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Canadian GDP Up 0.2% In July

ByThe National Bank of Canada
Published 09/30/2012, 04:50 AM
Updated 05/14/2017, 06:45 AM
BIG
-0.99%
FTNMX551030
0.63%
FACTS:

Real GDP rose 0.2% in July, after increasing 0.1% in June (revised down from 0.2%). The goods sector was up 0.2%, after remaining unchanged the month before. Among good producing sectors, utilities (+2.0%) and manufacturing (+0.6%) were the top performers while mining and oil and gas extraction (- 0.3%) and construction (-0,1%) lagged.

Industrial production was up 0.4% after a 0.2% decline in June. Production in both durable manufacturing (+0.7%) and non-durable (+0.6%) experienced strong progression. The services sector also expanded 0.2% driven by retail trade (+0.6%), accommodation & food services (+0.5%) and finance and insurance (+0.5%) which more than offset declines in other services (-0.5%) and public administration (-0.1%).
Canadian GDP up in July
Manufacturing sector surprised on the upside
Below for a fourth consecutive quarter
OPINION: The big surprise in this morning's GDP report is the outsized contribution of manufacturing activity. Do not extrapolate this performance into the future as we already know that the production has probably led to an inventory overhang in light of declining real shipments (down a whopping 2% in July!). As a result, we already have indications that firms are cutting back on production with manufacturing jobs having declined for a third month in a row in August.

This development combined with slowing activity in construction points to declining production in the goods sector. Fortunately, we can expect a rebound in mining and oil and gas extraction in August and consumer spending should somewhat support growth in Q3 on the back of decent wage gains lately. Based on this morning's report and given the recent trends in labour markets, (which includes August data), we are still comfortable with our GDP forecast of +1.5% in Q3 (see graph below). This is slightly below the Bank of Canada's estimate of 2%.

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