May 29, 2023 | 08:42
BMO Business Activity Index — Spring Surge
The Canadian economy sprung back into action in April according to BMO's Canadian Business Activity Index (BAI). The BAI jumped 1.0% after back-to-back declines, illustrating that resilience remains the watchword. That bodes well for the start of the second quarter, but no doubt that the public sector strike will take some wind out of the sails when StatCan's GDP flash estimate is released.
Despite affordability challenges and tightening credit conditions, the housing market came back to life in April, with home sales surging 11% and housing starts soaring 22% to over 260k units annualized. Home sales have been showing some green shoots since February, but weak residential construction meant that the housing sector was acting as a drag on activity—until now. Outside of housing, the rest of the economy continues to hum along with mixed pockets of weakness and strength. Although the StatCan flash for retail sales points to a 0.2% increase (nominal sales), an outsized gain in consumer prices will likely weigh heavier on volumes. The opposite storyline is expected for manufacturing shipments, where a weaker flash estimate (-0.2%) will be propped up by the 0.8% (s.a.) drop in producer prices. Wholesale trade is also expected to increase in April (+1.6 early indicator), but all of that resilience is being provided by the newly included petroleum products subsector, which benefited from rising oil prices. Excluding petroleum, wholesale trade likely fell -1.3%. And we still have a labour market that finds a way to navigate around the turbulence elsewhere in the economy, as the unemployment rate remained at a multi-decade low (5.0%), and hours worked rose 0.2%.
Many of the real-time indicators for the Canadian economy are also highlighting its continued resilience. The OECD Weekly Tracker suggests that average year-over-year growth ticked up slightly in April and remains consistent with a roughly 2.5% rate. Recent revisions to the data on total railcar traffic in Canada (likely related to the CP and KCW merger), point to better-than-expected strength through the first quarter despite still tracking roughly 4.9% below levels from last year. On the other hand, StatCan's Real-time Local Business Conditions Index shows most major cities saw activity weaken through the middle of May.
The Bottom Line: The Canadian economy is hanging on despite the numerous headwinds blowing its way. We still anticipate the economy slowing down in coming quarters as ongoing resilience raises the odds that the Bank of Canada will have to leave the sidelines to bring demand and supply back into balance.
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/