The PSAC strike helped stabilize Canada’s economy in April, but data for May shows signs of strength

Canada’s gross domestic product was flat in April, the second straight monthly reading of sluggish growth, but early data for May suggests things are starting to pick up.

Statistics Canada reported on Friday that manufacturing industries grew about 0.1 percent in April, but that was offset by a flat reading from the services sector.

The position was below the 0.2 percent growth that economists had predicted. Of the economy’s 20 subsectors, 11 grew while nine contracted in April.

Mining, quarrying and oil and gas extraction were a source of strength, growing 1.2 percent in the month.

Construction activity grew 0.4 percent, as a slowdown in residential construction activity was offset by broad-based growth in other types of construction.

The real estate and rental and lease sector grew for the sixth consecutive month with a growth of 0.5 percent.

Activity at brokerage and estate agents’ offices and activities related to real estate increased by 8.6 percent in April 2023. It is the third consecutive month of growth and the largest monthly figure since July 2020.

On the other hand, wholesale contracted by 1.4 percent and manufacturing contracted by 0.6 percent. That’s the first drop the industry has seen this year.

Economic activity in the public sector contracted by 0.3 percent. That’s the first monthly drop since January 2022 and the biggest reason for that was the strike by workers in Canada’s largest union for government employees, PSAC.

“The decline in public administration was the largest since April 2020,” said Statistics Canada. “A strike by federal government employees represented by the Public Service Alliance of Canada union that began in April 2023 resulted in a 4.3 percent contraction in the federal government’s public administration.”

Another interest rate hike is possible in July

Overall, the April numbers were disappointing, but the data bureau says preliminary data for May shows a strong 0.4 percent rebound.

Doug Porter, an economist at Bank of Montreal, said the GDP numbers below the surface were stronger than expected.

“We wouldn’t consider this a particularly weak report for several reasons. First, the prior month was revised up a notch to +0.1 percent, offsetting half the April disappointment. Second came the flash reading for May is hot in. at +0.4 percent, suggesting that the economy is actually gaining some momentum, rather than fading into the summer.”

Tiago Figueiredo, an economist at Desjardins, says that’s good news and bad news.

“The preliminary estimate of 0.4 percent for GDP in May reflects the recovery in activity after the end of the strike. Yet growth for that month was still led by manufacturing, wholesale and real estate,” he said.

He noted that after turning frigid in late 2022 and early 2023, the real estate industry is starting to warm up again, “something the Bank of Canada won’t be happy about.”

“As a result, we continue to see the central bank raise interest rates by another 25 basis points in July.”

Trading investments known as swaps, which bet on future rate decisions, means there’s about a 50 percent chance of another rate hike by the Bank of Canada when it meets on July 17. That would bring the central bank interest rate to 5 percent. – a level it has not reached in more than 20 years.