Statistics Canada reports real GDP essentially unchanged in July

Canadian economic growth was stuck in neutral in July as the manufacturing sector pulled back for a second consecutive month. Statistics Canada reported that real gross domestic product was essentially unchanged for the first month of the third quarter, following a 0.2% decline in June.

The result came as services-producing industries gained 0.1% in the month, while goods-producing industries contracted 0.3%. With oil and gas excluded, the mining and quarrying sector increased 4.2% in July, while accommodation and food services gained 2.3%.

Real estate and rental and leasing edged up 0.1% in July, continuing growth since November 2022. Offsetting some of the growth were offices of real estate agents and brokers and activities related to real estate which fell by 1.3%, the first drop in six months. Interest rate hikes in both June and July may have deterred some buyers in the month. However, despite increasing activity in the majority of markets in July, declines in the Greater Toronto Area along with the Fraser Valley more than offset those increases.

Meanwhile, Statistics Canada said its early estimate for August pointed to an increase of 0.1% for the month with increases in the wholesale trade and finance and insurance sectors, partly offset by decreases in the retail trade and oil and gas extraction sectors.

“All told, assuming growth remains modest in September as the impact of high interest rates continues to bite, that leaves the Canadian economy on track for a flat-to-very low positive print for all of Q3,” BMO senior economist Robert Kavcic wrote. “Recall that the Bank of Canada had assumed 1.5% growth in the July monetary policy report, so we’re on pace to see another undershoot of the near-term forecast.”

The Bank of Canada kept its key interest rate target on hold in September, but said it was prepared to raise rates again if needed to bring inflation back to target. The central bank’s next interest rate announcement is set for Oct. 25 when it will also release its fall monetary policy report.

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

U.S. Economy Remains Resilient in Second Quarter; Labour Market Tight

The U.S. economy maintained a fairly solid pace of growth in the second quarter and activity appears to have accelerated this quarter, but a looming government shutdown and an ongoing strike by auto workers are dimming the outlook for the rest of 2023. Inflation also remains elevated and tight labour market conditions continue to prevail, with the number of Americans filing new claims for unemployment benefits rising slightly last week, the reports showed.

“The big news is not that nothing has changed, but that the economy remains resilient, inflation remains elevated and the Fed’s worst-case scenario, stagflation, has been avoided for now,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “Given how much the Fed has raised rates, it’s impressive that the economy is still growing at this pace.”

Gross domestic product increased at an unrevised 2.1% annualized rate in the second quarter, the government said in its third estimate of GDP for the April-June period. That was in line with economists’ expectations. A downgrade to growth in consumer spending to a lacklustre 0.8% rate from the previously reported 1.7% pace was offset by a sharp upward revision to business investment in factories amid a push by the Biden administration to bring semiconductor manufacturing back to the United States.

Households spent less on utilities and motor vehicle maintenance and repairs as well as on furnishings and long-lasting household equipment, clothing and footwear than previously estimated.

Growth for the first quarter was raised to a 2.2% rate from the previously reported 2.0 per cent pace. Since March 2022, the U.S. central bank has raised its benchmark overnight interest rate by 525 basis points to the current 5.25%-5.50% range.

Growth estimates for the July-September quarter are currently as high as a 4.9 per cent rate. Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. U.S. Treasury yields were mixed.

Bitter infighting among Republicans in the U.S. House of Representatives over spending, however, could lead to a government shutdown, sapping momentum in the fourth quarter. Goldman Sachs estimated that the shutdown would reduce fourth-quarter GDP growth by two-tenths of a percentage point for each week it lasts, though the per-week effect would depend on the duration of the shutdown.

Added to the impact of the shutdown is the United Auto Workers union strike against General Motors, Stellantis and Ford Motor, which is seen depressing motor vehicle production and raising automobile prices at a time when inflation is persistently higher. The personal consumption expenditures price index (PCE) excluding food and energy advanced at an unchanged 3.75% rate in the second quarter.

Beyond the anticipated temporary hits from the shutdown and auto strike, the labour market is expected to remain tight for some time. A second report from the Labor Department showed initial claims for state unemployment benefits rose 2,000 to a seasonally adjusted 204,000 for the week ended Sept. 23. Economists had forecast 215,000 claims for the latest week.

Claims have this month stayed in the lower end of their 194,000-265,000 range for 2023. The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 12,000 to a still-low 1.670 million during the week ending Sept. 16, the claims report showed.

The so-called continuing claims covered the period during which the government surveyed households for September’s unemployment rate. Continuing claims dipped between the August and September survey weeks. The unemployment rate increased to 3.8% in August from 3.5% in July.

“The job market is in good shape,” said Bill Adams, chief economist at Comerica in Dallas. “The unemployment rate’s increase in August is unlikely to be a warning of the economy weakening.”

Source: Globe and Mail