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Investing.com -- Canada’s economy shrank more than expected in August, contracting 0.3% after a revised 0.3% gain in July, according to the latest data from Statistics Canada. The sharp reversal was fueled by broad-based weakness across both goods-producing and services-producing industries, signaling fading momentum in the latter half of the third quarter.
Goods-producing industries led the pullback, declining by 0.6%, while services edged down 0.1%, marking the first drop in six months for the sector. Air transportation bore the brunt of a strike involving 10,000 flight attendants in mid-August, causing a 4.6% monthly plunge, the steepest drop since January 2022, as flight cancellations compounded sectoral weakness.
Compounding the transportation slump, support activities for the sector fell 1.9%, driven by disruptions tied to air transport. Pipeline transportation was also down 0.7%, reflecting decreased natural gas exports to the U.S. and softening domestic demand.
Wholesale trade shrank 1.2%, its first contraction in four months, led by motor vehicles and parts wholesalers, which nosedived 8.3%. Food, beverage and tobacco wholesalers fell 5.2%, the steepest pullback since November 2022, mirroring declines in food manufacturing output.
The downturn extended into manufacturing, which dropped 0.5% on declines across both durable and non-durable categories. Durable goods fell 0.8%, led by machinery and fabricated metals, while food manufacturing’s 1.3% decline weighed on non-durables.
Utilities tumbled 2.3%, marking the lowest activity since May 2018, as drought conditions hit hydroelectric generation. In the wood product manufacturing subsector, output fell 1.9% in August in the wake of higher U.S. duties on Canadian softwood lumber, with sawmills and wood preservation down 5.2% and exports slumping 24.2%.
Reflecting on the data, CIBC economist Andrew Grantham noted, “Canadian GDP was more trick than treat, with the economy contracting in August and only rebounding slightly in September. The -0.3% reading for August was much weaker than the consensus forecast and advance estimate (0.0%)… Weakness in August was reasonably broad based by sector, led by trade sensitive areas such as transportation & warehousing, wholesaling and manufacturing.”
An advance estimate signals a 0.1% GDP uptick for September, suggesting limited recovery from August’s decline. For the third quarter overall, output rose just 0.1%, translating to 0.4% annualized growth, closely aligning with Bank of Canada expectations but underlining alarming softness heading into the final quarter.