• Canadian real GDP by industry stalled in April.
• Economic output in both the goods- and services-producing industries was unchanged.
• After seven months of expansion, manufacturing output fell by 0.3%.
• Construction output advanced by 0.1%.
• Weighing down output in the services-producing industry was the 1.7% decline in retail trade and the 1.8% drop in arts, entertainment, and recreation.
• Two bright spots were the 0.6% increase in wholesale trade and the 0.5% jump in mining, and oil and gas extraction.
• Overall industrial production fell by 0.1% in the month.

Outlook

After several months of robust growth, Canadian economic output remained unchanged in April. Given the latest indicators and that a number of transitory factors boosted growth early in 2010, we were expecting a slowdown. The strong growth over the past few months was not expected to last long.

The weakness in the month was spread across all industries as output in both the goods- and services-producing industries was unchanged. Output in only five industries actually fell. Those declines, however, were significant enough to outweigh the very weak gains among the remaining industries.

After seven months of expansion, manufacturing output fell by 0.3%. Within the manufacturing industry, output from half of the major groups declined. The most notable declines were concentrated in pharmaceuticals, printing, and food products. Meanwhile, durable goods manufacturing was up by 0.4%, led by increases in machinery, primary metals, and motor vehicles and parts manufacturing.

While residential construction activity has typically been brisk lately, this was not the case in April, as it fell by 0.1%. Instead, the increase in construction output was lead by the 0.5% climb in non-residential construction, the strongest showing in 11 months.

Weighing down output in the services-producing industry was the 1.7% decline in retail trade and the 1.8% drop in arts, entertainment, and recreation—the second straight month of falling output.

Two bright spots were the 0.6% increase in wholesale trade and the 0.5% jump in mining, and oil and gas extraction. Oil extraction resumed in the month at some facilities, increasing activity. Natural gas production declined in April. Overall, Canadian industrial production output fell by 0.1%, the first decline in eight months.

Bottom line: The weaknesses in April's output numbers were not surprising given the recent downturn in real manufacturing and retail trade sales. In fact, more recent indications of prospectively slower growth in Canada, U.S., and Europe suggest that Canada, as well as other major industrialized countries, are now facing a very significant mid-recovery slowdown.

At this point, the Bank of Canada should be in no hurry to raise rates and we expect no rate change at the upcoming meeting on July 20.