PSAC strike helped keep Canada's economy flat in April, but May data shows signs of strength

Canada's gross domestic product was unchanged in April, the second monthly reading in a row of sluggish growth, but early data for May suggests things have started to pick up.

Statistics Canada reported Friday that goods-producing industries expanded by about 0.1 per cent in April, but that was offset by a flat reading out of the service sector. 

The reading was below the 0.2 per cent growth that economists were forecasting. Out of 20 sub-sectors of the economy, 11 grew while nine shrank in April.

Mining, quarrying, and oil and gas extraction was a source of strength, expanding by 1.2 per cent in the month.

Construction activity grew 0.4 per cent, as a slowdown in residential building activity was offset by broad-based increases in other types of construction.

The real estate and rental and leasing sector grew for a sixth consecutive month, expanding 0.5 per cent. 

Activity at the offices of real estate agents and brokers and activities related to real estate increased 8.6 per cent in April 2023. It is the third consecutive month of growth and the largest monthly tally since July 2020.

On the downside, wholesale trade contracted 1.4 per cent, and manufacturing shrank by 0.6 per cent. That's the first decline that sector has seen this year.

Economic activity in the public sector contracted by 0.3 per cent. That's the first monthly decline since January 2022 and the biggest reason for it was the strike by workers in Canada's largest government worker union, PSAC.

"The decline in public administration was its largest since April 2020," Statistics Canada said. "A strike by federal government workers represented by the Public Service Alliance of Canada labour union, that began in April 2023, resulted in a 4.3 per cent contraction in federal government public administration."

Another rate hike possible in July

Overall, while the numbers for April were underwhelming, the data agency says preliminary data for May shows a strong rebound of 0.4 per cent.

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

"We would not regard this as a particularly weak report, for a variety of reasons. First, the prior month was revised up a tick to +0.1 per cent, offsetting half the April disappointment. Second, the flash reading for May came in hot at +0.4 per cent, suggesting that the economy is actually regaining some momentum, rather than fading into summer."

Tiago Figueiredo, an economist with Desjardins, says that's good news and bad news.

"The 0.4 per cent advance estimate for GDP in May captures the rebound in activity after the strike ended. Still, growth for that month was still led by manufacturing, wholesaling and real estate," he said.

He noted that after going ice cold in late 2022 and early 2023, the real estate sector is starting to heat up again, "something the Bank of Canada won't be thrilled about."

"As a result, we continue to see the central bank raising rates another 25 basis points in July." 

Trading in investments known as swaps, which bet on future rate decisions, imply there is about a 50 per cent chance of another rate hike from the Bank of Canada when it meets on July 17. That would bring the central bank's rate to five per cent — a level it has not hit in more than 20 years.