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GDP weak but positive signs lurk under the surface

Dozens line up to register for the The National Job Fair & Training Expo at the Metro Toronto Convention Centre, 2012.

J.P. MOCZULSKI/The Globe and Mail

Statscan's release of Canadian gross domestic product showed weak growth, as expected, but positive signs were visible just below the surface.

December saw the Canadian economy contract by 0.2 per cent, in line with economist estimates, and total fourth-quarter growth was reported at 0.6 per cent annualized. Some of investors' worst fears failed to materialize. Fourth-quarter consumer spending rose 2.7 per cent, which was only marginally lower than the third quarter's advance of 2.8 per cent.

Most importantly, the vast majority of the weakness in the data resulted from a 10.3-per-cent decline in inventory investment. Leaner inventories are a positive sign for economic activity in the current quarter as companies are more likely to increase activity to meet new demand.

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GDP for the third quarter was also revised higher to 0.7 per cent from the previous 0.6 per cent, another encouraging sign.

All told, the report was nowhere near as bad as many feared, particularly in light of the disastrous set of numbers released overnight in Europe and Asia. The Canadian consumer held in nicely despite increasing debt loads and the bulk of the damage was caused by conservative inventory management, which sets up the manufacturing sectors for better results when first-quarter numbers are released.

Investors can breathe a sigh of relief and look to next week's employment and housing data.

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About the Author
Market Strategist

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW). He was a highly ranked mutual fund analyst for 10 years and then, most recently, the head of a financial adviser support team at MPW. More

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