October 28, 2022 | 09:05
Cdn. GDP: A Decent Crop of Data
Canadian real GDP edged up 0.1% in August, a bit firmer than the initial flat estimate and extending a lengthy period of modest growth. StatsCan also provided a preliminary estimate for September, and they judge GDP edged up by 0.1% yet again last month. The flash estimate for all of Q3 points to overall growth of 0.4%, or roughly 1.6% at an annual rate, in line with the BoC's latest estimate of 1.5% and a tad better than our estimate of 1.0%. (Recall the 2.6% rise in U.S. GDP for the quarter yesterday.)
For August, services drove the growth, led by hospitality, retail & wholesale. Note that the monthly move was a strong 0.1% (+0.144%), and thus nearly topped the flash by two ticks. Still, goods sectors were softer, with a drag from mining/oil/gas, manufacturing and construction. The flash estimate for September of 0.1% is a bit better than we would have assumed, and there may be some downside risk given the broader softness we've seen in the preliminary data. Oil & gas output and manufacturing are expected to rebound
One sector of notable strength, both in the latest month and so far this year, has been agriculture, forestry and fishing. That sector jumped 3.9% m/m in August and is now up a towering 26.2% y/y (compared with overall GDP growth of 4.0% y/y). This year's grain harvest is on track to be well above average after a terrible drought last year, firing a big swing in this sector. While crop production (ex cannabis) only accounts for a bit more than 1% of the economy, this huge change of fortunes has added roughly half a point to overall growth all by itself. That's actually a bigger addition than the reopening in arts, entertainment and recreation—that group is up almost 40% y/y, but it's an even smaller sector than farming. Note that over the past year the goods sectors have added more to growth than services, a bit counter-intuitive given the reopening in many services.
Bottom Line: The headline figures for August, September and Q3 change nothing for the BoC, since they're consistent with this week's MPR. The key takeaway is that the economy carried slightly better momentum into the fall than we had expected, in part thanks to a solid grain crop. Still, we continue to expect economic momentum will slow closer to zero as we head into Q4.