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Howdy, forex buddies! Another BOC statement is coming our way this Wednesday (March 1, 3:00 pm GMT).  So if you wanna get up to speed on Canada’s overall economic situation, or maybe you’re just wondering how Canada’s economy has been faring lately, then today’s Economic Snapshot is just for you.

Note: As with all of my other Economic Snapshots, there are nifty tables at the bottom, so you can skip to those if you’re a forex trader who’s in a hurry. The bullet points provided highlight the underlying details and trends that give the numbers their proper context, however.

Growth

  • Canada’s GDP rebounded by 0.9% quarter-on-quarter in Q3 2016 after contracting by 0.3% back in Q2 2016.
  • This is the fastest quarterly expansion in nine quarters.
  • Year-on-year, Canada’s Q2 GDP grew by 1.3%, accelerating from the previous quarter’s 1.1% rate of expansion.
  • According to the GDP report, the quarter-on-quarter reading rebounded in Q3 primarily because of the 2.2% increase in exports (-3.9% previous).
  • Exports plunged in Q2 mainly because the wildfires in Alberta drastically cut down the production of energy products, namely oil.
  • However, exports of energy products grew by 6.1% in Q3.
  • Exports of consumer goods also rose by 3.6%, after contracting by 6.4% in Q2.
  • Aside from the recovery in exports, the bigger increase in household spending (+0.6% vs. +0.5% previous) helped with the rebound as well.
  • The main drag, meanwhile, came from the 0.5% fall in business investment (-0.1% previous).
  • Business investment has been contracting for eight consecutive quarters already as of Q3 2016.
  • As for the faster annual reading, that was due to the softer fall in business investment (-2.8% vs. -3.5% previous), as well as the weaker decline in exports (-0.3% vs. -1.0% previous).

Employment

  • Net employment in Canada printed a 48.3K increase in January, which is great because the consensus was for a 10.0K loss.
  • However, the previous reading was downgraded from +53.7K to +46.1K.
  • Still, January’s job gains marks the second month of jobs growth after the small 2.4K loss in November.
  • Looking at the details of the jobs report, the net increase in jobs was due to the 15.8K increase in full-time jobs and the 32.4K increase in part-time jobs.
  • This marks the second month of increased in full time jobs.
  • However, the previous month’s 81.3K increase in full-time jobs was downgraded to +70.9K.
  • Moving on, Canada’s jobless rate improved, ticking lower from 6.9% to 6.8%, as the number of unemployed people fell from 1,341.6K to 1,324.4K.
  • Even better, the downtick in the jobless rate was despite the participation rate ticking higher to a 10-month high of 65.9%.
  • This means that the Canadian economy was more than able to absorb the influx of workers who decided to who join or rejoining the labor force.

Inflation

  • Canada’s headline CPI jumped by 0.9% month-on-month in January, ending two months of negative readings.
  • This is the best reading since February 2015.
  • In addition, all CPI components showed improvements compared to the previous month.
  • Moreover, all components were in positive territory except the clothing and footwear component, which printed a 0.9% fall in prices.
  • Still, the 0.9% fall in the price of clothing and footwear in January is much softer compared to the 3.8% drop back in December.
  • Year-on-year, headline CPI increased by 2.1% in January.
  • This is the fastest increase since October 2014 and also marks the second month of ever faster annual increases.
  • Moreover, this already exceeds the BOC’s 2.0% inflation target.
  • The faster annual increase was due primarily to faster increase in the cost of shelter (+2.4% vs. +2.1% previous) and the 6.3% increase in the cost of transportation (+3.0% previous).
  • And the higher transportation costs, in turn, was due to gasoline prices surging by 20.6% (+5.5 previous).
  • These were partially offset mainly by the 2.1% drop in food prices (-1.3% previous).
  • As for the core readings that the BOC is monitoring, trimmed mean CPI, which excludes CPI components that show the most extreme movements in a given month, ticked higher from 1.6% to 1.7%.
  • The uptick effectively puts an end to the downtrend that started after the reading peaked at +2.0% back in June 2016.
  • Moving on, the weighted median CPI, which filters out extreme movements specific to certain CPI components in a given month, held steady at 1.9%.
  • The downtrend that started after the reading peaked at +2.2% back in June 2016 is still intact.
  • As for the common component CPI, which uses a statistical procedure to filter out price movements that might be caused by factors specific to certain components, dipped from 1.4% to 1.3%.
  • The reading for this CPI measure has been flipping between +1.3 and +1.4% since October 2016.

Business Conditions & Sentiment

  • The RBC-Markit manufacturing PMI reading for January jumped from 51.8 to 53.5.
  • This is the highest reading since December 2014.
  • In addition, the PMI reading has been above the 50.0 stagnation level for 11 consecutive months now.
  • Moreover, this marks the fourth consecutive month of improving readings.
  • According to commentary from Markit, the jump “reflected robust rates of output and new order growth in January, alongside a sustained rise in staffing levels.”
  • However, “new export orders picked up at only a moderate pace, although the rate of expansion was the most marked seen since March 2016.”
  • Moving on, the comprehensive Ivey PMI for January eased from 60.8, an 11-month high, to 57.2.
  • The slide in the headline reading was due to the inventories index falling from 54.1 to 46.4.
  • This means that inventory levels contracted, although it’s not clear if the contraction was due to stronger-than-expected demand or because companies were expecting demand to ease.
  • The prices index (70.1 vs. 73.8 previous) also contributed to the weaker headline reading.

