Statistics Canada Says Economy Grew 0.3% In May, Estimates 1% Growth for Second  Quarter

The Canadian economy grew by 0.3% in May despite downward pressure from wildfire-hit oil and gas production but it looks to have slowed in June, Statistics Canada said. In its latest report on economic growth, the federal agency’s preliminary estimate suggests real gross domestic product grew at an annualized rate of 1% in the second quarter.

The May figure came in slightly lower than was expected by Statistics Canada as mining and oil and gas companies reduced their operations in Alberta at the outset of the record-breaking wildfire season. The energy sector was down 2.1% in May, the release shows. “This was the sector’s first decline in five months and its largest since August 2020,” the agency said.

The modest GDP increase in May was driven in part by a rebound in the public administration sector as most federal public servants on strike returned to work by the end of April. However, 35,000 Canada Revenue Agency workers remained on strike for three days in May, which dampened the rebound.

The economy remained resilient in the second quarter, but growth started to look weaker by the end of the period, with wholesale sales posting one of their largest declines in history in June, said RBC economist Claire Fan in a note. “The resilience in consumer demand we’ve seen to date is not to be overlooked, adding to sticky inflation pressures. But momentum in services spending also appears to be waning – gross sales at food services and drinking places have been trending at levels below this January for months,” she wrote.

That modest growth is unlikely to hold, as the federal agency’s preliminary estimate for June suggests the economy contracted by 0.2%. Statistics Canada says the estimated decrease in June is mainly owing to the wholesale trade and manufacturing sectors. Both sectors saw growth in May as supply chain issues related to semiconductor chips eased, but the downward trend in June is expected to “more than offset the increases recorded in May,” the agency said.

The slowdown comes as the Bank of Canada’s key interest rate sits at 5%, the highest it’s been since 2001. The interest-rate spike is expected to slow the economy down, though it has generally performed better than expected this year.

The real estate sector, for example, is expected to continue to grow in June despite high interest rates. In May, home resales in most of Canada’s largest markets led to an industry increase of 7.6%.

A series of transitory shocks since April, such as the wildfires, has made the data more difficult to interpret, wrote TD economist Marc Ercolao in a note. “Looking ahead, headline GDP figures may continue to be skewed by the government’s grocery rebate and the effects of the B.C. port strike in July,” he said.

But the the pullback in June will likely help support a hold on the Bank of Canada’s key policy rate in September after announcing a hike in July, said Mr. Ercolao. “Slowing growth appears to be in the cards for the Canadian economy, and we believe this will be enough for the [central bank] to remain on hold at its next meeting,” he said.

The Bank of Canada won’t hesitate to hike rates further if necessary, said Ms. Fan, but she added that “the worst is yet to come” for households dealing with rising debt service costs. “We expect that will soften spending, push inflation lower and keep the [central bank] to the sideline over the second half of this year,” she said.

Source: The Star
Source: Globe and Mail
Source: Financial Post

Gross Domestic Product by Industry, May 2023

Real gross domestic product (GDP) increased 0.3% in May, following a 0.1% uptick in April. Services-producing industries were up 0.5%, while goods-producing industries partially offset the increase with a 0.3% decline in May. Overall, 12 of 20 industrial sectors posted increases.

Manufacturing, wholesale and public administration drive the increase
A rebound in wholesale and public administration helped boost GDP, with the latter bouncing back in May as most federal government workers who were on strike returned to work by the end of April. Moreover, gains in manufacturing and real estate and rental and leasing also helped boost growth.

Easing of supply chain issues helps boost the wholesale and manufacturing sectors
Easing of supply chain issues with respect to semiconductor chip supplies aided in the increases of both the manufacturing and the wholesale sectors, especially subsectors involved in the automotive supply chain.

Manufacturing advanced 1.6% in May, its largest gain since October 2021, with both durable (+2.1%) and non-durable (+1.0%) goods manufacturing increasing. Durable goods manufacturing was up for the fourth time in the last five months, led by transportation equipment manufacturing (+2.2%) and machinery manufacturing (+3.0%) in May.

Wholesale trade advanced 2.9% in May, as seven of nine subsectors grew. Machinery, equipment and supply wholesalers sharply increased by 6.3%, the largest monthly expansion since June 2020.

Strong growth continues for offices of real estate agents and brokers
Demand for real estate remained strong in May, and activity at the offices of real estate agents and brokers and activities related to real estate advanced for a fourth consecutive month. The 7.6% increase in May was led by higher home reselling activity in the majority of Canada’s largest markets, led by the Greater Toronto Area, Montréal, Greater Vancouver, Calgary, Edmonton and Ottawa. Legal services, which derive most of their activity from real estate transactions, advanced 0.3% in May, its sixth consecutive gain.

