Canada's GDP expanded 0.3 percent in May, slightly less than Econoday's consensus expectation of 0.4 percent, but still an acceleration from April's upwardly revised 0.1 percent uptick. Stronger activity in services offset a contraction in goods-producing industries.

Economic activity is estimated to have contracted 0.2 percent in June, driven by weakness in the wholesale trade and manufacturing sectors after their robust showings in May. Statistics Canada's preliminary estimate points to a 0.3 percent GDP expansion in the second quarter.

GDP increased 1.9 percent year-over-year in May, up from 1.8 percent in April.

Services increased 0.5 percent in May after advancing 0.1 percent in April and being flat in March. By contrast, activity in goods-producing sectors contracted 0.3 percent, undoing the 0.3 percent gain recorded in April.

A 2.1 percent drop in energy, the first monthly decline in five months and the largest since August 2020, played a key role in the weakness in goods-producing industries. Energy was severely impacted by wildfires, which, in particular, weighed on operations in mining, quarrying and oil and gas extraction, where production fell 2.9 percent. Construction retreated 0.8 percent. By contrast, manufacturing expanded 1.6 percent after two flat months, with durables up 2.1 percent and non-durables up 1.0 percent. Easing semiconductor supply chain issues supported manufacturing activity.

Easing supply chain issues also boosted wholesale trade, where activity increased 2.9 percent, helping lift services. Services also benefitted from a 1.4 percent recovery in public administration as federal government workers who were on strike returned to work. Owing to demand for real estate in May, activity at the offices of real estate agents and brokers and activities related to real estate advanced for a fourth consecutive month. The largest declines were in management of companies and enterprises as well as accommodation and foods services.

With today's weaker-than-expected GDP, Econoday Consensus Divergence Index is within a zone consistent with a slightly underperforming economy, a welcome development for the Bank of Canada.

In its July Monetary Policy Report, the central bank revised up its projection for the second quarter annualized GDP growth rate to 1.5 percent from 1.0 percent for the second quarter.

After no change in April, GDP in May is expected to rise a solid 0.4 percent.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. In contrast to most industrialised countries a monthly estimate is provided derived from the value added by labour and capital in transforming inputs purchased from other producers into that industry's output. Data for the reference month are usually released close to the end of the second month after the reference period.

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.