October 16, 2020 | 08:55
BMO Business Activity Index (Aug 2020, Sep. Prel.) — Autumn Winds
BMO's Canadian Business Activity Index rose 2.6% in August, and is on pace for a 1.7% gain in September based on preliminary data, some real-time indicators and BMO Economics' forecasts. That would mark five consecutive months of growth from the pandemic low set in April, leaving the index 3% below February's peak. Looking at it another way, about 87% of the economic hole caused by the pandemic has been filled back up.
StatsCan's measure of monthly real GDP was down 4.9% from pre-COVID levels as of August, so the Business Activity Index (and supplementary measure that incorporates the public sector) was tracking the official recovery relatively well to that point.
Almost all indicators that make up the index continued to support the rebound in August. Hours worked posted another solid 2.9% gain as the job market recovery progresses. The upside-surprise in housing continued, with sales and starts both rising strongly in August, though momentum began to ebb in September. But, manufacturing sales fell after a strong run (we await August readings on wholesale and retail trade). Sentiment measures from the CFIB and equity market remained supportive, but business credit growth was soft again in August.
The Bottom Line: The Canadian economic recovery continues, with business activity improving again in August. But, momentum is fading, as suggested by some of the early September data, and we continue to believe the task of filling the remaining COVID hole will be much, much tougher than it was to this point. That is, some industries are still a long way from returning to any semblance of normal, while a second wave of cases is prompting some localized restrictions of activity as we head deeper into the fall.
Endnote: BMO’s Canadian Business Activity Index is compiled from ten monthly indicators, with supporting information from Statistics Canada’s preliminary estimates of a few monthly indicators and 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/
The supplementary measure used to track monthly real GDP is calculated using the weight of public-sector GDP (19.1% in 2019 using constant 2012 dollars) and the average monthly change in public-sector GDP from 2011 to 2019 (0.11%).