Transportation sector takes hit as Canadian economy softens

Canada’s rail sector declined sharply in the government’s monthly GDP report. (Photo: Shutterstock)

Canada’s economy contracted by 0.1 percent in February, which included the single worst drop in the transportation and warehousing sector in nearly eight years.

The gross domestic product data from Statistics Canada, released on April 30, followed an unexpectedly strong January of 0.3 percent growth. The biggest drag on the economy came from mining and oil and gas extraction, which dropped by 1.6 percent, led by 4.4 percent decline in mining and quarrying.

Overall, transportation and warehousing declined by 1.6 percent, the sharpest decline since June 2011. The drop largely came from a 10.8 percent decline in rail transportation.

“There were widespread declines in rail movement of products, such as iron ore, potash and fuel oils and crude petroleum,” Statistics Canada wrote. Unusually cold weather and strong snowfall and a rail line closure in the Canadian Rockies weighed on the sector.

Canadian National (NYSE: CNI) noted the drag of harsh weather in its first quarter earnings report released on April 29.

Truck transportation declined more modestly, -0.5 percent, while pipeline transportation increased by 1.1 percent. Growth in natural gas transportation more than offset a small decline in crude oil transportation.

Alain Bédard, CEO of TFI International (TSX:TFI) told analysts on April 24 following a record first quarter that the harsher weather had dampened the expected lift in spring-time freight volumes for its Canadian trucking business.

“We’re not seeing that in Canada yet and this is, in our mind, is weather-related,” Bédard said.

Brian DePratto, a senior economist at TD, wrote in a research note on April 26 that February’s data suggested that the Canadian economy remained “in a soft patch but one driven by temporary factors.”

He also wrote, “The good news, however, is that the underlying economic signals remain generally healthy, with construction activity rising for a second month, and some modest signs of life in investment.”  

Construction increased by 0.2 percent in February, led by 1.2 percent growth in residential construction.

Manufacturing declined by 0.4 percent, following a 2.1 percent jump in January, the largest in nearly 15 years. Wood products had the biggest decline, 4.2 percent. Machinery jumped by 5.2 percent and fabricated metals increased by 3.1 percent.

Retail increased by 0.2 percent, driven by strength in general merchandise stores and auto and parts dealers. Wholesale rose by 0.1 percent, including an 8.6 percent jump in auto and parts wholesalers on a surge of imported vehicles.