The Canadian economy can't hide behind the weather any more. Now that we've started to move past the distortions of a harsh winter, the realities of the country's slow-growth trajectory are beginning to emerge from the latest gross domestic product (GDP) numbers.
The April report, released by Statistics Canada Monday morning, showed growth of a thin 0.1 per cent over March, and 2.1 per cent compared with 12 months ago. Both the monthly and annual growth paces matched March's numbers, and both were short of economists' expectations (0.2 per cent and 2.3 per cent, respectively).
Economy watchers who had been blaming the harsh winter for Canada's sluggish first quarter (annualized growth of just 1.2 per cent), and had expected the spring to deliver some bounce-back numbers, were surely disappointed. But in the details, there may be a few rays of spring sunshine in what is, nevertheless, still a decidedly mixed bag for growth prospects.
You don't have to look far to see the evidence of that mixed nature: The two main halves of the economic ledger went in opposite directions in April. The services side of the economy grew by 0.3 per cent, fuelled by impressive jumps in both wholesale trade (up 1.3 per cent) and retail trade (up 0.8 per cent). The goods-producing side declined by an offsetting 0.3 per cent, dragged down by oil and gas production (down 0.8 per cent) and construction (down 0.6 per cent).
But the report certainly contained a few encouraging signs. Most notably – particularly for the Bank of Canada, which frequently stressed its concern about sluggish business capital investment – several numbers suggested that companies stepped up their spending in April. Manufacturing of durable goods expanded by 0.4 per cent in the month, led by a bunch of products that smack of business expansion: Industrial machinery (up 1.8 per cent) and commercial machinery (up 4.7 per cent); computers and electronics (up 3.1 per cent), and fabricated metals (up 1.9 per cent). Likewise, the surge in wholesale trade was led by machinery and equipment (up 2.5 per cent) and building materials (up 3.4 per cent).
The latter could also provide a bit of hope for construction, which went into retreat in the early months of this year. But the lack of a bounce-back in April suggests that this sluggishness may have had less to do with the winter weather than many observers had speculated.
On the other hand, the strong gains from retail sales suggest that there may, indeed, have been some pent-up demand on the retail side – perhaps due to the weather, but maybe due to other more fundamental factors. Recent payrolls data from Statscan confirmed a continued upward trend in average weekly earnings, which may now be translating into healthier discretionary spending by consumers.
The energy sector's contribution to GDP has almost certainly improved since its April pullback. Early spring is typically a sluggish time for exploration and production (soggy ground makes for undesirable drilling conditions, and petroleum facilities take maintenance downtime), before picking up as the summer approaches. And oil and petroleum prices have risen since April, which even if all else was equal, would suggest a higher value of output from the energy sector.
On the other hand, government spending looks to be firmly entrenching itself as a continuing drag on GDP growth. To be more precise, GDP from federal administration is down 0.4 per cent since the start of the year, while provincial/territorial administration is dead flat. We can expect this to be a theme in GDP throughout the year; the current wave of government belt-tightening and budget-balancing means the public service is unlikely to contribute to growth.
Where does it all leave us? Well, with positive yet less-than-compelling growth that shows promising pockets of strength, but is still short on broad-based momentum. After Monday's GDP release, economists were talking about second-quarter GDP growth of about 2 per cent – better than the first quarter but well short of the Bank of Canada's projection of 2.5 per cent. But if business investment can build on the positives from the April numbers, better days may be just around the corner.