For the week of September 27, 2021
Spending on services to support growth despite supply chain challenges
All eyes will be on Canada’s GDP report next week—and more specifically, its ‘official’ July estimate. A preliminary report in August called for a surprising 0.4% decline in GDP in July, despite an easing of COVID restrictions in provincial economies. We expect an upward revision of the July figure, with output holding steady at June’s level. Indeed, we saw a solid 1.3% rise in hours worked and indications of sharply higher spending on services over the summer—though these were offset by supply chain disruptions that weighed on manufacturing sales and construction activity.
The early estimate of August GDP should look better. While supply chain disruptions won’t go away any time soon, household spending likely continued to rise. The preliminary estimate of August retail sales was up 2.1% from July, and our own tracking of card transactions is pointing to a further recovery in spending on high-contact services like restaurants and hotels. The more pressing question is how much of that strength in services can be maintained during the fourth wave of virus infections. Broad lockdowns still look less likely given a high share of the population is vaccinated—and infection rates have shown some tentative signs of plateauing in parts of Canada. Fear of public spaces could still keep households closer to home, even as vaccine passport systems kick in, but the economic impact of the latest COVID wave is expected to be less severe.
Week ahead data watch:
- Next week’s Canadian SEPH employment data for July will likely show yet another strong gain as hard hit sectors reopened over the summer.
- US personal spending likely rose in August. Retail sales increased 0.7% from July and spending on services likely continued to improve.
This report was authored by senior economist Nathan Janzen and economist, Rannella Billy-Ochieng’.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.