CA: Monthly GDP

Fri Jul 31 07:30:00 CDT 2015

Consensus Actual Previous
Month over Month 0.0% -0.2% -0.1%
Year over Year 0.5% 1.2%

Still suffering the fallout from the collapse in energy prices, the Canadian economy continued to struggle in May. Real GDP shrank for a fifth consecutive month, this time by a surprisingly sharp 0.2 percent to reduce annual growth from 1.2 percent in April to just 0.5 percent, its weakest print since December 2009.

Inevitably the main area if weakness was goods production which decreased a further 0.6 percent after dropping 1.0 percent and 0.8 percent in March and April respectively. Manufacturing tumbled some 1.7 percent, mining, quarrying and oil and gas extraction declined 0.7 percent and utilities were down 1.4 percent. Construction at least climbed 1.0 percent and agriculture, forestry, fishing and hunting rose 0.2 percent.

Meantime, services dipped 0.1 percent, largely reflecting a 1.0 percent reversal in wholesale trade although educational services (minus 0.4 percent) as well as management of companies and enterprises, finance and insurance and transportation and warehousing (all minus 0.3 percent) also performed poorly. Only accommodation and food services (0.9 percent) and retail trade (0.5 percent) showed rises of 0.5 percent or more.

May's contraction leaves the economy comfortably course to fall back into technical recession last quarter. An implausibly large 1.1 percent monthly increase in real GDP is needed just for economic activity to match its first quarter level. Earlier this month the BoC forecast a 0.5 percent (saar) second quarter contraction so confirmation that recession has arrived would come as no surprise to the monetary authority. However, without signs of a return to positive growth this quarter (the BoC expects 1.5 percent), another round of rate cuts could be on the cards.

Gross domestic product by industry is the value added by labor and capital in transforming inputs purchased from other producers into that industry's output. Monthly GDP consists of chained volume estimates with 2007 as the reference year. This means that the data for each industry and each aggregate are obtained from a chained volume index multiplied by the industry's value added in 2007.

Instead of producing an advanced quarterly GDP figure and revising it the following two months, Statistics Canada releases monthly estimates of real GDP at Basic Prices. This release breaks down real output by seven goods-producing industries and twelve service-producing industries, and includes special aggregations such as business sector, non-business sector, and industrial production.

The sources of data used for monthly and quarterly estimates often differ and leads to very different estimates for certain items, such as price deflators. As a result, the monthly figures are not perfectly correlated with the quarterly numbers. However, the monthly data do give some idea of where the quarter is headed and especially in an uncertain environment, they are closely watched. While industrial production is closely watched in the U.S., it is not in Canada especially since the economy has become increasingly dominated by services. However, the goods sector is more vulnerable to wide swings in output compared to services, and exports remain dominated by industrial output.