- Real GDP expanded 0.2% m/m in May, ahead of market expectations. 13 of 20 major industries saw output rise. With positive revisions to April’s already-solid report, growth has averaged roughly 0.4% over the last three months, the strongest pace in about two years.
- Goods producers led the way (+0.6% m/m) on solid gains in manufacturing (+1.2%) and construction (+0.9%). For manufacturing, part of the gain was the reversal of earlier, temporary production shutdowns in the motor vehicle industry. Conversely, gains in construction were broad-based, with Statistics Canada reporting gains in nearly all types of activity, most notably residential construction.
- Service sector growth was more muted, up just 0.1% month-on-month. Solid gains in real estate activity (+0.4%) and transportation (+1.0% on gains in rail shipments) were offset by drops in wholesale trade (-1.4%) and retail trade (-0.4%).
Key Implications
- Another one. Three solid monthly GDP reports underscore both the strength of the recovery following the weak start to the year, as well as its temporary nature. Continuing the recent theme, much of the strength in today’s report can be put down to two sectors (manufacturing and real estate) coming back to life after earlier setbacks.
- That said, a recovery is a recovery, and with upward revisions to the April report, we upgrade our second quarter GDP growth tracking again, to 3.0% annualized.
- By comparison, the Bank of Canada’s July Monetary Policy Report forecast Q2 growth of 2.3%. To be sure, this pace of growth is unlikely to be sustained, but the current backdrop should give the Bank of Canada some near-term comfort in ‘going it alone’ and holding the stance of monetary policy constant as its peers ease.
