Severe Winter Weather Hampering Canadian Economic Recovery

Severe weather even by Canadian standards has cast a chill on the country’s economic rebound.

Canada’s real estate association reported today freezing temperatures kept prospective buyers at home last month, sending sales down 3.3 percent from December, which also saw a decline in transactions. Manufacturing sales unexpectedly dropped in December, with Krishen Rangasamy at National Bank Financial in Montreal saying weather probably contributed to the weak data.

Toronto experienced the coldest December-January period in 20 years as temperatures in Canada’s largest city averaged minus five degrees Celsius (23 Fahrenheit). An ice storm in December cut power to 600,000 homes in Eastern Canada. Calgary reported the most snow in more than a century in December and temperatures in Winnipeg, Manitoba dropped below minus 30 degrees Celsius for 12 days last month.

“Weather is playing a big role,” Doug Porter, chief economist at Bank of Montreal’s BMO Capital Markets, said in a telephone interview. “It’s not as if the country is a stranger to winter weather, so it can probably deal with it a little bit better. But even here it’s likely weighing on some of the indicators.”

Ice Storm

The weather this winter is hampering an economy that had been emerging from an almost two-year slowdown, with annualized growth jumping to 2.7 percent in the third quarter. Economists surveyed by Bloomberg forecast growth of 2.5 percent in the fourth quarter when Statistics Canada releases its next GDP report on Feb. 28.

Eastern Canada was hit by an ice storm in December, cutting electricity to homes in Ontario, Quebec and the Atlantic provinces. Porter said Canadian gross domestic product probably shrank in December because of the storm.

Statistics Canada reported today that factory sales fell in December, the first drop in four months. Canada home sales dropped for a fifth straight month.

The U.S. Federal Reserve said severe weather “curtailed production in some regions of the country” when it reported today factory production unexpectedly declined in January. The Commerce Department said yesterday sales at U.S. retailers declined by the most since June 2012 last month.

Weather Risk

“There’s a risk the weather hampers January data, particularly for manufacturing,” Mazen Issa, senior Canada macro strategist at TD Securities in Toronto, said by e-mail. “There are probably supply chain effects from the U.S.”

Porter said bad weather led BMO to lower its first-quarter U.S. growth forecast to below 2 percent.

The next gauge of how the ice storm affected the economy will be next week when Statistics Canada releases data for wholesale and retail sales. Economists project December retail sales declined 0.5 percent.

Home resales have declined 8.9 percent cumulatively since August, reversing “surprisingly strong” gains in the spring and summer, Robert Hogue, senior economist at RBC Capital Markets in Toronto, wrote in a note to clients today.

“There was no doubt a certain weather element that depressed activity in January and arguably December,” Hogue wrote in the note today.

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net

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