Putting the Gross in Gross Domestic Product

Today saw yet another disappointing Canadian data point. GDP for August was released and came in at exactly 0%. That was well below even the already lowered consensus estimate of a .10% gain.

While the August number gets all the attention, many people missed the revised July number that was revised…..are you ready for it….lower, and showed a contraction.

With the Q2 GDP already being negative, Canada is one monthly report away from the official declaration of a recession. In order to be ‘official’ we need to see back to back quarterly declines. Of course we all know we are in a recession whether or not some random data point tells us this. We know it, we feel it, and luckily enough for mortgage brokers – we see it with our clients.

Not to beat the negative drum here, but it is even worse, as Canada added around 240,000 new residents to the population, and supposedly added a lot of jobs during the last 6 months. So, if the population is going up, and GDP remains flat – then that means the GDP per capita is actually very negative. Never before has an economy that produces a negative per capita GDP result over 2 quarters NOT been hit by a hard recession.

In typical infomercial style….But Wait, there’s more. The GDP was even well below the estimates that the BOC put out LAST FRICKING WEEK of .80% growth for the 3rd quarter. The BOC has the most up to the minute data, and is supposed to have some of the smartest people, and they even missed the GDP by a long shot. This tells me that really no one in charge has a clue. Who is driving the bus? Who is the captain of the fiscal ship? Is there an ice burg right ahead that we are about to slam into?

Oddly enough, after beating the drum of inflation, the BOC did an about face yesterday, where Uncle Tiff suggested that perhaps the BOC could cut rates even if inflation didn’t fall? WTF?? Seriously? The only mandate the BOC has is to control inflation, and now – all of a sudden inflation doesn’t matter? Perhaps he is getting some political interference? Perhaps he realizes that if he continues to lower inflation he will absolutely destroy the housing market and the Canadian economy? Perhaps there is an election coming?

I always said the BOC may lower rates before the end of 2023, and that call may not seem as far out as everyone thought.

At the end of the day, the economy is in the shitter, and it is only a matter of time before the real problems show up in vogue. Now, problems don’t bother me – we have had them before, and we will have them again. My issue is that the adults in the room – the people who make policy, set policy, and are responsible for guiding us through the tough times don’t really have a clue. I try and avoid politics in my writings, but we have proven that the current elected Federal Government is just not capable of running anything monetary related, and now it appears that the BOC has lost a lot of its credibility with a flip flop, and missing on data that it should know. Of course the OBC also changed its tune on how much the carbon tax added to inflation once the number they put out a month ago was subject to peer review, and wouldn’t you know it – the effect was a lot more than initially revealed. I am not here to have an environmental debate, but the carbon tax is a lightening rod issue in Canada. It can raise blood pressures on both sides of the aisle. So, the BOC before putting that data out should have known better than to run with unchecked math. No matter the side, the math was going to be peer reviewed, checked, and tested for accuracy.

If we can’t trust the people in charge of the money on how to properly calculate a simple thing like inflation – what can we really trust them for? Will Tiff and Co. have any credibility with Canadians? Better yet, will the BOC lose credibility in international bond markets? Based on the reaction of the Canadian dollar over the last 4 weeks, the international community is calling bullshit on the ‘ soft landing ‘ narrative the BOC and the ruling party are putting out.

The last 2 months of the year are about to get fiscally interesting. While the Gross domestic product number was indeed gross, the data coming out over the next 60 days may get even grosser!!