Statistics Canada says real GDP contracted by 0.1 per cent in August

OTTAWA -- The Canadian economy hit reverse in August, its first monthly pullback since October last year.

"The amazing run of amazing Canadian economic data is officially over, with growth coming back to reality in a hurry," Bank of Montreal chief economist Doug Porter wrote in a note to clients.

Statistics Canada said Tuesday real gross domestic product fell 0.1 per cent for the month, following essentially no change in July.

Porter said the two-month lull in activity reinforces the point that "the frothy growth of the past year is over and done."

The Canadian economy began 2017 with strong growth through the first two quarters.

However, after raising its key interest rate twice this year, the Bank of Canada kept its target for the overnight rate on hold last week amid expectations that the economy would slow in the second half of the year.

The central bank suggested future rate hikes were still likely, but noted it will be cautious and pay close attention to the impact of higher interest rates on indebted households, the evolution of the economy's capacity, wage growth and inflation.

TD Bank senior economist Brian DePratto said third-quarter growth is now tracking around an annual pace of 1.9 per cent, roughly in line with the Bank of Canada's forecast of 1.8 per cent in last week's monetary policy report.

"Indeed, although there remain some wild cards, such as the impact of a strike in the auto sector, it is likely that output will come back to life in coming months, particularly given still encouraging signs from labour and housing markets," DePratto wrote.

Statistics Canada said goods-producing industries contracted by 0.7 per cent for August, while services-producing industries edged up 0.1 per cent.

Twelve of 20 sectors improved for the month, but weakness in manufacturing and mining, quarrying and oil and gas extraction more than offset the gains.

The mining, quarrying, and oil and gas extraction sector fell 0.8 per cent in August, due to maintenance shutdowns in Newfoundland and Labrador.

The manufacturing sector contracted 1.0 per cent for the month as both durable manufacturing slipped 0.1 per cent and non-durable manufacturing declined 2.0 per cent.