Wholesale, manufacturing pointing to stronger-than-expected economic growth

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OTTAWA – The Canadian economy appears to be rebounding strongly from its winter blues, so much so that analysts are revising their estimate for growth this quarter and possibly for the entire year.

Following December’s weather-induced collapse that brought a depressing 0.5 per cent dip in economic activity, the expectation was that it would take at least until the second quarter — the April-June period — to see a significant reversal.

But new data, including Tuesday’s bigger-than-expected 1.1 per cent jump in the wholesale sector for February, and last week’s eye-popping manufacturing numbers — February sales up 1.4 per cent, unfilled orders up 16.5 per cent and new orders up 18.8 per cent— even had bearish economist Derek Holt of Scotiabank asking if the economy had gone “vertical.”

His answer was no, in part because he thought other sectors of the economy are not doing as well and some of the numbers were just too big to be true. But Holt admitted it was impressive.

CIBC chief economist Avery Shenfeld believes the new indicators are strong enough to question the Bank of Canada’s most recent estimate of 1.5 per cent growth for the first quarter, especially if retail sales show strength in Wednesday’s report.

“All told, a healthy report, but not yet a sign of a take-off as, in volume terms, we’re still below the peak set in late 2013,” he said. “(Still), assuming March is a reasonable month, the economy looks to be tracking a few decimal places better than the Bank of Canada’s forecast.”

That’s far from what was initially expected of the first three months of the year, given the limp handoff from December. In January, many economists projected a growth rate barely touching one per cent, with the more pronounced rebound occurring in the second quarter.

A stronger-than-expected start to the year could also carry forward to the bank’s call for a 2.3 per cent pace for the year as a whole.

The more critical aspect is that, for the first time in almost a year, the data on the goods-producing side of the economy is igniting hopes that bank governor Stephen Poloz’s call for an export-led recovery may finally be coming to fruition. Since the 2008-09 slump, Canadian growth has mostly been backstopped by a strong housing and consumer spending market, and government stimulus — both of which could not be sustained.

The wholesale report was also healthy in that it spread the gains about broadly and, in volume, terms were up 0.8 per cent from January.

Shenfeld said the only negative was that the prior month was revised three-tenths of a percentage point lower, to a 0.5 per cent.

The motor vehicle and parts subsector led the February increases, rising 3.0 per cent to $8.4 billion following two consecutive monthly declines. The motor vehicle industry, with sales up 4.7 per cent, accounted for most of the increase.

Sales rose in eight provinces, with Ontario accounting for much of the improvement.

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