Canada’s economy grew much more strongly than expected during the second quarter, with gross domestic product (GDP) growth coming in at 3.1 percent annualized, a significant four-tenths of a percentage point higher than the consensus forecast and the largest quarterly gain since the third quarter of 2011.

Meanwhile, the first quarter’s performance turned out to be a little more disappointing than Statistics Canada (StatCan) initially reported, with that quarter’s number revised lower to 0.9 percent annualized from 1.2 percent annualized.

Among industries’ contribution to second-quarter growth, mining and oil and gas extraction drove the gain, followed by construction, and then wholesale. The first two aren’t all that surprising, given Canada’s abundance of resource riches, as well as its frothy real estate market.

But the wholesale industry’s contribution is worth noting, since it’s considered an economic bellwether.

Wholesale trade rose 1.0 percent in June for the third consecutive monthly increase. And for the second quarter overall, wholesale trade grew 2.7 percent, by far the strongest performance among all the industry categories.

Also of note, business gross fixed capital formation increased 0.8 percent following two consecutive quarterly declines.

Business investment is among the Bank of Canada’s (BoC) several fixations, so we’ve been watching this area for signs of growth.

However, after the declines of 0.8 percent in the fourth quarter and 3.0 percent in the first quarter, business investment remains down 0.6 percent year over year. But at least the earlier trend is starting to reverse.

The Bank of Canada (BoC) has previously observed that the excess capacity in the economy won’t be fully absorbed until GDP is consistently growing by at least 2.5 percent.

While full-year growth is expected to fall below that threshold this year–private-sector economists forecast GDP growth of 2.2 percent for 2014–GDP is projected to grow by 2.5 percent in both 2015 and 2016.

Jagged Job Growth

After StatCan’s surprise revision to Canada’s July employment report, it’s perfectly understandable for economists and investors alike to view the agency’s report for August with deep skepticism.

First, a recap of the earlier mistake: StatCan initially reported that job growth was essentially flat in July, though the underlying data were far more worrisome than the headline number suggested, with full-time jobs plummeting by nearly 60,000.

Instead, it turned out that the agency failed to update one of its programs when implementing a new processing system, which led it to undercount those with full-time jobs. The revised report showed that the economy actually added 42,000 jobs in July, with the number of full-time jobs dropping by less than one-third of what was first reported.

Now, on to the August survey: StatCan reported that Canada’s economy lost 10,000 jobs last month versus the consensus forecast that it would gain 10,000 jobs. The unemployment rate remained at 7.0 percent, while the labor force participation rate dropped to 66.0 percent, the lowest level since 2001.

Full-time employment fell by 2,300 positions, while part-time employment dropped by 8,700 positions.

The private sector lost a staggering 111,800 jobs, while the ranks of the self-employed surged by 86,900. Both statistics are record results, further bolstering doubts in the survey’s veracity among the agency’s new skeptics.

Over the trailing year, Canada’s economy has added 81,000 new jobs, an increase of 0.5 percent, with most of the gain coming from part-time employment. Part-time jobs are generally considered to be of lesser quality because of lower pay, fewer benefits, and higher turnover.

For possible investment themes, we like to look at the subsectors that produced the strongest year-over-year job growth.

In the private sector, employment in the transportation and warehousing industry grew 3.4 percent year over year, though it declined by 1.6 percent month over month in August after a strong prior run.

The educational services industry had the highest growth in private-sector employment overall, with the number of jobs rising by 4.5 percent year over year.

According to the Financial Post, after last month’s data bungle, some economists aren’t taking the latest employment numbers at face value, with one characterizing them as “very fishy,” while another said that they didn’t quite pass the “smell test.”

In particular, they wondered how the economy could lose a record number of private-sector jobs amid what appears to be an ongoing recovery. Of course, Canada’s monthly employment report is notoriously volatile, even without the compounding effect of data errors.

That’s why we look at longer-term data, which are presumably a more accurate gauge of what’s transpiring. And for now at least, they show an economy that’s having difficulty adding full-time private sector employment.

Stuck in Neutral

Finally, the BoC maintained its benchmark overnight rate at 1 percent and reiterated its explicitly neutral stance: “The Bank remains neutral with respect to the next change to the policy rate: Its timing and direction will depend on how new information influences the outlook and assessment of risks.”

