Highlights:
- Canadian Q1/18 GDP rose 1.3%, less than the 1.9% expected by markets but with a more solid composition.
- Q1 GDP weakness was entirely concentrated in a 0.2% drop in January output. GDP rose 0.4% in February and 0.3% in March, leaving stronger momentum going into the second quarter.
- Final domestic demand rose 2.1%, led by a big 10.9% jump in business investment.
Our Take:
The 1.3% increase in GDP in Q1 was a bit softer-than-expected — both by markets and the Bank of Canada who it turns out could have stuck with their 1.3% call from January rather than hinting at some upside risk in yesterday’s policy rate announcement. Notwithstanding the headline miss, though, details were relatively solid. On a monthly basis, weakness was concentrated in January with March output rising 0.3% after a 0.4% February gain to leave stronger momentum entering the second quarter. Final domestic demand rose a solid 2.1% in Q1, led by a big 10.9% jump in business investment. Residential investment fell 7.2%, but that was expected given the big drop in home resales earlier this year. Consumer spending rose just 1.1% on a quarter-over-quarter basis but was still up almost 3% from a year ago. Net trade was the main drag on growth but largely because all of that domestic demand growth boosted imports which more than offset an unexpected (albeit still modest) export rise.
If there was a soft spot, it was perhaps on some of the wage measures released today. The national accounts data alongside the March ’SEPH’ employment earnings numbers also out this morning left the Bank of Canada’s closely-watched ’wage-common’ measure of wage growth tracking closer to 2 1/2% by our count than the 3% pace we were tracking ahead of today’s release. The broader trend nonetheless remains upward. BoC Deputy Governor Leduc’s speech later today may give some hints about how today’s releases impact the Bank’s thinking, but in general it looks like there is enough good in today’s data to leave a July rate hike in play after yesterday’s no-change decision.
