Against the backdrop of higher interest rates, inflation and forest fires, Canadian growth was flat again in August, showing less resilience than expected, as a 0.1 percent increase in services offset a 0.2 percent contraction in goods-producing industries. The last time monthly activity expanded was in May 2023, following a 0.1 percent contraction in April and after being flat in March.

In fact, real GDP was unchanged again in September based on preliminary estimates, which would translate into a flat GDP in the third quarter. In its October Monetary Policy report, the Bank of Canada projected a 0.8 percent annualized growth rate the third quarter, revised down from 1.5 percent. The economy is projected to expand at the same pace in the fourth quarter. Today's weaker-than-expected data combined with Econoday's Relative Performance Index are consistent with limited tightening risk in monetary policy.

Weakness was widespread in August, with activity increasing in only 8 of 20 industrial sectors, including a 1.2 percent expansion in mining, quarrying, and oil and gas extraction that turned into a contraction in September based on preliminary data. This sector was the only one to record positive growth within the goods-producing industries in August. Manufacturing fell 0.6 percent, with declines in both durable and nondurable manufacturing. Utilities decreased 1.0 percent, and agriculture, forestry, fishing and hunting fell 3.2 percent. Construction was flat after three months of declines. Overall, industrial production and energy were flat in August. In September, utilities continued to contract, while construction recovered, according to preliminary estimates.

Within services, which increased at a steady pace, wholesale trade was up 2.3 percent, including a 5.1 percent gain in machinery, equipment and supplies, the largest monthly increase since July 2020. Transportation and warehousing increased 0.8 percent. Finance and insurance rose 0.4 percent in a third consecutive monthly advance, led by financial investment services, funds, and other financial vehicles as market volatility boosted the value of traded volumes on financial markets. Public administration expanded 0.2 percent. Preliminary data point to an increase in the public sector in September. On the downside, retail trade contracted 0.7 percent in August.

After no change in July, monthly GDP in August is expected to rise 0.1 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.