Central bank watchers noted that the BoC appears to be more concerned about the housing market than in past statements, based on its observation that “activity in the housing market has been stronger than anticipated.” And it’s still concerned about the economy’s dependence on debt-burdened consumers.

But the central bank is more optimistic about growth prospects for the global economy, as well as the US, which absorbs roughly three-quarters of Canada’s exports.

Despite the dismal jobs report, which could just be statistical noise, Canada’s economy appears to have strong near-term momentum as the third quarter progresses.

Bay Street Beat

While the vast majority of our companies had reported earnings as of the last issue, there were a handful of stragglers that remained, but have since reported. Below, we detail how Bay Street analysts digested their results.

Sentiment for Bank of Nova Scotia (TSX: BNS, NYSE: BNS) shifted to neutral with a strong bullish tilt from bullish with a strong neutral tilt in the wake of its fiscal third-quarter (ended July 31) earnings release.

Earnings per share fell short of analyst expectations by 0.1 percent, though revenue delivered an upside surprise of 1.7 percent.

Credit Suisse cut its rating to “neutral,” which is equivalent to a “hold,” from “outperform,” or “buy.” It also lowered its 12-month target price to CAD80.00 from CAD84.00.

The mix of analyst sentiment now stands at nine “buys,” 11 “holds,” and one “sell.” The consensus 12-month target price is CAD76.19, which suggests potential appreciation of 5.7 percent above the current share price.

EnerCare Inc’s (TSX: ECI, OTC: CSUWF) second-quarter performance beat analyst expectations by 52.4 percent on earnings per share, the fourth consecutive quarter in which the company delivered a sizable upside surprise. But revenue fell short of estimates by nearly 7 percent, the first time EnerCare’s top line missed the consensus in six quarters.

Analyst sentiment remains largely bullish with a neutral tilt, at four “buys” and three “holds.” The consensus 12-month target price is CAD14.73, which suggests potential appreciation of 7.0 percent above the current share price.

Northern Property REIT (TSX: NPR, OTC: NPRUF) reported that second-quarter funds from operations (FFO) per unit, the relevant measure of a real estate investment trust’s (REIT) profits, increased by 7.0 percent year over year, to CAD0.61. That was good enough to beat analyst estimates by 2.4 percent, for the first upside surprise in three quarters.

The current mix of analyst sentiment is neutral with a slightly bullish tilt, at two “buys,” six “holds,” and one “sell.” The consensus 12-month target price is CAD31.00, which suggests potential appreciation of 5.3 percent above the current unit price.

Ag Growth International Inc’s (TSX: AFN, OTC: AGGZF) second-quarter performance beat analyst estimates by 8.3 percent for earnings per share, but missed on sales by 2.1 percent. That was the second consecutive earnings beat, but the first disappointment on sales in four quarters.

Following the company’s earnings release, EVA Dimensions upped its rating to “buy” from “hold.”

Analyst sentiment remains largely bullish with a somewhat neutral tilt, at eight “buys” and three “holds.” The consensus 12-month target price is CAD52.86, which suggests potential appreciation of 15.4 percent above the current share price.

Crescent Point Energy Corp’s (TSX: CPG, NYSE: CPG) missed estimates for second-quarter earnings per share by 37.2 percent.

However, it’s not possible to evaluate any shifts in sentiment at present because the firm is on the restricted list at a number of brokerages, likely owing to investment-banking activity related to the announcement that it plans to acquire CAD378 million in assets from fellow Aggressive Holding Lightstream Resources Ltd (TSX: LTS, OTC: LSTMF).

Peyto Exploration & Development Corp’s (TSX: PEY, OTC: PEYUF) second-quarter earnings per share fell short of analyst estimates by 2.4 percent, the narrowest miss since its last upside surprise six quarters ago. Its top line also disappointed by 19.2 percent.

Following the company’s earnings release, GMP boosted its rating to “buy” from “hold,” while also upping its 12-month target price to CAD43.00 from CAD42.00.

