North Americans got a double jolt of surprisingly bad economic news Friday, throwing into doubt the strength of the economic recovery and raising the prospect of a continent-wide recession.

The woeful economic numbers came as many were transfixed by the continuing debate over the U.S. debt ceiling.

In Canada, the economy shrank unexpectedly in May, leaving the country in worse shape to survive a potential recession in the U.S., economists say. In the U.S., the economy kept sputtering in the second quarter, and statisticians had to revise downwards an already-small first quarter number.

Canada’s gross domestic product slipped by .3 per cent in May, driven largely by declines in the oil and gas sector and mining, according to Statistics Canada. Most economists had been expecting a small increase after GDP was largely flat in April.

“This was a bolt from the blue, and not a good one,” said Douglas Porter, deputy chief economist at BMO Capital Markets. “I’m not really sure how we all missed this one.”

Markets in both the U.S. and Canada fell on the economic news, and because of uncertainty caused by American debt ceiling negotiations. The S&P TSX Composite Index fell to 12,945, a drop of 102 points on the day. The Dow Jones Industrial Average fell 97 points to close at 12,143. The loonie plunged .43 cents to $1.0466 (U.S.).

The oil and gas sector — which had been a big driver for the economy recently — was responsible for a big chunk of the May drop in Canada, falling by 5.3 per cent on the month. Manufacturing and construction also dropped.

“To suddenly have your star performer head into the doghouse like that isn’t good news,” Porter added.

He noted, however, that much of the drop was because wildfires in Alberta forced oil and gas companies to cut production, something that likely won’t be repeated.

A bigger concern for Porter was bad news south of the border. According to statistics released Friday, the U.S. economy grew by just 1.3 per cent in the second quarter, and American GDP numbers for the first quarter were revised from 1.9 per cent to .4 per cent.

“The fact is history was rewritten a bit, and that history was even worse than we thought it had been,” said Porter.

The conflict between American president Barack Obama and the U.S. House of Representatives over raising the American debt ceiling has also taken a toll, Porter added.

He said damage has been done to the U.S.’s credibility, even if an agreement is reached in time to avoid defaulting on debt payments.

“One of the things markets look for is political stability, and to some extent that’s been called into question,” Porter said.

“This is just not a good scenario,” said Arlene Kish, chief Canadian economist for IHS Global Insight, a D.C.-based economics research firm. “A recession in the U.S. is a very real possibility, and Canada could follow.”

The woeful economic numbers out of the U.S. are also a big concern for Canadian manufacturers, who ship a huge chunk of their production to American customers. Tack on a loonie which has risen sharply this year, and it’s been a recipe for potential disaster, says economist Jean-Michel Laurin.

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“It’s been a double whammy for our members. People are buying less of their goods, and they’re getting less money for it because of the loonie,” said Laurin, vice president of global policy for Canadian Manufacturers and Exporters. “Everybody was prepared to have at least a year with the loonie at par, but there’s a big difference between $1.05 and a dollar.”

A slumping American economy would slash consumer demand for big-ticket items such as Canadian-made cars, and also hurt demand for Canadian lumber as construction slows, Laurin said.