Still elusive

I used "That damned, elusive recession" as a title for a post back in November, when Canadian GDP data for Q3/2022 showed that six months of recession talk in the media had failed to tank the economy. Well, here we are six months later, looking at Q1 GDP data, and guess what?  Still no clear sign of a recession!

Statistics Canada reported this morning that real GDP grew at a 3.1 percent annualized rate in Q1, after a flat result in Q4/2022.  This was significantly higher than the market consensus expectation and well above the Bank of Canada's forecast for a 2.3 percent pace.  The growth was propelled by strong gains in household spending, after two sluggish quarters, and by a solid rise in exports. Housing investment, business investment and inventory accumulation all acted as a drag on overall growth, suggesting that the Bank of Canada's policy tightening over the past year is having an effect. 

StatsCan also released its monthly GDP data for March today. This showed virtually no change from February, a better result than the 0.1 percent preliminary estimate released a month ago. Of the 20 industrial sectors covered by the data, 12 posted higher output. In itself, the March figure might suggest a fairly weak "handoff" to the second quarter.  However, StatsCan's preliminary estimate for April indicates a 0.2 percent monthly increase in real GDP, again making an early recession unlikely. 

In themselves, today's data do not materially change things for the policymakers at the Bank of Canada. Growth per se is not the enemy here: the Bank is primarily focused on inflation and tightness in the labour market. The slight uptick in inflation last month was almost certainly only a temporary setback, but what about unemployment?.  The Bank's next rate decision is set for June 7. That happens to be two days before the labour force data for May are due to be released, but there can be no doubt that the Bank will be given an early glimpse of those all-important numbers.