February 22, 2021 | 11:32
BMO Business Activity Index (Jan. 2021) — Real Resilience
BMO's Canadian Business Activity Index shrugged off plunging retail activity and a big drop in jobs by rising 1.0% in January, based on available data and some preliminary estimates. That marks an improvement from the 0.6% advance in December. Another sizzling month in the housing market, improving business confidence, and a surprising burst higher in wholesale trade (Statistics Canada's flash estimate is 5.3% for January), helped propel the BAI higher. While the jump in the jobless rate pointed to slowing activity, total hours worked actually increased 0.9%. However, the dissonance among labour market indicators and the estimated 3.3% decline in retail sales suggest that GDP may still contract in January, despite the resilience of many parts of the economy.
The Bottom Line: While we still expect the economy to stall in Q1, the BAI highlights the upside risks to the forecast. The pace of the recovery remains well below the highs from last spring and summer, but with vaccinations set to accelerate over the coming months, we should see a return to much stronger growth later in the year. Activity in sectors little impacted by the pandemic will power the Canadian economy to grow 5% in 2021.
Endnote: BMO’s Canadian Business Activity Index is compiled from ten monthly indicators, with supporting information from Statistics Canada’s preliminary estimates of some indicators, as well as high-frequency data on retail mobility and internal credit card transactions. For more details see, https://economics.bmo.com/en/publications/detail/82f74b6c-fabf-4733-b4d4-33c50adf0d3b/
Re-estimation of the component weights led to an upward revision of the index level in the October 2020 release.