On the heels of weak consumer spending reports, the Canadian economy contracted in November, the second monthly decline in the past three months. The announcement comes on the heels of slumping retail sales which fell 0.9% in November, led by a significant decline at furniture and home furnishing stores- unsurprising given national home sales fell to a six year low in 2018.

The construction sector declined for the sixth consecutive month in November, contracting 0.3% to fall to its lowest level since the middle of 2017. This was exacerbated by the Residential construction sector which fell 4.3% year-over-year, the steepest decline since 2009, in large part due to a drop-off in single family home construction. Small gains were reported in apartment construction.

 Canada Residential construction GDP
Residential Construction GDP fell 4.3% Y/Y

The recent slowdown in the Great White North is no doubt being exacerbated by an over leveraged household sector which is facing higher interest payments, slowing loan growth, and a rapid deceleration in the true money supply. The true money supply consists of cash, demand deposits (i.e. checking accounts) at banks, savings and government deposits at the central bank. That is, it consists of money immediately available for transaction.

True Money Supply Canada
True Money Supply Growth in Canada via Crusoe Economics

Recent weakening data will keep the Bank of Canada on hold, despite their continued optimism. Earlier today the Bank of Canada’s Wilkins predicted Canada’s economic expansion to pick up its pace after a recent slow patch anticipating wage growth will eventually accelerate along with it.

However, as long as credit growth remains benign that is unlikely to be the case.