The Canadian economy expanded by 0.2% month/month (m/m) in January, matching Statistics Canada’s flash estimate. The flash estimate for February showed an even stronger gain of 0.8% m/m.
January’s increase in activity was mixed, with output expanding in 9 of the 20 industries. The goods-producing sector rose 0.8%, while the service-producing sector was flat at 0%.
Construction saw a noticeable jump (2.8%) this month, with residential building construction rising 4.3%. The report noted that “home alterations and improvements along with apartment-type construction (led) the way.”
Wholesale trade was also up on the month, as deliveries of machinery and equipment that feed the construction and commodity industries grew 5.5%.
The accommodation and food services sector was negatively impacted due to Omicron, resulting in a 11.5% drop on the month. Food services and drinking places and accommodation services were down 10.2% and 14.7%, respectively.
Key Implications
And another one! The hits just keep coming, with positive data serially exceeding expectations. Not only did Canada continue to grow through the January Omicron wave and associated lockdowns, but the flash estimate of 0.8% for February shows that the recovery from it is in full swing.
Combining this report with the February employment report further cements our view that the Bank of Canada is right to accelerate its hiking cycle and we look for a 50 basis point hike on April 13th.
Financial markets continue to look favourably on Canada, with Canadian yields above their U.S. counterparts, the TSX outperforming, and the loonie holding on to recent gains. Let the good times roll.
