Economy accelerates to fastest pace in 6 months

TAVIA GRANT

Globe and Mail Update

Canada's economy expanded at the fastest pace in six months in August, boosted by gains in the energy and retail sectors.

The 0.3-per-cent increase in the gross domestic product came after a 0.2 per cent gain in July, Statistics Canada said Tuesday. August's gains matched economists' expectations.

While the economy continues to benefit from strong domestic demand and rising commodity prices, other sectors, such as manufacturing and construction, are still holding back growth, economists said.

“Even with the solid gain in August, this hardly represents the start of a new, bold trend for Canadian GDP growth,” wrote Doug Porter, senior economist at BMO Nesbitt Burns Inc., in a research note.

“We expect growth to struggle to stay above the 2-per-cent threshold for the next few quarters, undercut by a struggling manufacturing sector. The slow but steady deterioration in the previously booming construction sector is another drag on the outlook.”

CIBC World Markets senior economist Avery Shenfeld said it would require “two more soft quarters before the Bank of Canada sees enough slack to begin cutting interest rates.”

Service industries contributed 0.4 per cent to the growth while goods-producing industries added 0.2 per cent. The energy sector, wholesale trade and retail sales were “especially vibrant,” while utilities and construction declined, the Statscan report said.

The energy sector advanced 0.7 per cent in the month. Natural gas production and transportation drove the sector's gains.

The mining sector excluding oil and natural gas advanced 1.5 per cent, amid higher output of metallic and non-metallic minerals.

For the second month in a row, activity in the manufacturing sector was flat. The industry's activity level was 1.7 per cent lower than at its peak in December, 2005. Among factories, the most significant gains were in the production of chemicals, food products and furniture. The largest declines were in machinery, wood products, electrical appliances and transportation equipment.

The construction sector dropped for a fourth straight month, declining 0.1 per cent in August.

“Decreases in residential and non-residential construction were partly offset by an increase in engineering and repair works,” the report said.

Tourism-related industries, such as transportation, accommodation and food services, benefited from the effects of the international AIDS convention in Toronto, as well as an 1.2-per-cent increase in the number of international overnight visitors.

In agriculture, total crop production this year is expected to be lower than last year with an anticipated drop in wheat, barley, grain corn and canola, Statscan said.

Wholesale trade grew 1.7 per cent in August as growth in renovations stimulated sales of building materials.

Retail sales rose 1.1 per cent, led by auto sales and demand in home centres, hardware stores and furniture stores.