The Canadian economy expanded by 0.1% month/month (m/m) in August, beating Statistics Canada’s flash estimate of no growth. The flash estimate for September showed a 0.1% gain.
August’s increase in activity was relatively broad, with output expanding in 14 of the 20 industries. The service-producing sector rose by 0.3%, while the goods-producing sector declined 0.3%.
Retail activity rose on the month, with Canadians hitting the road for end of summer trips. Sales at gasoline stations increased by 6.9%, while sales at food and beverage stores saw a 1.3% gain.
Wholesale trade also grew by 0.9%, with machinery and equipment sales rising on the back of the ongoing “construction of a new liquefied natural gas terminal in British Columbia.”
Showing weakness was construction, down 0.7%, as “residential building construction was down for the fourth time in five months, contracting 0.7% in August, in large part due to lower activity in new construction of single-detached homes, row units and apartments.”
Key Implications
Though today’s data release was encouraging, the overarching narrative of a decelerating Canadian economy hasn’t changed. Given high inflation and the lagged impact of higher interest rates, we are seeing the effect of this in the goods sector and expect to see the same in the service side going forward.
The Bank of Canada decided to slow its pace of rate hikes on Wednesday as it believes a slowing in economic growth is forthcoming. Though this is starting to show up in the data, we think the BoC will need to continue to raise its policy rate to 4.25% in order to achieve the deceleration that is sufficient to bring down inflation.
