The Canadian economy expanded by 0.4% month-on-month in August, below the consensus call for 0.7%. This left GDP around 1.5% below its pre-pandemic (February 2020) level.
In addition to August GDP, Statistics Canada released a flash estimate for September, which showed no change in output for the month.
By industry, services-producing industries once again led the way, growing 0.6%. Meanwhile, goods-producing sectors saw output decline by 0.1% in August. Reopening of the economy helped drive gains in the accommodation and food services industry (+7.0%). Likewise, loosening constraints on capacity fueled growth in the arts, entertainment and recreation sector (+6.4%). Air travel (+24.2%) also saw huge gains as many Canadians ventured out for the first time in months.
On the goods side, extreme weather continued to weigh on production in the agriculture, forestry, finish and hunting sector (-5.7%). On the flipside, manufacturing output rose 0.5% after suffering a steep contraction in July. Non-durable goods manufacturing (+1.0%) drove the improvement, while durable goods production was nearly flat (+0.1%). Supply shortages continued to weaken transportation equipment manufacturing (-1.7%).
Key Implications
It was a solid August for the Canadian economy. With public health restrictions less stringent and COVID-19 better contained in most parts of the country, economic activity ramped up during the month. Particularly, consumers continued to unleash pent-up demand for dining at restaurants, travel, and other recreation and entertainment activities. GDP is inching closer to pre-pandemic levels.
This last leg of the recovery could prove to be the most challenging. Global supply-chain disruptions and labour market imbalances could crimp output across sectors. Already, auto production is taking a hit due to semiconductor shortages, and some retail businesses are operating at reduced hours due to inadequate staffing levels. These reasons are likely the driving forces behind Statistics Canada’s disappointing September flash GDP estimate.
Including the advance figure for September, GDP is on track to only rise by around 2.0% annualized in the third quarter. With supply constraints expected to continue to weigh on the economy through the fourth quarter, output may fall well short of the Bank of Canada’s projection as laid out in the October Monetary Policy Report released earlier this week. Indeed, with today’s release, the Bank may need to, once again, adjust its narrative on the Canadian economy.
