Weekly Economic Watch - August 05, 2013‏

Canada – This week we got further clues about last quarter’s economic performance. GDP grew 0.2% in May, matching our forecast, but was one tick lower than consensus expectations. The goods sector saw a 0.3% contraction in output after a 0.4% drop in the prior month. The 1.7% slump in the resources sector, the 0.4% drop in utilities output and flat construction output, more than offset the 0.3% advance in manufacturing. The services sector’s output rose 0.5% with gains in most subsectors
including retail (+1.8%) and wholesale (+1.4%), which more than offset the decline in transportation/warehousing (-0.3%).


Industrial production fell 0.5% for the second month in a row, not surprising given the drop in the resources sector. The slump in the oil and gas sector hurt the economy in May. Despite the softer-than-expected GDP results, Q2 GDP growth is shaping up to be close to 2% annualized, and that, even assuming a contraction of 0.3% in June — not our forecast, but just a suggestion that even after taking into account the Calgary floods and the strike in Quebec’s construction industry, Q2 growth was probably much stronger than the Bank of Canada’s latest forecast of 1% for the quarter. But the growth in Q2 happened courtesy of the services industry, with the goods sector treading water — with two months of data, industrial production is tracking a small contraction (-0.3% annualized) in the quarter.

United States – A data heavy week featured information about both the current quarter and the last one. GDP growth in Q2 came in at 1.7% annualized according to the BEA's advance estimate. That was above consensus expectations for a 1.0% expansion. However, growth was revised downwards sharply in Q1 to just 1.1% (from 1.8%). In the second quarter, there were contributions to growth from consumption spending (+1.8%), business investment (+4.6%), and housing (+13.4%), which more than offset the usual drag from government, and helping to support domestic demand. There was some inventory accumulation in the quarter, which contributed 0.4% to growth. Trade, however, was a net drag on Q2 economic activity removing 0.8% from economic growth. Real disposable income increased 3.4% while the savings rate rose to 4.5% in the quarter (from 4.0%). Note that there were revisions to prior years to reflect a new methodology. And after revisions, the US economy seems to be doing a bit better than first thought.

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