Economic activity rose 0.2% month-on-month in July. Gains were relatively concentrated as 12 of 20 major industries increased their output during the month.
Both the goods and services producing sides of the economy advanced. On the goods side (+0.3% m/m), manufacturers led the charge, up 1.2%. Non-durables manufacturing roared ahead 2.4% in the wake of earlier maintenance shutdowns, while durables output rose 0.3% in July. One weak spot was mining, quarrying and oil and gas (-0.3%), where a back-to-back drop in oil and gas extraction held activity back, owing largely to a disruption at a major facility.
On the services side (+0.2% m/m), wholesale trade (+1.4%) and transportation (+0.9%) topped the growth charts. The recovery in housing activity continues to make itself felt via real estate agents and brokers – the 1.0% climb in this subsector helped drive a 0.3% monthly climb in the broader real estate, rental and leasing sector.
Key Implications
Not too shabby. Economic growth may be set to moderate after the second quarter’s impressive performance, but we still look set for another above-trend quarter. Today’s data gives us more confidence in our above-consensus tracking of 2.4% for Q3 growth (Q/Q, annualized).
If there is a weak point in today’s release, it is the lack of breadth. Much of the gain can be put down to a handful of sectors, with performances in utilities and manufacturing unlikely to be repeated. On the flip side, the resumption of activity in the oil and gas sector should provide a decent backing for further growth over the remainder of the summer. Long story short, we are once again seeing decent fundamentals masked by idiosyncratic (but positive) surprises.
With both growth and inflation set to outpace the Bank of Canada’s expectations, unless we see a significant setback on NAFTA or a serious deterioration in the Business Outlook Survey, another policy interest rate increase at the October 24th decision remains a safe bet.
