Slower growth in April as rising borrowing costs cool housing market activity

Real gross domestic product rose 0.3% in April, following two months of stronger growth. Economy-wide output has increased in 10 of the last 11 months and, in April, was 2.2% above pre-pandemic levels. Higher output in mining and oil and gas extraction, transportation and warehousing, and retail trade supported the headline increase, while pullbacks in home resale activity and financial services weighed on gains.

Activity in client-facing industries strengthened in April as capacity limits and travel restrictions continued to be eased or lifted. Activity in arts, entertainment and recreation industries also continued to rebound in April, but remained 11% below pre-pandemic levels.

Retail volumes rose in April for the first time in three months, after lower activity at auto dealers weighed on activity in February and March. Increased activity at general merchandise stores and miscellaneous retailers led the growth, while increases in domestic travel coupled with the gradual return to office work contributed to higher demand at the pumps.

Residential construction fell 1.2% as lower renovation activity offset an increase in new builds. Residential output remained over 13% above pre-pandemic levels. Non-residential building construction rose for the tenth consecutive month, while engineering construction posted its seventeenth consecutive monthly increase. Despite sustained momentum, non-residential output remained slightly below pre-pandemic levels.

A sharp contraction in real estate activity weighed on economic activity in April as homebuyers continued to adjust to higher borrowing costs. Activity at real estate agents and brokers fell by 15%, the largest decrease since the early stages of the pandemic as home resale markets cooled across the country. Activity at agents and brokers in April was 4% above pre-pandemic levels; by contrast, it was nearly 50% above pre-COVID levels when housing market activity peaked in March of last year.

After ten consecutive monthly increases, financial services declined in April as activity in bond and other financial markets cooled.

Statistics Canada’s advance estimate of real gross domestic product in May points to a 0.2% decrease.

Consumer inflation at its fastest pace in nearly four decades

Headline consumer inflation accelerated to 7.7% in May, the largest yearly increase since 1983. May marked the fourteenth consecutive month that the headline rate has been above 3%, and the third consecutive month above 6%. During this period, higher prices for gasoline, shelter, food and durables have all put upward pressure on consumer inflation, as supply disruptions coupled with strong demand have continued to fuel price growth.

Shelter costs remained elevated in May. Prices for owned accommodation rose 7.3% on a year-over-year basis, as increases in the homeowners’ replacement cost index, which partly reflect prices for new homes, remained in double-digit territory for the thirteenth consecutive month. In contrast, mortgage interest costs were 2.7% lower in the twelve months to May, and have remained in negative territory since October 2020. Yearly price increases for rented accommodation remained above the four percent mark for the fourth consecutive month.

Prices for services rose 5.2% on a year-over-year basis in May, following a 4.6% gain in April. Rising costs for traveller accommodation and higher menu prices contributed to the increase in service prices.

Unemployment rate edges below 5% in June

Headline employment fell by 43,000 in June on declines in self-employment and losses among older workers. Declines in service industries, most notably in retail trade, fully offset higher employment in construction and manufacturing. June’s headline losses marked the first decrease in total employment not associated with tighter public health restrictions since the start of the pandemic.

The number of unemployed workers also fell in June as the unemployment rate edged down to 4.9%, marking the fourth consecutive month that the rate has reached a new record low. The adjusted unemployment rate—which includes those who wanted a job but did not look for one—fell 0.2% to 6.8%, the second consecutive record low. Long-term unemployment also returned to pre-pandemic levels in June.

Total employment in June remained about 450,000 above pre-pandemic levels, with higher employment among core-age workers (25 to 54 year-olds) accounting for virtually all of the net gains. At 84.7%, the employment rate among core-age workers remained well above its pre-pandemic baseline, while their unemployment rate declined to 4.1%, a record low.

The pace of wage growth strengthened in June. Average hourly wages for all employees rose 5.2% on a year-over-year basis, up from 3.9% in May. Average wages rose more sharply among non-unionized workers (+6.1%) than among workers with union coverage (+3.7%).

The proportion of workers that usually work all of their hours at home continued to decline in June, edging down to 1.3% to 17.9%. The proportion of workers with hybrid work arrangements increased to 6.7%, continuing a slow upward trend observed since the start of the year.

Source: Statistics Canada