Canadian economy shrinks in August

The Canadian economy declined by 0.1 per cent in August, Statistics Canada said on Friday. A month earlier, the economy was unchanged.

Oil and gas extraction and, to a lesser extent, manufacturing were the main sources of the decline, the agency said.

Oil and gas extraction fell 2.3 per cent during the month, as maintenance work at some crude petroleum facilities on the East Coast slowed production. Natural gas production also retreated as prices hit record lows as storage facilities neared capacity.

Manufacturing activity decreased 0.7 per cent, with eight of the 21 major groups within the sector retreating.

Wholesale trade also declined by 0.5 per cent during the month, reflecting weakness in foreign and domestic demand.

Bright spots

Public sector activity increased 0.4 per cent, Statistics Canada said, largely as a result of the end of a strike by municipal employees in Toronto.

Federal Finance Minister Jim Flaherty expressed concern that the public sector led growth, suggesting private demand must be the long-term driver of Canada's economy.

"The figures quite frankly confirm what we've been saying and that is that there are some positive signs in the economy but the recovery is fragile and tentative," he said.

Retail trade was another bright spot, with activity increasing by 0.3 per cent. New car dealers increased their activity after two monthly declines, as incentive programs may have bolstered sales, the agency said.

And for the first time since October 2008, construction activity increased, by 0.2 per cent in August.

The August decline on the heels of a flat July puts pressure on the Bank of Canada's expectation of two per cent growth in the third quarter as a whole, which it reiterated as recently as last week.

Real GDP is now down a hefty four per cent year over year, although that's still an improvement on the 4.6 per cent figure in July, BMO economist Robert Kavcic noted.

He's cautiously optimistic about the latest economic data.

"This trend will continue to improve as the Canadian economy has found a floor in recent months," he said. "As we saw in the U.S. yesterday, Canada's recession is in the rear view mirror."