Canadian GDP Edged Up 0.1% In May

Real GDP rose 0.1% in May, after increasing 0.3% in April (top chart). Activity remained essentially unchanged in the goods producing sector (0.0%) after jumping 0.7% in the previous month. Among good producing sectors, mining & oil & gas extraction (+0.6%) was the top performer while manufacturing (-0.5%) and construction (-0.2%) lagged. Industrial production was up 0.1% after a 0.9% increase in April. Production in both durable manufacturing (-0.6%) and non-durable (-0.3%) experienced pullbacks. Energy production was up (+0.3%), following a 1.3% increase a month earlier. In the service sector activity was up for a 13th consecutive month (+0.1%). Retail trade (+0.7%) and accommodation and food services (+0.6%) posted the largest advance while Arts, entertainment & recreation (-1.7%) and transportation & warehousing (-0.5%) lagged within this group.

OPINION: Canadian GDP numbers were slightly below consensus expecting a 0.2% growth in May. Mining & oil & gas extraction posted a strong performance but that was offset by pullbacks in construction and manufacturing sectors. The services sector, which has posted a modest 0.1 % advance for a third month in a row, has not been a significant source of growth recently. As a result of May’s results, Q2 GDP is tracking 1.4%, in line with the increase in total hours worked (middle chart). Assuming a 0.2% expansion in June, growth could only be slightly above the 1.5% lackluster growth observed south of the border. Thus, this morning’s report confirmed that the Canadian economy is not immunize against what seems to be a worldwide synchronized soft patch. As a result, economic growth in Canada should be below 2% for a third consecutive quarter. Since the beginning of the year, the manufacturing and transportation & warehousing sectors have stalled. Moreover, retail trade, despite this month rebound, remains below its last November level. Those three sectors account for more than 20% of Canadian GDP (bottom chart).