The state of Canada's economy will be updated when monthly gross domestic product (GDP) for April and May arrive on Friday, at 8:30 a.m. ET, noted Scotiabank.
April should post solid growth, but May is an open question, said the bank.
Statistics Canada had guided on May 31 that April GDP was tracking an estimated 0.3% m/m seasonally adjusted (SA) gain. Scotiabank has estimated a similar rise of 0.4% m/m SA based on a combination of standard macroeconomic indicators skewed toward the goods side of the economy and alt-data tracking for the services side of the economy.
StatsCan guidance for April on May 31 indicated that growth was driven by "increases in manufacturing, mining, quarrying, and oil and gas extraction and wholesale trade," and these gains were partially offset by utilities.
May GDP is much more uncertain but limited evidence so far suggests that little growth may be posted, stated the bank. Hours worked were flat which matters since GDP is an identity defined as hours times labor productivity. Housing starts jumped 10% m/m higher, but entirely due to volatile multiples as single-family detached housing starts were flat.
If these estimates are close to reality, then Q2 GDP growth could be tracking around 2% q/q seasonally adjusted annual rate (SAAR), estimated Scotiabank.
The Canadian economy is stronger under the hood than the GDP numbers suggest. Scotiabank maintains that view that stands in contrast to how the Bank of Canada (BoC) views things.
Q1 GDP growth of 1.7% q/q SAAR lost 1.5 percentage points due to inventory drag that has plagued the readings about the past six quarters, while consumer spending was up by 3% q/q SAAR in volume terms for each of the latest two quarters. Measures like retail sales -- which in Canada exclude all services -- understate the strength of the consumer.
Last year's GDP softness was partly about tighter monetary policy, but also messed up by wildfires and labor strikes that resulted in a large loss of hours worked and associated production, added the bank.
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