While economic data releases were light this week in Canada, several key indicators provided valuable insight into the country’s current economic trajectory. Let's look deeper into the Canadian economy using Trading Central's Economic Insight.
Building permits fell 6.6% in April. This was the second consecutive monthly decline and well below the 0.4% drop anticipated. This points to continued softness in construction intentions, especially in the residential and commercial sectors.
Manufacturing sales also showed weakness, falling 2.8% in April versus a -2% consensus forecast. This marked a second straight monthly contraction, adding to concerns around industrial demand. Similarly, wholesale sales declined 2.3%, its first drop in four months and far worse than the -0.9% expected. The decline follows three months of slowing growth.
In contrast to broad industrial softness, new motor vehicle sales remained a bright spot. April saw 195,700 vehicles sold, up from 189,000 in March. This marks the third consecutive monthly gain and suggests underlying consumer demand, particularly for durable goods, remains relatively firm despite high borrowing costs.
Canada’s capacity utilization rate rose to 80.1% in Q1, beating expectations (80.0%) and up from 79.7% in Q4 2024. This marks the fourth consecutive quarterly increase and indicates a steady uptick in industrial output relative to available capacity.
The latest 2-year Government of Canada bond auction saw yields climb to 2.692%, up from 2.606% in May. This marks the second straight monthly increase and aligns with a broader global trend of rising yields, as seen in recent U.S. Treasury auctions. Higher short-term yields suggest markets are reassessing rate expectations amid persistent inflationary pressures.
Canada’s economy is showing signs of mixed momentum. While consumer auto demand and industrial capacity are holding up, declining building permits, manufacturing activity, and wholesale trade point to growing headwinds in the goods-producing sectors. The rise in bond yields reinforces tightening financial conditions, with monetary policy expectations remaining sensitive to inflation and growth dynamics. As global rates rise and domestic indicators weaken, the Bank of Canada will face increasing pressure to strike a delicate balance between supporting growth and containing inflation.
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