Economic output roared higher in May, up 0.5% month-on-month. The climb was broad-based, as 19 of 20 major industries expanded on the month.
The goods-producing industries led the way, up 0.6%. The conclusion of some shut-downs in the oil and gas sector helped drive a 1.8% advance, while construction (+0.7%) rebounded after two months of weakness. Utilities output was down 2.4% as weather improved – the only major industry to contract in May.
Services also performed well. Notable strength was seen in retail trade (+2.0%, rebounding from a soft April), wholesale trade (+1.4%), and professional services (+0.5%). Notably, even beyond these major contributors, all of the major service industries saw output rise – the first time this has happened since 2005.
Key Implications
Nice! The Canadian economy truly thawed in May, as maintenance- and weather-related softness was truly shaken off in an impressive monthly performance. Most encouraging is that although much of the gain was driven by one-offs (i.e. oil and gas, retail sales), the expansion had impressive breadth – this was the broadest monthly expansion since the summer of 2004.
The solid May data send our already healthy second quarter growth tracking a shade higher, to 3.1%, a bit above our initial expectations and a welcome re-acceleration after a soft start to the year. It is unlikely that this pace will be sustained however. Just as the recovery from one-off shocks sent activity higher, further negative shocks will help swing the pendulum back in the other direction. Production outages in the energy sector and potential tariff impacts should act as headwinds to growth in the coming months, holding the pace of growth to a more sustainable 1.5% to 2% range over the latter part of the year and into 2019.
For the Bank of Canada, it is unlikely that today’s data alters their narrative – they, like us, had already penciled in a robust Q2. Clearly then, while it may not be right around the corner, so long as the Canadian economy continues to evolve in line with their expectations, more monetary tightening will be forthcoming.