Consumer Spending

  • After expanding for four months, the headline value of retail sales in Canada fell by 0.5% in December.
  • This is the biggest monthly fall in 9 months.
  • The fall in retail sales was also pretty broad-based, with 9 of the 11 store types reporting declines.
  • However, the biggest drags came from the 0.9% fall in retail sales from motor vehicle and parts dealers (+1.5% previous), the 0.4% decline reported by food and beverage stores (-0.7% previous), and the 1.3% slump from general merchandise stores (-1.0% previous).
  • The above mentioned store types respectively account for 25.28%, 21.21%, and 12.49% of total retail sales.
  • Retail sales from motor vehicle and parts dealers are stripped from the core reading.
  • However, sales from food and beverage stores, as well as general merchandise stores, are included in the core reading, which is why the core reading still declined.
  • Interestingly enough, retail sales volume actually fell by 1.0%.
  • However, higher store prices gave the value of retail sales a boost, thereby cushioning the fall in headline retail sales value.
  • Year-on-year, headline retail sales surged by 4.3%.
  • This is the best reading in eight months.
  • The faster year-on-year reading was mainly due to higher sales from motor vehicle and parts dealers (+3.9% vs. 2.1% previous), food and beverage stores (+0.5% vs. +0.3% previous), general merchandise stores (4.9% vs. 3.5% previous), and gasoline stations (14.0% vs. 4.3% previous).
  • The 14.0% surge in sales from gasoline stations were attributed mainly to higher gasoline prices.

Housing

  • The total value of building permits issued in December was $7.2 billion, which is 6.6% lower% when compared with November’s reading.
  • December’s slump was mainly due to the value of building permits in British Columbia plunging by 23.5% to $959, as well as oil-rich Alberta’s 24.3% drop to $827 million.
  • The drop in construction intentions for both provinces mainly came from residential buildings.
  • For Canada as a whole, construction intentions for all building types slumped.
  • The 4.1% drop for residential buildings was the biggest drag.
  • But the 9.3% slump for industrial buildings and 14.2% plunge in building permits for commercials buildings were also major drags.
  • Looking forward, the number of housing starts in December was 207.408K units, which is slightly more than the previous month’s 206.305K increase.
  • Canada’s new housing price index (HPI), meanwhile, continued to trend higher.
  • HPI for December increased by 0.1% to 117.5, which is a new record high.
  • HPI has been trending higher since 2009.

Trade

  • Canada printed a $922.8 million trade surplus in December.
  • That’s in Canadian dollars or Loonies, by the way.
  • This marks the second month of surpluses after printing deficits since September 2014.
  • Even better, November’s trade surplus was upgraded from $526.5 million to $1,012.5 million.
  • Still, December’s trade surplus is narrower compared to November’s, mainly because imports jumped by 1.02% to $45,517.5 million after falling by 0.24% in November.
  • Exports, meanwhile, only increased by 0.8% after surging by 5.08% previously.
  • Despite the slower increase, total exports reached a new record high of $46,440.3 in December.
  • The 15.9% surge in exports of energy products was the main driver for the increase in exports.
  • 7 of the remaining 10 sections printed declines, partially offsetting the large positive contribution from energy exports.
  • As for the jump in imports, that was due to the 21.8% surge in imports of aircraft and other transportation equipment, as well as the 6.4% jump in imports of industrial equipment.
  • In terms of export destinations, the U.S., Canada’s main export market, only saw a 0.2% increase.
  • This is much slower than the previous 3.6% increase.
  • However, the slowdown in exports to the U.S. was partially offset by the increase in exports to countries other than the U.S.
  • Exports to countries other than the U.S. rose to a record high of $12.3 in December.

Canadian Economy: Growth

Canadian Economy: Employment

Canadian Economy: Inflation

Canadian Economy: Business Conditions & Sentiment

Canadian Economy: Consumer Spending

Canadian Economy: Housing

Canadian Economy: Trade

Putting it all together

Canada’s Q3 GDP growth was pretty good. And the BOC expects year-on-year growth to pick up (1.6% forecasted for Q4 vs. 1.3% in Q3), as you can see below.

BOC Growth Projections

However, the BOC warned during the January BOC statement that GDP growth will slow down in Q4, at least on a quarter-on-quarter basis, as “the temporary factors that spurred activity in the third quarter of 2016 dissipate,” namely higher energy prices.

And based on the available data, consumer spending and business investment likely slowed down during the Q4 months. However, trade during the Q4 months was impressive, with back-to-back trade surplus in November and December. And as I noted in my breakdown for Q3 GDP, trade was also the major driver for the quarter-on-quarter GDP growth. Moreover, exports of energy products were the main reasons for the trade surplus, particularly in December. So the “temporary factors” that the BOC is referring to haven’t dissipated yet.

As for inflation, inflation greatly improved in January after recovering in December, with the month-on-month headline reading at a 23-month high and the year-on-year reading at a 15-month high. Moreover, the 2.1% headline reading in January is already above the BOC’s 2.0% inflation target. True, higher energy costs (because of higher prices for gasoline) was a major driver, but most other components also saw increases, so the increase in CPI was healthy.

In fact, the BOC’s trimmed mean measure for core CPI ticked higher in January, putting an end to the downtrend that started after the reading peaked back in June 2016. Other measures for the core readings, meanwhile, were steady.

Overall, pretty upbeat, I would say. Although there are some worrying details that have longer-term implications, such as the continuing slide in construction intentions for commercial and industrial buildings. But, again, pretty upbeat overall.

Would this mean a hawkish tone from the BOC? Well, that’s hard to tell. Things were already looking okay ahead of the January BOC statement, which is why market players were expecting the BOC to switch to a hawkish stance or have a neutral bias at least. However, the BOC gave a nasty surprise when Poloz said that “a rate cut remains on the table and it would remain on the table for as long as downside risks [to inflation] are still present.”

What do you think? Will the BOC change its tune? Or will it maintain its easing bias? Share your thoughts by voting in the poll below!