Overall economic activity edged higher in April, up 0.1% month-on-month, beating expectations for a pause. Outsized declines in a few key sectors constrained the pace of expansion, which nevertheless showed decent breadth as 15 of the 20 major industries expanded output during the month.
Goods-producers led the way higher in April. Manufacturing rose 0.8% as the bulk of subsectors saw expansion, including, notably, a 2.8% gain in machinery manufacturing output. Utilities output was up 1.6%, reflecting colder-than-typical weather that included an ice storm in a number of provinces. Construction activity was also hit, down -0.5%.
Weather effects also appear to have hit the service sector. Overall output was up just a tick, still good to generate a 25th straight month of expansion. Activity was held back by retail trade (-1.3%), led, according to Statistics Canada, by declines at stores ‘associated with springtime activities’. Weather was also seen as impacting accommodation and food services (-0.4%).
Statistics Canada reported an increase of activity at the offices of real estate agents and brokers (+0.5%), the first expansion of 2018 after mortgage rule changes slowed activity through the first three months.
Key Implications
Another pleasant surprise. With cold weather in much of the country, one-off factors hitting the mining and oil and gas industries, and some soft advance indicators, it was a welcome surprise to see a modest expansion of the Canadian economy in April.
What’s more, to the extent that weather played a role in holding back growth, we should see an acceleration in May as this factor reverses. All told, we remain comfortable with our second quarter growth tracking of 2.4% (annualized) – a solidly above-trend figure that is welcome after the soft start to the year.
It is worth noting that our tracking isn’t that far off the Bank of Canada’s expectation in April of 2.5%. The details will probably be seen as encouraging, notably the expansion of machinery manufacturing and the return to growth at real estate agents and brokers offices. This is of course a backwards-looking report, and the Business Outlook Survey due at 10:30 this morning will likely be a significant factor in the Bank’s deliberations ahead of the July 11th interest rate decision.
