Posted on September 30, 2016

July Rebound in Canadian Economy

Real Gross Domestic Product (GDP) in July was expected to continue its rebound from May’s steep, wildfire-driven decline, but the 0.5% monthly gain was better than many analysts had expected. The key driver was higher output in the mining, quarrying and oil and gas extraction sector. The rise in July followed a 0.6% increase in June, which had essentially offset an equivalent decline in May, which followed four back-to-back monthly declines. The non-conventional oil extraction industry grew 19%, as production returned to normal levels following maintenance shutdowns in April and the Fort McMurray wildfire and evacuation in May. Conventional oil and gas extraction rose 0.6%.

Mining excluding oil and gas extraction fell 3.1%, on the heels of a 2.4% gain in June. Mining of “other” non-metallic minerals (such as diamonds and potash) decreased 10% in July, mostly as a result of a diamond mine closure in the Northwest Territories for repairs following a fire in June. Metallic mineral mining also declined, while coal mining increased.

Support activities for mining and oil and gas extraction fell for the sixth month in a row in July, declining 6.9% because of lower activity in rigging and drilling services.

Manufacturing output rose 0.4% in July, as the gain in non-durable goods more than offset a decline in durable goods production. Leading the way was a sharp rise in output from chemical manufacturing, mostly petrochemicals, and pharmaceuticals and medicines. Food manufacturing rose 2.1%, as most industry groups recorded increases. There were declines in printing and related support activities, and beverage and tobacco manufacturing.

Durable goods manufacturing fell 1.4% in July, with most industry sub sectors posting decreases. Transportation equipment manufacturing was down 1.5%, primarily reflecting lower output by manufacturers of motor vehicles and parts, and aerospace products and parts. Computer and electronic products manufacturing rose for the second month in a row.

On the service sector side, finance and insurance grew 0.9% in July, its highest monthly growth since January 2016, owing to financial investment services and, to a lesser extent, banking services.

Retail trade increased, but not enough to offset the decline in June. There was increased activity at clothing and clothing accessories stores, building material and garden equipment supplies dealers, and general merchandise stores (which include department stores). Food and beverage stores recorded the largest decrease. Wholesale trade edged up only moderately.

Construction Declined in July

Construction declined for the fourth consecutive month in July. Residential building, engineering and repair construction decreased, while non-residential building construction was essentially unchanged.

The real estate and rental and leasing sector increased 0.2% in July. The output of lessors of real estate rose 0.2%. Real estate agents and brokers posted their third consecutive monthly decline, down 1.0% in July as home resale activity decreased. This is further evidence of a slowdown in housing, confirmed by more timely data, particularly in Vancouver.

Tourism remained strong as accommodation and food services increased 1.4% in July–their strongest growth in four years. The number of travellers to Canada rose 2.3% in July, the highest monthly growth rate since June 2015. Tourism has been a major force boosting growth in British Columbia. A weak Canadian dollar has lured many Americans to Canada.

Utilities built on June’s large increase, as July was even hotter.

Bottom Line: These data confirm that we went into the third quarter on a stronger footing. Following the dismal GDP contraction of 1.6% (annual rate) last quarter, we expect Q3 growth to rebound to about 3.0% at an annual rate.