.1 per cent in the quarter – in other words, an annualized rate of better than 8 per cent. We had been led to believe that weakening commodity prices, sluggish export markets and bloated global supplies had discouraged output in these sectors; instead, they were the strongest contributor among goods-producing industries to the quarter's growth.
Capital Economics suggested Friday that a surprisingly upbeat corporate sector might, indeed, provide key fuel to the Canadian economy in the current quarter.
The independent research firm's Canadian economist, David Madani, noted that the Canadian Federation of Independent Business's index of business confidence has risen impressively this year; given the index's historically close correlation with GDP, he said these recent gains point to GDP growth of a much healthier 2 per cent (annualized) for the first quarter.
But Capital Economics is rarely known for unbridled optimism; Mr. Madani's view beyond the current quarter stayed true to that form.
"We doubt that this pace will be sustained, however, given the tepid growth in the global economy and the slower growth in domestic demand," he wrote. "Given the housing correction and the fact that larger businesses are scaling back their capital investment plans, smaller sized firms are likely to experience a further weakening in sales."