Daily Economic Update

July 29, 2016

Canadian May GDP drops 0.6%

The report also indicated an unexpectedly large 2.4% drop in

manufacturing activity. About a third of the decline was the result of a larger-than-expected 15% drop in output from oil refineries that in large part reflected the fall-off in oil sands production. With this oil sands production coming back over June
and July, this weakness oil refineries should reverse. The weakness in manufacturing was also the result of a drop in transportation equipment manufacturing that resulted partly from supply interruptions associated with the earthquake in Japan. This
weakness should reverse going forward as well.
Service-producing industries were reportedly less negatively affected on a national basis by the wildfires. This resulted in these
industries in aggregate rising a solid 0.3% which built further
onto the 0.2% gain in April. Regional data for wholesale and
retail sales did indicate weakness in Alberta related to the wildfires though it was offset by strength elsewhere in the country.

Our Take:

0.4
0.2
0.0
-0.2
-0.4
-0.6

May-16

Apr-16

Mar-16

Feb-16

Jan-16

Dec-15

Nov-15

Oct-15

Sep-15

Aug-15

-0.8

Jul-15

A sizeable monthly decline was anticipated in todays May GDP

report in the wake of the massive shutdown of oil sand production facilities due to the Alberta wildfires that occurred in the
month. This was reflected in the mining component of GDP
dropping 6.4% in the month with non-conventional oil extraction component down 22%. Statistics Canada commented that
excluding that component, May GDP would have dropped a lesser 0.1%. The statistical agency indicated that the difference
provided an appropriate indication of the direct impact of the
wildfires of 0.5 percentage points.

Canada Monthly GDP Growth

Month-over-month percent change
0.6

Jun-15

The May decline follows an unrevised 0.1% increase in April

and was slightly greater than an expected 0.5% drop.

Source: Statistics Canada, RBC Economics Research

Canada Monthly GDP Summary

Jan-16

GDP

m/m % change
Feb-16 Mar-16 Apr-16

May-16

y/y % change
May-16

0.5

-0.1

-0.2

0.1

-0.6

1.0

0.7

-0.6

-0.8

-0.3

-2.8

-2.8

Ag/for/fish/hunt

0.1

-1.1

-0.6

-0.1

-0.1

0.2

Oil & gas extrac.

1.6

-0.9

-0.4

-3.1

-9.0

-6.6

Mining ex-oil&gas

1.6

0.4

-4.1

0.1

-0.4

2.6

Mining support

3.2

-5.0

-16.0

-0.8

-3.3

-24.3

Utilities

2.4

-0.4

0.2

2.1

-1.8

-0.3

Construction

-0.3

-0.2

0.1

0.0

-0.7

-3.7

Manufacturing

0.3

-0.7

-0.4

0.2

-2.4

-0.8

0.4

0.1

0.0

0.2

0.3

2.5

Wholesale

0.6

-2.0

0.1

0.4

1.0

2.8

Retail

1.5

1.7

-1.0

0.2

0.4

4.3

Trans/Whsing

0.7

0.1

-1.3

0.3

-0.2

2.8

Info/cultural

0.1

0.1

0.1

0.2

0.2

1.0

Finance & insurance

0.8

-0.2

0.6

0.2

0.6

4.3

Real estate, rental, & leasing

0.2

0.3

0.3

0.5

0.1

3.0

Prof/Sci/Tech

0.3

-0.1

0.2

0.1

0.0

1.1

Mgt of companies

-0.5

0.0

-0.6

-0.2

0.0

0.3

Admin/wst mgt & remed.

0.0

0.3

0.0

-0.1

-0.5

0.3

Educ. Services

0.3

0.1

0.4

0.2

0.0

1.3

Health & soc. assist.

0.4

0.1

0.2

0.0

0.1

2.5

Art/ent/rec

-0.9

0.4

0.5

-3.7

4.3

5.3

Accom/food

-0.4

0.9

-0.4

0.7

0.2

3.5

Other services (ex public admin)

-0.2

-0.3

-0.1

0.1

-0.1

-0.6

Public admin

0.3

0.2

0.2

0.4

0.9

2.7

Goods

Services

Source: Statistics Canada, RBC Economics Research

As expected, the Alberta wildfires and attendant shutdown of oil

sand production facilities contributed to a sizeable drop in GDP
output in the month. Todays report is roughly consistent with
the 1.0% GDP drop currently projected for Q2 by the Bank of
Canada. In the wake of todays release our current monitoring
is for a 1.3% decline in Q2 GDP. With indications that oil sand
production has got back to levels prevailing prior to the wildfires, this weakness should be fully reversed and is consistent
with the Bank of Canadas Q3 growth projection of 3.5%. The
central bank is expected to remain on the sidelines maintaining
the overnight rate at the current 0.50% awaiting confirmation
of growth rebounding strongly in the current quarter.

Paul Ferley
Assistant Chief Economist
(416) 974-7231
paul.ferley@rbc.com
For more economic research, visit our web
site at www.rbc.com/economics

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