The Bottom Line:

• Some interest rate sensitive sectors (residential investment, consumer spending) showed signs of life in Q3 following the start of BoC interest rate cuts in June. But per-capita GDP was still down for a 6th consecutive quarter, and with soft growth momentum extending into monthly estimates into early Q4.
• The GDP numbers should help to reinforce that interest rates are higher than they need to be to maintain inflation sustainably at a 2% rate. The BoC will also be watching next week’s labour market data closely, but our own base-case assumption is for another 50 basis point cut to the overnight rate in December. 

    The Details:

• GDP rose 1.0% (annualized rate) in Q3 – broadly in line with expectations ahead of the report, but softer than the BoC’s latest 1.5% forecast and slower, again, than the pace of population growth.
• Per-capita GDP fell for a 6th consecutive quarter, and 8th out of the last nine.  
• Details were mixed, but on balance still are pointing to a broadly softening economy. 
• Another jump in government expenditures accounted for 1.2 percentage points of GDP growth (ie. GDP would have declined outright without it) — and half of the 2.4% increase in final domestic demand.
• Consumer spending jumped by 3.5%, and residential investment increased for the first time in four quarters (3.0%.) 
• But business investment plunged 11% on a sharp drop in equipment purchases, and exports fell for a second consecutive quarter despite still resilient economic activity in the United States and a weaker Canadian dollar. 
• Early momentum into Q4 remains soft. On a monthly basis, GDP edged up just 0.1% in September (below the 0.3% prelim estimate from Statistics Canada a month ago) and the early estimate for October was for another 0.1% increase.  Those early estimates have been highly revision prone, but that leaves the monthly data tracking in line with our projection for a 1% Q4 increase – and about half the BoC’s 2.0% forecast. 
• Consumer-sensitive sectors strengthened in September (retail +1.0%, accommodation & food services +0.4%) but are still down sharply from a year ago on a per-capita basis.

Source: RBC Economics