Canada’s Economy Stalls in July; Statistics Canada Signals 0.2% August Rebound

Canada’s economy stalled in July after three consecutive months of growth, as weakness in manufacturing, mining and retail trade offset gains in construction and utilities. Real gross domestic product by industry was essentially unchanged from June, while Statistics Canada’s advance estimate points to a 0.2% increase in August.

The flat July reading marked a slower start to the third quarter after a stronger spring. Goods-producing and services-producing industries were both broadly unchanged on the month, leaving the headline figure dependent on sizable moves within individual sectors rather than a broad shift across the economy.

Statistics Canada’s July GDP release confirmed the lack of headline growth. The result was also consistent with the agency’s advance estimate published a month earlier, which had suggested that increases in real estate and professional services would be offset by declines in retail trade and manufacturing.

Manufacturing and retail weakness offset construction gains

Manufacturing output fell 0.9% in July, its first monthly decline in four months. Petroleum refineries were a major drag, with output down 6.2%. Mining, quarrying and oil and gas extraction also fell 0.5%, extending its decline to a second month.

Those losses were largely countered by utilities and construction. Utilities rose 1.7%, while construction increased 1.3% and posted a fourth consecutive monthly gain. The contrast helps explain why the overall goods-producing side of the economy was little changed even though several large industries moved sharply in opposite directions.

The services side showed a similar split. Retail trade contracted 1.0% and wholesale trade declined 0.4%. Statistics Canada had already reported that nominal retail sales fell 0.7% in July to C$73.7 billion, while retail sales volumes decreased 1.1%. The volume figure is particularly relevant to real GDP because GDP measures changes in inflation-adjusted output rather than changes in current-dollar sales alone.

Professional, scientific and technical services rose 0.3% in July, while real estate and rental and leasing increased 0.2%. Real estate activity has now expanded for six consecutive months, providing a steady source of service-sector growth even as consumer-facing activity weakened in July.

Other July data also pointed to a less even economic picture. Canada’s merchandise exports fell 2.3% while imports rose 2.2%, narrowing the country’s merchandise trade surplus to C$769 million from C$4.2 billion in June. That does not map directly onto monthly GDP by industry, but it reinforces the broader picture of a quarter that began with softer momentum than the second quarter delivered.

August estimate points to renewed growth

The more encouraging part of the release came from Statistics Canada’s advance estimate for August. The agency said real GDP by industry likely rose 0.2%, with higher activity in mining, quarrying and oil and gas extraction and retail trade among the main contributors.

That estimate is preliminary and can change when more complete survey and administrative data are incorporated. Statistics Canada routinely revises monthly GDP estimates as new information becomes available, so the August figure should be treated as an early signal rather than a final reading.

Even so, a 0.2% August increase would suggest that July’s stall did not immediately turn into a broader contraction. It would also leave the third quarter with one flat month followed by a modest rebound, making September data important for determining how much of the second quarter’s momentum carried into the second half of the year.

Retail activity is one reason the August estimate may look firmer. Statistics Canada’s advance indicator for retail sales had suggested a 1.3% increase in August after July’s decline. The retail estimate is also preliminary, but it points in the same direction as the agency’s early GDP reading.

A slower start after a strong second quarter

The July result follows a second quarter in which real GDP by expenditure rose 0.8% from the previous quarter, led by higher exports, household spending and business capital investment. Monthly GDP by industry had also increased through April, May and June before flattening in July.

The distinction between the monthly industry measure and the quarterly expenditure measure matters. They are built from different frameworks and can diverge somewhat, but together they show an economy that entered the third quarter after a comparatively strong second quarter and then lost momentum at the start of July.

The Bank of Canada’s July Monetary Policy Report projected third-quarter real GDP growth of 1.5% at an annualized rate. That forecast was made before the full July GDP data were available. The central bank’s quarterly projections therefore provide a useful benchmark rather than a direct interpretation of Tuesday’s release.

July’s flat reading by itself does not settle the quarter’s growth rate. The preliminary August rebound would put activity back on an upward path, while September remains unknown. The mix of sector results also matters because construction and utilities offset weakness in manufacturing, mining and retail rather than broad-based growth carrying the month.

Statistics Canada is scheduled to release the official August GDP-by-industry data on October 30. That report will show whether the estimated 0.2% rebound held up after fuller data were incorporated and will provide the next read on how the Canadian economy is progressing through the third quarter.