On the heels of a 2.1 per cent contraction to start the year, the US economy expanded at a robust 4 per cent annual rate in the second quarter. Growth was driven by stronger consumption spending as well as a large contribution from inventory accumulation, the latter of which is more volatile and less likely be sustained next quarter. It is worth noting that this is a preliminary first estimate of US GDP and is therefore subject to, potentially significant, revisions.
A strong US economy is a key component of the Bank of Canada's outlook for growth this year and next and if the United States economy is truly on an upswing, Canadian exports and business investment should benefit. However, expectations of faster economic growth may also put upward pressure on bond yields and therefore mortgage rates.
Copyright BCREA – reprinted with permission