Canada's economy contracted by 0.1% in May, but showed signs of a rebound

Statistics Canada says the economy contracted for a second straight month in May, but there were signs of a rebound in June.

The agency says real gross domestic product fell 0.1 per cent in May, matching the decline in April.

Goods-producing sectors were blamed for the May decline, particularly in mining, quarrying and oil and gas.

Manufacturing activity grew 0.7 per cent in May, partially offsetting a drop of 1.8 per cent in April when U.S. tariffs took full effect. Statistics Canada noted that manufacturing activity remained 1.1 per cent lower in May than in March.

Transportation and warehousing also rebounded from an April decline.

A busier month for home resales, particularly in Toronto, saw activity tick up in the real estate and rental industry. And with three Canadian teams advancing to the second round of the NHL playoffs, the spectator sports industry was on the rise in May as well.

Douglas Porter, chief economist at BMO Financial Group, says the report is a positive sign amid the trade war.

"The good news here is that the Canadian economy seems to have soldiered through the period of maximum trade uncertainty with less damage than initially expected," Porter wrote in a memo.

But he cautioned there is still softness in the economy overall, and data for June set to come out in the next few weeks will show how big the rebound really has been.

The data agency's early estimates for June show an expected rebound of 0.1 per cent in real gross domestic product. The agency pointed to strength in retail and wholesale trade driving the growth, while manufacturing is expected to have declined last month.

Taken together, the agency says the advance reading for the second quarter of the year shows the economy was essentially unchanged. The agency's early estimates will be updated with the release of the June GDP figures next month.

The Bank of Canada said on Wednesday that it expects real GDP fell 1.5 per cent on an annual basis in the second quarter amid considerable uncertainty tied to U.S. tariffs.

Porter noted that the Statistics Canada monthly GDP figures measure output by industry, while the Bank of Canada's estimates will track actual spending in the economy.

"The output and spending estimates don't always line up, especially when there is a big change in exports and imports, as was certainly the case in each of the past two quarters," he wrote.

The central bank held its policy rate steady at 2.75 per cent for a third consecutive time on Wednesday amid what it called signs of resilience in the Canadian economy.