North American Outlook: Sticking the Landing
United States
The U.S. economy keeps chugging along. Real GDP growth picked up in the second quarter to 3.0% annualized, offsetting the slow start to the year. Spending by the big three engines—consumers, businesses, governments—was solid. Household purchases were supported by rising equity and home prices. The sole soft spot was construction, both residential and commercial, with the former groaning under the weight of a generational slide in housing affordability and the latter held back by a struggling office market. Weaker employment, manufacturing and service sector activity in July suggests the third quarter is off to a soft start, with growth likely to downshift to 2.0%. However, consumers still have something left in the tank, boosting real spending 0.4% in July, so overall growth should remain close to potential.
Canada
Canada's economy has underperformed the U.S. and its potential. Although growth improved slightly more than expected in the second quarter to 2.1% annualized, the yearly rate of 0.9% pales against the U.S.'s 3.1% expansion and the population's 3.2% spurt. Business investment rose strongly last quarter, but overall growth was mostly flattered by a surge in government spending. Despite increased energy shipments through an expanded Trans Mountain pipeline, overall exports fell in the quarter. Consumer spending slowed to a crawl as households faced rising mortgage payments. The housing market also remains in the doldrums. Sales in Ontario and B.C., the two most expensive regions, remain depressed due to poor affordability. In Toronto, a glut of investor-owned condos has led to the highest resale inventories since the financial crisis, driving benchmark prices 5% below year-ago levels. By contrast, other regions in the country are benefiting from an inflow of migrants in search of less expensive properties, and prices continue to rise in places like Calgary and Halifax.
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Sal Guatieri
Senior Economist
Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with two decades experience as a macro economist. With BMO Financial Group since 1994, his m…(..)
View Full Profile >United States
The U.S. economy keeps chugging along. Real GDP growth picked up in the second quarter to 3.0% annualized, offsetting the slow start to the year. Spending by the big three engines—consumers, businesses, governments—was solid. Household purchases were supported by rising equity and home prices. The sole soft spot was construction, both residential and commercial, with the former groaning under the weight of a generational slide in housing affordability and the latter held back by a struggling office market. Weaker employment, manufacturing and service sector activity in July suggests the third quarter is off to a soft start, with growth likely to downshift to 2.0%. However, consumers still have something left in the tank, boosting real spending 0.4% in July, so overall growth should remain close to potential.
Canada
Canada's economy has underperformed the U.S. and its potential. Although growth improved slightly more than expected in the second quarter to 2.1% annualized, the yearly rate of 0.9% pales against the U.S.'s 3.1% expansion and the population's 3.2% spurt. Business investment rose strongly last quarter, but overall growth was mostly flattered by a surge in government spending. Despite increased energy shipments through an expanded Trans Mountain pipeline, overall exports fell in the quarter. Consumer spending slowed to a crawl as households faced rising mortgage payments. The housing market also remains in the doldrums. Sales in Ontario and B.C., the two most expensive regions, remain depressed due to poor affordability. In Toronto, a glut of investor-owned condos has led to the highest resale inventories since the financial crisis, driving benchmark prices 5% below year-ago levels. By contrast, other regions in the country are benefiting from an inflow of migrants in search of less expensive properties, and prices continue to rise in places like Calgary and Halifax.
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