* July 2013 gross domestic product (GDP) rose a stronger than expected 0.6% in the month, which more than reverses the 0.5% drop in June.
* A recovery from the Quebec construction strike and a rebound in manufacturing helped send production in goods-producing industries up 1.2% in the month following a 0.9% decline in June.
* Output in service-producing industries rose 0.3% following a 0.3% decline the previous month.
July 2013 GDP rose a strong 0.6% in the month that more than reversed the 0.5% drop in June. The July increase was slightly stronger than the 0.5% gain expected.
Expectations of a solid increase in July were premised on the assumption of a reversal of a number of special factors such as the construction strike in Quebec and the flooding in Alberta. The former was clearly evident with construction output rising 1.9% after a 2.1% drop in June, as easing in the flooding may have contributed to the mining, oil and gas extraction rising 1.4% in July after flat output in June. The strike and the flooding may have partially accounted for manufacturing activity dropping 1.0% in June with July activity rebounding 1.1%. Strength in these areas resulted in output in goods-producing industries rising 1.2%, which more than reversed the 0.9% decline in June.
Output in service-producing industries rose 0.3% following a 0.3% decline in June. The increase in July was helped by gains in wholesale and retail sales of 1.6% and 0.6%, respectively, that followed declines of 2.6% and 1.4% in June. These increases helped offset small declines in educational services (0.2%), public administration (0.1%), and transportation and warehousing (0.1%). The latter sector was expected to show greater strength because the 0.6% drop recorded in June was thought in part to be the result of the flooding in Alberta limiting the shipment of various energy-related products.
Today’s GDP report confirmed expectations of a recovery from the temporary negative effect of the flooding in Alberta and a construction strike in Quebec that weighed on economic activity in June. This recovery is expected to continue in August, particularly the rebuilding in Alberta, that will keep GDP growing in that month although at a more moderate pace relative to July. The bounce higher in July, however, was not as strong as we had assumed and thus suggests third-quarter 2013 growth closer to 3% relative to our current forecasted increase of 3.4%. This revised growth estimate still represents a marked strengthening from the 1.7% increase recorded in the second quarter of 2013 and implies growth slightly above potential on average during the two quarters. The maintenance of above-potential growth going forward is expected to result in the Bank of Canada resuming its tightening in mid-2014.
RBC