Canadian economic output goes flat in February

Canada's economy didn't grow in February, rebounding only slightly from a 0.2 per cent decline in January.

Statistics Canada reported Thursday that the service sector increased by a small amount, but that was more than offset by a contraction in goods-producing industries.

The data agency also revised its numbers to show that January's results were a worse showing than previously thought. Initially, Statistics Canada said the economy contracted by 0.1 per cent during the month. Thursday's release updated that to a 0.2 per cent decline.

Two of Canada's most closely watched sectors— manufacturing and energy — both shrank during the month. Manufacturing has now contracted for two straight months, something that's a real concern to economist David Madani at Capital Economics.

"Despite the lower Canadian dollar, this sector's struggle appears to continue. This doesn't inspire much confidence in the Bank of Canada's view that a pickup in the non-energy economy will offset the fallout in the energy sector," he said.

Little to get excited about

A colder-than-normal February helped make utilities a source of strength, as activity in that sector grew by 2.3 per cent for the month after increasing 1.7 per cent in January. The retail sector also expanded.

But there was very little to get excited about besides that.

"Falling oil prices are showing up in the data," is how Scotiabank described the showing, although the bank added it doubts that Thursday's data will change the Bank of Canada's outlook in any big way, since the central bank had already pretty much written off the first quarter and is banking on a rebound later in the year.

Madani disagreed, saying the bleak number suggests a rate cut is now even more likely. 

"We wouldn't bet on a sharp bounce back this quarter, and expect the Bank of Canada to eventually cut rates later this year," he said in a note to clients early Thursday.