Analyst sentiment remains bullish with a somewhat neutral tilt, at 12 “buys,” eight “holds,” and one “sell.” The consensus 12-month target price is CAD44.94, which suggests potential appreciation of 21.8 percent above the current share price.

In the listing below, the number of analyst “buy,” “hold” and “sell” ratings for each company are shown, followed by the average 12-month target price among the analysts for which we have access to such data.

Month-over-month variances in the number of analysts listed below for each stock are often due to those securities being on a brokerage’s restricted list for a brief period. A restricted list is a compliance measure that’s typically used during the period when the investment banking side of an analyst’s firm is involved in advising the company.

Conservative Holdings

• AltaGas Ltd (TSX: ALA, OTC: ATGFF)–6–3–1 (CAD55.89)
• Artis REIT (TSX: AX-U, OTC: ARESF)–6–3–1 (CAD17.16)
• Bank of Nova Scotia (TSX: BNS, NYSE: BNS)–9–11–1 (CAD76.18)
• Bird Construction Inc (TSX: BDT, OTC: BIRDF)–4–3–0 (CAD16.00)
• Brookfield Real Estate Services Inc (TSX: BRE, OTC: BREUF)–0–1–0 (CAD15.00)
• Brookfield Renewable Energy Partners LP (TSX: BEP-U, NYSE: BEP)–7–3–2 (CAD34.71)
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–7–4–0 (CAD25.27)
• Cineplex Inc (TSX: CGX, OTC: CPXGF)–9–3–2 (CAD44.04)
• DH Corp (TSX: DH, OTC: DHIFF)–3–5–1 (CAD33.93)
• Dream Office REIT (TSX: D-U, OTC: DRETF)–2–5–1 (CAD31.79)
• EnerCare Inc (TSX: ECI, OTC: CSUWF)–4–3–0 (CAD14.73)
• Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF)–0–7–1 (CAD11.17)
• Keyera Corp (TSX: KEY, OTC: KEYUF)–7–5–1 (CAD94.18)
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–2–6–1 (CAD31.00)
• Pembina Pipeline Corp (TSX: PPL, NYSE: PBA)–5–4–2 (CAD53.33)
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–4–5–0 (CAD29.67)
• Shaw Communications Inc (TSX: SJR/B, NYSE: SJR)–4–13–2 (CAD26.80)
• Student Transportation Inc (TSX: STB, NSDQ: STB)–2–3–1 (CAD7.59)
• TransForce Inc (TSX: TFI, OTC: TFIFF)–11–3–0 (CAD31.67)

Aggressive Holdings

• Acadian Timber Corp (TSX: ADN, OTC: ACAZF)–1–2–1 (CAD13.83)
• Ag Growth International Inc (TSX: AFN, OTC: AGGZF)–8–3–0 (CAD52.86)
• ARC Resources Ltd (TSX: ARX, OTC: AETUF)–13–7–1 (CAD34.90)
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–1–4–1 (CAD21.60)
• Crescent Point Energy Corp (TSX: CPG, NYSE: CPG)–15–2–1 (CAD51.06)
• Enerplus Corp (TSX: ERF, NYSE: ERF)–13–5–0 (CAD29.23)
• Extendicare Inc (TSX: EXE, OTC: EXETF)–0–4–1 (CAD8.25)
• Lightstream Resources Ltd (TSX: LTS, OTC: LSTMF)–4–10–3 (CAD7.17)
• Magna International Inc (TSX: MG, NYSE: MGA)–12–8–1 (CAD137.56)
• Newalta Corp (TSX: NAL, OTC: NWLTF)–7–2–1 (CAD23.52)
• Noranda Income Fund (TSX: NIF-U, OTC: NNDIF)–1–0–0 (CAD7.00)
• Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–6–3–0 (CAD21.84)
• Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF)–12–8–1 (CAD44.94)
• PHX Energy Services Corp (TSX: PHX, OTC: PHXHF)–8–1–0 (CAD18.44)
• ShawCor Ltd (TSX: SCL, OTC: SAWLF)–4–3–0 (CAD66.83)
• Vermilion Energy Inc (TSX: VET, OTC: VEMTF)–12–9–1 (CAD79.24)
• Wajax Corp (TSX: WJX, OTC: WJXFF)–3–5–0 (CAD38.57)