- The Canadian economy notched up its seventh straight monthly expansion in May, growing an impressive 0.6% month-on-month.
- Growth was again broad based, with 14 of 20 major industries expanding on the month.
- The goods-producing side of the economy tore ahead, growing 1.6% month-on-month. Leading the way was mining and quarrying (+4.6%), as a major oil facility came back online following a shutdown earlier, and conventional extraction saw robust growth. Canadian manufacturing expanded 1.1% on broad-based sub-sector strength, more than offsetting last month’s declines. The fly in the ointment was construction, which fell for a second month (-0.6%), attributed in part to a strike among Quebec workers.
- While less exciting, the services-producing industries remained reliable, notching up a 0.2% gain in its 21st straight monthly expansion. Leading the way were retail trade (+0.9%), finance and insurance (+0.9%), and wholesale trade (+0.7%). The impact of changes to real estate market regulations in Ontario could be seen in the real estate/rental and leasing sector , which declined 0.2% in May, the largest decline seen since mid-2010.
Key Implications
- There appears to be no holding back the Canadian economy, at least for now. Making a robust GDP print even more impressive was that those sectors that did decline did so either due to government policy (real estate), normalization after a robust April (arts and entertainment), or one-off factors (construction), suggesting an even healthier underlying signal.
- May’s solid report continues a string of encouraging economic data, and suggests that the Canadian economy likely saw its strongest first half performance since at least 2004 (Current Q2 tracking: 3.8%).
- The near-term robustness of the Canadian economy will likely allow the Bank of Canada to carry through with another interest rate increase this fall, completing the removal of the 2015 emergency stimulus, and consistent with the rapid change in their communication tone.
- Beyond the near-term, a return to a more cautious communication strategy and pace of interest rate increases is expected in light of the headwinds facing Canada, and evidence suggesting that recent economic strength may not translate as meaningfully into inflationary pressures relative to historic experience.