Construction retreats, driven by a decline in residential building construction
The construction sector contracted 0.8% in May, following a 0.2% increase in April and no change in March, as almost all subsectors posted declines. Residential building construction (-1.8%) contributed the most to the decrease, driven by declines in home alterations and improvement and construction of new single-detached homes. Non-residential building construction contracted 1.3% in May, partly offsetting the previous month’s expansion. Nevertheless, this was the subsector’s first decline in five months. Repair construction declined 0.3%. Meanwhile, engineering and other construction activities edged up 0.1%.

Advance estimate for real gross domestic product for June and the second quarter of 2023
Advance information indicates that real GDP decreased 0.2% in June. The decrease was driven by the wholesale trade and manufacturing sectors, whose downward movements more than offset the increases recorded in May. These decreases were partially offset by increases in oil and gas extraction as well as in the real estate and rental and leasing sector in June. Oil and gas extraction’s increase partially offset the decrease recorded in the previous month. This advance information indicates a 0.3% increase in real GDP by industry in the second quarter of 2023. Owing to their preliminary nature, these estimates will be updated on September 1, 2023, with the release of the official GDP data for June and the second quarter.

Source: Statistics Canada

U.S. Economic Growth Accelerates in Second Quarter; Weekly Jobless Claims Fall  

The U.S. economy grew faster than expected in the second quarter as a resilient labour market supported consumer spending, while businesses boosted investment in equipment and built more factories, potentially keeping a much-feared recession at bay.

Despite the broad-based acceleration in growth reported by the Commerce Department, inflation subsided considerably last quarter, with one of the key measures tracked by the Federal Reserve for its 2% target posting its slowest increase in more than two years.

Economists, some of whom have been forecasting a recession since 2022, believed the U.S. central bank’s fastest interest-rate hiking cycle since the 1980s was drawing to a close, though strong domestic demand could see it keeping borrowing costs higher and for longer. However, the Fed on raised its policy rate by 25 basis points to the 5.25% to 5.50% range on July 26.

Gross domestic product increased at a 2.4% annualized rate last quarter, the government said in its advance estimate of second-quarter GDP. The economy grew at a 2.0% pace in the January-March quarter. Economists polled by Reuters had forecast GDP would rise at a 1.8% rate in the April-June period.

The government’s measure of inflation in the economy, the price index for gross domestic purchases, rose at a 1.9% rate, the slowest in three years. This followed a 3.8% pace of increase in the first quarter.

Even more encouraging, the personal consumption expenditures price index (PCE), excluding food and energy, advanced at a 3.8% rate. That was the smallest gain since the first quarter of 2021 and was a slowdown from the 4.9% pace logged in the January-March quarter. The Fed watches the PCE price indexes for monetary policy.

Outside housing and manufacturing, the economy has largely weathered the 525 basis points in rate hikes from the Fed since March, 2022. Most economists are now confident the “soft landing” scenario – in which inflation falls, unemployment remains relatively low and a recession is avoided – is feasible.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 1.6% pace in the second quarter. Though the pace slowed from the first quarter’s robust 4.2% rate, it was enough to add more than a full percentage point to GDP growth.

Labour market tightness persisted early in the third quarter as companies hoard workers after struggling to find labour during the pandemic.

A separate report from the Labour Department showed initial claims for state unemployment benefits fell 7,000 to a seasonally adjusted 221,000 for the week ended July 22, the lowest level since February. Economists had forecast 235,000 claims for the latest week.

The number of people receiving benefits after an initial week of aid, a proxy for hiring, dropped 59,000 to 1.690 million during the week ending July 15, the lowest level since January. The historically low so-called continuing claims suggest some laid-off workers are quickly finding employment.

Last quarter, business investment accelerated after almost stalling in the January-March period as spending on equipment rebounded after two straight quarterly declines. There were increases in outlays on equipment such as aircraft, trucks, buses and truck trailers.

Government spending added to growth. Inventory investment provided a small lift, but trade was a drag after contributing to growth for four straight quarters.

Residential investment, which includes home building, contracted for the ninth straight quarter.

But headwinds remain. Wage growth is slowing as the employment gains cool. Higher borrowing costs could eventually make it harder for consumers, especially low-income households, to fund spending with debt. Banks are tightening credit and excess savings continue to be run down. “We still expect the economy to slow and enter a mild recession at the turn of the year,” said Daniel Vernazza, chief international economist at UniCredit in London.

Source: Globe and Mail