Last week, we asserted that Canada's surprisingly strong May wholesale trade numbers augured a reacceleration for the overall economy after April's disappointing performance.
And according to the latest data from Statistics Canada (StatCan), the country's economy did just that. Gross domestic product (GDP) grew a seasonally adjusted 0.4 percent month over month in May, or 2.3 percent year over year, in line with the consensus forecast among economists. Also of note, this was the fifth consecutive monthly increase.
The service sector, which accounts for nearly 70 percent of GDP, climbed 0.4 percent, with 11 of 15 subsectors posting gains.
In addition to wholesale trade, real estate, which is the single largest subsector among services-producing industries, also delivered a strong performance, rising 0.6 percent month over month and 3.2 percent year over year.
To get a sense of where longer-term investment trends might be emerging, we like to look at which sectors boasted the strongest growth over the past year.
On a year-over-year basis, transportation and warehousing was the single strongest performer among services industries, with a rise of 4.0 percent. It also had a solid increase of 1.0 percent month over month in May.
StatCan notes that growth here was mainly driven by increases in rail and air transportation services. Canada's transportation industry is often a beneficiary of production and export activity from the resource and agricultural spaces.
The goods-producing sector, which accounts for about 30 percent of the economy, was up 0.5 percent in May, with gains reported in three out of five subsectors.
The strongest performer was the manufacturing sector, which rose 0.8 percent month over month following April's 0.2 percent decline. On a year-over-year basis, manufacturing is up 2.9 percent.
The Bank of Canada (BoC) is closely monitoring the country! 's manufacturing industry, particularly exporters. The central bank believes a rise in export activity from the country's beleaguered manufacturing sector will help the economy transition away from its dependence on consumer spending and kick off a virtuous cycle of business investment and job creation.
Although the industry's year-over-year growth of 2.9 percent doesn't sound all that impressive, it was actually the second-fastest pace among the five goods-producing subsectors.
According to StatCan, durable-goods manufacturing grew 0.9 percent, largely thanks to a 13 percent jump in motor vehicle production. And non-durable goods manufacturing grew 0.7 percent, with notable gains in the manufacturing of chemical, petroleum, and coal products.
Given Canada's resource riches, it should come as no surprise that the next strongest performer among goods-producing industries was the mining, quarrying, and oil and gas extraction category, which climbed 0.7 percent month over month. The industry had previously dropped by a revised 0.3 percent in April, owing to the idling of a number of refineries for maintenance.
StatCan observed that oil and gas extraction advanced 0.7 percent, due to increases in both crude oil and natural gas production. And support for mining and oil and gas extraction rose 4.3 percent, as the result of greater drilling and rigging activity.
And on a year-over-year basis, the resource space grew 9.6 percent, the single strongest gain by far among all of Canada's industries, regardless of the sector of the economy in which they operate.
We're pleased with the economy's overall performance, especially since economists with CIBC World Markets note that the April and May numbers put the economy on track to meet the BoC's forecast of 2.5 percent growth for the second quarter.
That's the minimum growth threshold the bank previously cited as necessary to remove excess capacity from the economy. And it would also be a significant th! ree-tenth! s of a percentage point better than the current consensus among private-sector economists, according to data aggregated by Bloomberg.
Canada also got good news from its neighbor to the south. The US Bureau of Labor Statistics reported that US second-quarter GDP grew at a stronger-than-expected 4.0 percent annualized, a full percentage point better than forecast, based on economists surveyed by Bloomberg. Given that the US absorbs roughly three-quarters of Canada's exports, a resurgent US economy will flow through to Canada as well.
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