• Canadian real GDP by industry expanded 0.3% in February, matching our forecast.
• There were across-the-board advances with only four industries posting declines in the month.
• The healthy 1.2% jump in manufacturing output (on top of the 1.9% climb in the previous month) led the overall increase.
• Goods-producing industry output advanced 0.7%, but it is still down a small 0.1% from a year ago.
• As we expected, output in services-producing industries related to the Olympics got a boost in the month, lead by a very robust 6.1% leap in arts, entertainment, and recreation.
• There were also healthy gains in accommodation and food services, climbing 2.1% and retail trade, increasing 0.6%.
• Wholesale trade output fell 1.4%, which is the first decline in six months.
• Oil and natural gas production declined, pulling the energy sector lower by 0.3%.

Outlook

Canadian economic output advanced at an as-expected pace of 0.3% in February, half the pace of the climb in January.

The overall climb was led by another strong monthly increase in manufacturing, where output in 14 of 21 industries advanced. The increase in manufacturing was wide spread as both durable and non-durable manufacturing output climbed at healthy rates.

Activities related to the Winter Olympics help boost output in the services-producing industries by 0.1%, but the overall climb was tempered by declines in wholesale trade, professional, scientific and technical services, healthcare and social assistance, and other services.

There was very little impact on Canadian dollar, as the increase in output matched economist expectations. The Canadian dollar remains just under parity.

Overall, Canadian industrial production output increases are solid. The 0.9% jump in industrial production is the latest in a six-month string of healthy advances. Declining output in oil and natural gas was the only sore spot within this category.

Bottom-line: Canadian economic output is advancing at a healthy pace. For the first two months of the year, output is on course to advance at a 5.1% annualized pace in the first quarter, as we forecasted last month. We do expect output to climb yet again next month, but at a slightly softer pace. As such, we will likely revise up our first-quarter real GDP outlook to the 5.4% to 5.5% range, much higher than the 3.2% pace for the United States. It is interesting to note that the Canadian manufacturers seem to have adjusted to the near par Canadian dollar over the past few months. The increase is Canada's economic output will outperform that of the United States, at least in the first half of the year. The strong Canadian dollar will likely act as a drag on output in the second half of 2010. The Bank of Canada may make some technical upward adjustments to the overnight rate within the June to September timeframe, but the Canadian dollar and global economic events may well weigh on the Canadian economy. As such, material advances in the overnight rate will not likely occur until the end of this year.