Thursday, December 13, 2007

Statistics Canada says we're heading for a slowdown


OTTAWA - Canada's economy is charging toward the new year, but analysts say problems in credit markets, labour productivity and parts of the manufacturing sector threaten to trip it up in 2008.

Two reports released Thursday by Statistics Canada point to sluggish labour productivity and a mixed performance in the manufacturing sector, while TD Bank (TSX:TD) economists also warned that problems in credit markets are more serious than initially thought.

"We're heading into the new year with a fairly good degree of momentum, but the economy is slowing," said Scotia Economics economist Adrienne Warren.

"I think as we go into the new year, the risks to growth in Canada are growing."

Overall labour productivity advanced 0.2 per cent in the summer quarter, with the only growth occurring in services while manufacturing output per hour of work declined, Statistics Canada said.

Third-quarter productivity growth rate was the same as in the second quarter and down from 0.6 per cent in the first quarter. And it was far behind the 1.6 per cent third-quarter increase in U.S. productivity.

Manufacturing productivity slumped 0.6 per cent during the quarter as production fell 0.7 per cent, hampered by the sharp appreciation of the Canadian dollar, while the number of factory hours worked declined 0.1 per cent.

Overall labour cost per unit of production, a measure of inflationary wage pressure, continued to ease during the third quarter, rising 0.3 per cent, compared with 0.7 per cent in the second quarter.

Another Statistics Canada report said the manufacturing sector perked up a little in October, even though it was the first month in almost 30 years in which the segment was dealing with a Canadian dollar at par with the U.S. currency.

Statistics Canada said manufacturing sales edged up 0.1 per cent after decreasing in five of the six previous months. Sales of manufactured goods increased to $50.2 billion, from $50.1 billion in September.

On an industry-by-industry basis, the agency said 12 of 21 manufacturing industries increased in October, representing slightly less than half of total manufacturing sales.

"All three of the reports contribute to the fear that we are headed into an actual downturn," said Canadian Auto Workers union economist Jim Stanford.

"There are a number of indicators in U.S. consumer behaviour, continuing financial market uncertainty and continuing meltdown of our most important export sector, which is still manufacturing - all three of those spell bad news for the broader economy."

In a quarterly outlook, TD Bank economists said tighter credit conditions will aggravate the weakness in American real estate markets, depressing consumer spending.

"The outlook is that Canada economic growth is going to slow materially in the quarters that are coming," TD deputy chief economist Craig Alexander said in an interview.

"The domestic side of the Canadian economy is likely to remain solid."

The bank has cut its expectation of U.S. economic growth next year by more than half a percentage point to 1.8 per cent, and world economic growth is expected to slow by a full percentage point to 4.2 per cent.

For Canada, the strong dollar, weaker foreign demand and a cooling in domestic activity are forecast to result in 2008 growth of 1.9 per cent.

The report predicts the Canadian dollar will average 97 cents US next year, trending down toward 94 cents.

The loonie reached parity with the American dollar at the end of September for the first time in more than 30 years as it roared toward a mid-November high of US$1.10 before dipping below US$1 in recent weeks.

Get it here

--Again, I would repeat my montra that you can't take any economic predictions that seriously. I'm not sure about the quote "the domestic side of the economy looks solid".... isn't the entire economy domestic?

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