We expect GDP to grow 4.0% (annualized) in the third quarter, picking up from a 1.1% drop in the second quarter when COVID-19 restrictions were tighter. This increase in the third quarter would be larger than Statistics Canada’s initial estimate of 2% a month ago, with improving labor market data leaving some upside risk: hours worked have increased to a rate of nearly 7% in the third quarter. Residential investment likely fell for a second consecutive quarter due to slowing home resale markets. But consumer spending rebounded. The volume of retail merchandise purchases rose 6.3% and spending on high-contact services is starting to recover from levels limited by the pandemic. Exports are also growing, gaining 10% after falling 15% in the second quarter. On a monthly basis, Statistics Canada’s preliminary estimate was that production was unchanged in September, in part due to supply chain disruptions that caused sales of motor vehicle manufacturers to drop by more than a third. compared to August. The first reading for October is expected to look significantly better. The advanced report on the sales of manufactured goods indicated a temporary reprieve from disruptions in auto production, and early estimates for retail and wholesale trade were also up.

Labor market indicators have always been firmer. Employment had returned to pre-pandemic levels in September, against a deficit of 1.5% of GDP. We estimate employment rose by another 40,000 in November, reflecting further improvement in high-contact service sectors where much of the labor market weakness persists. Even in these industries, labor shortages are expected to intensify. Employment in the hardest-hit high-contact service sectors is still down by nearly 280,000 from pre-pandemic levels, but the number of unemployed remaining above “normal” levels is more long term is less than 150,000. The threat of spreading the virus persists and bottlenecks in the global supply chain will continue to disrupt the production of goods. But even if these begin to dissipate, labor shortages are expected to remain a significant constraint on continued GDP growth next year.

Data monitoring for the coming week:

Canadian GDP is expected to have remained stable in September compared to August, with declines in manufacturing, retail and wholesale sales linked to a weaker auto sector. These were offset by the ongoing recovery in hospitality and travel. Growth likely turned positive again in October, as the more positive early data releases suggest.

We forecast an increase of 40,000 jobs in Canada in October, lowering the unemployment rate to 6.6%. The improvement was likely supported by the ongoing recovery in close contact service sector industries, where employment is still lower than before the pandemic but demand continues to pick up.

Next week’s US jobs report is expected to show continued improvement in the wage bill in November, with the consensus currently expecting a gain of over 500,000 for the second month in a row and a drop in the unemployment rate to 4.5%. The growing demand for workers, without an adequate influx into the labor force, is likely to keep the tension in the market high and further add to the pressure on wages, which is increasingly present in earnings data in the industry. recent reports.