Canadian economic growth came in flat on a month-on-month (m/m) basis in August, below Statistics Canada’s advanced estimate and market expectations of a mild 0.1% m/m gain. The flash estimate for September points to another month of zero growth.
August’s reading was mixed, with output expanding in 8 of 20 industries. Goods producing industries (-0.2% m/m) lagged the 0.1% m/m gain in the services sector.
On the goods side, mining, quarrying, and oil and gas extraction led the charge with growth of 1.2% m/m in August. The oil and gas subsector was up for a seventh time in eight months (+1.0% m/m). Offsetting this gain was a third consecutive monthly contraction in the manufacturing sector (-0.6%).
On the services side, wholesale trade advanced a healthy 2.3% m/m with the machinery, equipment and supplies subsector contributing most (+5.1% m/m). However a 2.2% slide in food services and drinking places pulled the accommodation and food services sector down 1.8% in August. Transportation and warehousing advanced by 0.8% m/m, led by water transportation (+4.2%) that recouped losses in July on the back of the BC Port Strike.
The advanced reading of flat growth in September was driven by declines in mining, quarrying, and oil and gas extraction and utilities, but was partially offset by increases in the construction and public sectors.
Key Implications
No real tricks in this GDP report, but it isn’t a treat either. “Essentially flat” is the theme for the third quarter, as growth in July, August and September are hovering around the zero growth line. Taken altogether, this presents a modest downside risk to the Bank of Canada’s recently revised 0.8% annualized growth forecast for the third quarter this year.
Higher interest rates are certainly doing their part to tamp down excess demand, and we continue to expect below-trend growth for the next couple of quarters. After holding the policy rate at 5.00% last week, the Bank of Canada (BoC) should feel confident that their rate hikes are working to pull the economy back into balance. That said, they have voiced their need to remain vigilant, especially as core inflation remains at uncomfortable levels. Employment and wages data later this week will be on watch, as this segment of the economy continues to show relative strength.
 basis in August, below Statistics Canada's advanced estimate and market expectations of a mild 0.1% m/m gain. The flash estimate for September points to another month of zero growth.){kind=link}