July 23, 2021 | 09:54
BMO Business Activity Index (June 2021) — Reopening
BMO's Canadian Business Activity Index (BAI) suggests that the economy was heating up following the lifting of restrictions, rising 0.9% in June. That is more than double the pace in May (0.4%), which was revised lower based on weaker than expected manufacturing sales. However, with many provinces partially lifting public health restrictions in June, activity noticeably accelerated. Real-time data on restaurant activity from OpenTable improved markedly in the month, rising to a 7-day moving average of -53% versus 2019, compared to -87% in May. StatCan's flash estimate for retail sales reflects that turnaround, as sales in June are expected to rise 4.4%. Households continue to be eager to spend where they can, and in the two largest provinces that meant patios for the first time this year. Manufacturing sales are also expected to rebound in June based on the +1.9% flash estimate from StatCan. That largely signals improving activity in the transportation equipment space, which continues to recover from semiconductor shortages. Small business confidence hit its highest level in a decade in June. The strong sentiment reading is supported by StatCan's new Real-Time Local Business Conditions Index, which suggested activity is higher in Canada's seven largest cities than last September. Employment data in June were mixed with hours falling slightly, but the 0.4 ppts drop in the jobless rate was an important contributor to the BAI this month. Housing activity also continued to cool in the month, yet remains at high levels. The other surprise in June was the wholesale trade early indicator, which fell 2.0%. Despite likely support from rising activity in the food service and transportation equipment sectors, building materials and machinery and equipment were responsible for the negative reading. As well, lumber prices by the end of month had given up all of their 2021 gains.
The Bottom Line: As provinces lift many of the public health restrictions, economic activity will strengthen through the latter half of the year, particularly in the most pandemic exposed sectors like leisure and hospitality. Canada is also on track to fully vaccinate around 70% of its population (12+) by the end of July, making the return of broader restrictions on activity less likely in the future.
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.