Canada’s economy disappoints in May as manufacturing declines

Canada’s economy nudged forward a disappointing 0.1 per cent in May, partly due to underwhelming manufacturing  numbers, falling well back of analyst expectations for a robust advance, prior to the anticipated summer slowdown.

 May’s number released Tuesday left April’s 0.3 per cent expansion as the only stellar month for the economy so far this year.

Economists had expected a more robust showing of 0.2 per cent, and some even 0.3 per cent, given previous indicators that suggested retail sales, manufacturing and wholesale trade would all contribute to growth.

Retail sales did perform strongly, rising 0.7 per cent after a slightly larger decline in April, while wholesale trade edged up 0.1 per cent, the sixth consecutive advance.

But manufacturing fell by 0.5 per cent, mainly as a result of lower production of machinery, computer and electronic products and primary metals. Construction was also down, by 0.2 per cent, a further sign of the slowdown in the residential housing market.

As well, transportation and warehousing services declined 0.5 per cent, although that was largely attributed to a decline in rail services due to the late May strike at CN.

“All told, this sets the second quarter on track for no better than two per cent growth, and will lead to downward revisions in the consensus for the (second) quarter,” said Avery Shenfeld, chief economist with CIBC World Markets.

Scotiabank’s Derek Holt said that based on what is known so far, the April-June period could come in as low as 1.4 per cent annualized, which would not even match the Bank of Canada’s recently downwardly revised 1.8 target.

Such results don’t give much “credibility” to the central bank’s interest rate tightening bias, he added. Some economists believe bank governor Mark Carney’s more likely next move will be to cut interest rates even further to buck up the domestic sectors of the economy, rather than raise them and risk further weakening the recovery.

Economists are expecting growth for the rest of the year to be moderate at best, given Europe’s growing problems and the continued softness of the U.S. economy.

Overall, seven out of 18 main industries were flat or negative during May, with the goods producing sectors registering a flat month.

Other gainers were mining, oil, and gas extraction, up 0.6 per cent, accommodation and food services, which rose 0.6 per cent, and the finance and insurance sector, which increased 0.5 per cent over April.

The biggest hits to May growth came in the arts, entertainment and recreation sector, which fell 1.7 per cent, and among real estate agents and brokers, whose output dropped 4.8 per cent. Public administration edged down 0.1 per cent, the fifth straight decrease.