- August 2013 gross domestic product (GDP) rose 0.3% relative to expectations of a 0.1% gain in the month.
- The increase built further onto the strong, and unrevised, 0.6% gain in July thus more than reversing the 0.5% drop in June.
- The overall increase reflected strength in both goods-producing industries, which were up 0.4%, and service-producing sectors, which were up 0.3%.
August 2013 GDP rose a strong 0.3% and compared to market expectations of only a 0.1% gain in the month. The increase built further onto the strong, and unrevised, 0.6% gain in July thus more that reversing the 0.5% drop in June. A large component of the weakness in June reflected the temporary effect of the Alberta floods and a construction strike in Quebec. The rise in July and August reflected a more than full reversal of these negative factors.
The increase in the month reflected strength in both goods-producing and service-producing industries with the former slightly outpacing the latter 0.4% compared to 0.3%. The gain in goods-producing industries was led by a 1.9% jump in the mining, oil, and gas extraction component following a 1.5% jump in July. This likely in part reflects a continued recovery in the energy sector after the flooding in Alberta weighed on activity in June. There was also a strong 0.8% rise in the agriculture-related component that reflected a very strong harvest this year in both Saskatchewan and Manitoba. These increases helped offset a 0.3% drop in manufacturing activity. Construction was surprisingly flat in the month. Although this component rose 2.1% in July, that just reversed a 2.1% decrease in June.
The 0.3% gain in service-producing industries reflected widespread increases in a number of components. The increase was led by a 1.3% increase in accommodation and food services and a 0.7% rise in the management-services component. Statistics Canada attributed the increase in the former to “an increase in the number of overnight travellers to Canada.”
The more than full reversal in August and July of the decline in June GDP sets up for the third-quarter 2013 annualized growth rate bouncing up to an above-potential 2.8% from the second quarter’s below-potential 1.7%. The expected third-quarter 2013 increase would be well above the Bank of Canada’s forecast of 1.8% that was released in the October 23, 2013, Monetary Policy Report. If realized, however, it is not expected to result in any immediate change to the inflation backdrop with both the headline and core rates holding in the lower end of the Bank of Canada’s target in the third quarter. Against this backdrop, the central bank signalled less urgency to boost the overnight rate by dropping its so called tightening bias at the last policy meeting. Any re-introduction of the tightening bias by the Bank of Canada would also likely await clearer signs of the ‘fiscal headwinds’ dissipating in the US that otherwise pose a risk of weighing on confidence among Canadian firms. There has recently been some temporary easing of these headwinds although more the result of deadlines for US fiscal action being pushed further into the future rather than being met.
RBC