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There are lies. There are damn lies. And then there are the statistics. To paraphrase Mark Twain.

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It’s hard to see why here The Bank of Canada thinks so can pull the wool over our eyes. One of the reasons it unexpectedly raised rates last week and is threatening to do more (after scrapping the John Crow tightening phase of the late 1980s, when inflation was a much more serious problem) is that Canadian economy has become more immune to increase in interest rates than you thought. What? If anything, the areas of the economy most closely associated with central bank policy already appear to be va recession or heading there fast.

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The Bank of Canada is focusing on quarterly averages from gross domestic product data (on the spending side), but doesn’t seem ready to comment on the decline coming from the contours of the monthly numbers. Overall, the interest-sensitive segments included in the monthly real GDP data (manufacturing, residential construction, real estate, financial services, retail and wholesale trade) contracted 0.3 percent in March after falling 0.2 percent in February, and this aggregate in 11 of the past 12 months, it has been stagnant or declining. The year-on-year trend was one percent a year ago and has since swung to a current minus 1.5 percent, the most negative since June 2020.

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Politicians seem to be in awe of the Canadian consumer, but not every character smells like roses. The retail sector fell 0.8 percent in volume terms in March after a 0.6 percent decline in February, the steepest sequential decline from April to May 2021. Spending here is lower today than last June. Does that classify as impressive? Maybe if you’re a masochist.

The wholesale trade sector fell 0.6 percent month-on-month in March after falling 1.2 percent in February. It has reversed in four of the last five months and is down 1.8 percent year-on-year. Financial services fell in two of the last four months and decreased slightly (-0.3 percent) year-on-year.

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Residential construction, the most credit-sensitive of all, fell 1.1 percent in March and is on a five-month losing streak. The year-over-year trend of minus 15 percent is the worst since April 2020, and the actual level of real spending has returned to where it was in May 2020, when the Bank of Canada, as well as Federal Reserve System of the United States of America, assured everyone that rates have not been rising for many years. Nice call. Finally, manufacturing activity fell 0.6 percent in March and fell 1.1 percent year-over-year.

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I have a feeling the Bank of Canada will rue the day it pulled the stunt it did on June 7th. Most of all, I question the analysis and conclusion that interest rate sensitive sectors are somehow holding up well in the face of the most acute tightening program since 1981.

You can have your own opinions, sure, but you can’t have your own facts. And the central bank certainly isn’t taking a full picture of what’s going on in the economy, perhaps because it needs “cover” in its quest to quickly reach that holy grail but fundamentally irrelevant goal of two percent inflation.

David Rosenberg is the founder of the independent research firm Rosenberg Research & Associates Inc. For more insights and analysis from David Rosenberg, you can sign up for a free one-month trial of Rosenberg Research Website.

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