April 30, 2021 | 09:07
Can't Keep a Good Economy Down (for long)
Canadian real GDP rose 0.4% in February, just a tick shy of the initial flash estimate, but in line with our call. More notable, StatsCan's first pass at March points to a strong 0.9% gain. If that estimate holds, then all of Q1 will have risen at a 6-1/2% annual rate (we were previously estimating a 6.0% rise). Recall that the U.S. economy rose at a similar 6.4% clip in Q1. So, even with much more forceful restrictions, a slower vaccine roll-out, and without the help of the two mega U.S. stimulus packages at the start of the year, somehow the Canadian economy matched the U.S. step for step through the winter months. That is impressive.
While few details were offered on the robust March gain, we already have early strong reads from each of manufacturing, retail, and wholesale trade, as well as a big bump in jobs, home sales and a blow-out housing starts report. However, as much as March rocked, we also already know that April faced heavy new restrictions, and likely took a step back. (Next week's employment report will provide the first taste of that.) Still, the solid performance of many sectors through the winter suggest that any setback in April will likely be quickly recouped in future months.
For February, the decent gain was led by a powerful jump in retail activity (+4.5%) as various regions re-opened. Construction is also on a tear—obviously led by the torrid housing market—with activity now up from a year ago in this highly cyclical sector. For the overall economy, GDP in February was still down 2.2% from the pre-pandemic peak it reached precisely a year earlier. (March's estimated rise will cut that to just a 1.3% shortfall.) One clunker in the month was the resource sector, which fell 2.8%, and was reportedly soft again in March. However, given blazing commodity prices, this group is likely to provide some serious support in coming months.
Bottom Line: Perhaps the most notable aspects of today's report are the initial robust reads for March and Q1 as a whole. While neither are especially surprising, the point is that the GDP results keep landing on the high side of expectations. We will stick with our call of flat activity for the locked-down Q2, and 6.0% for all of 2021, but suspect that the risks lie to the high side of these calls, not the low side. Let's put it this way—the Bank of Canada's top-of-the-class 6.5% growth forecast for this year doesn't look at all unreasonable.