Economy showed signs of stalling in May: BMO

The economy showed signs of stalling last month, according to a new report from Bank of Montreal’s economists.

The latest reading of the bank’s Canadian Business Activity Index (BAI), which is compiled from 10 monthly indicators, preliminary economic data and high-frequency data, suggested that the economy “flat-lined” in May.

“The tailwinds from reopening and higher commodity prices are beginning to taper for the Canadian economy, just when high inflation and rising interest rates are beginning to take a bite out of activity,” BMO said in a report.

The index reading comes on the heels of early economic data estimates from Statistics Canada on Thursday that pointed to mixed results for May.

The national statistical agency reported that its advance estimate of wholesale trade sales for May indicate that sales rose by 2.0% in the month.

“The increase reflects higher sales in the food, beverage and tobacco sub-sector (up 7.8%) and the machinery, equipment and supplies sub-sector (2.9%),” it reported.

At the same time, sales of building materials and supplies declined by an estimated 4.4% in the month, it reported.

Alongside the wholesale sales estimate, StatsCan provided an advance estimate of sales in the manufacturing sector for May, which pointed to a 2.5% drop in monthly sales.

“The decline was mainly due to lower sales in the motor vehicle and primary metal industries,” StatsCan said.

BMO noted that the drop in wholesale sales comes amid an increase in industrial prices, so wholesale volumes will likely prove to have been weaker.

“Those high prices appear to be creating some demand destruction as even sales in primary metal industries took a hit after enjoying significant support from a strong run over the past several months,” BMO said, adding that high inflation and rising interest rates are also weighing on business confidence.

On the upside, BMO noted that consumer spending is holding up, which should support second-quarter GDP.

“Other parts of the economy are pointing to a more sluggish outlook, with the risks tilted to the downside if inflation runs any hotter,” it said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.