How y’all doing, forex friends?
Another BOC statement is coming our way this Wednesday, so I thought that now would be a good time to give y’all a roundup of Canada’s major economic reports.
- Canada’s GDP growth slowed in Q4 2016, expanding only by 0.6% quarter-on-quarter (+0.9% previous).
- Year-on-year, Canada’s Q4 2016 GDP grew by 1.9%, accelerating from the previous quarter’s 1.4% rate of expansion.
- According to the GDP report, the quarter-on-quarter reading slowed in Q4 because of a dip in consumer spending (+0.6% vs. +0.7% previous), weaker trade, and the slump in business investments.
- Trade was weaker because exports only rose by 0.3% after surging by 2.3% back in Q3.
- Imports did fall by 3.5% after rising by 1.2% previously, though, which cushioned the negative impact of the slowdown in exports.
- Business investments, meanwhile, slumped by 2.1% (-0.5% previous).
- This marks the ninth consecutive quarter of declines in business investment, as well as the hardest drop in six quarters.
- Worse, the slump in business investments was due to the 5.9% drop (+3.5% previous) in investment in non-residential structures and the 2.7% slide (-3.3% previous) in machinery and equipment.
- As for the acceleration in the year-on-year reading, that was due to stronger consumer spending (+2.4% vs. +2.2% previous), government spending (+2.3% vs. +1.8% previous), government investment (+2.8% vs. +1.2% previous), the 0.8% rise in exports (-0.1% previous), and the 1.3% fall in imports (+0.7% previous).
- Private business investment was still a drag, falling by 3.4% (-3.1% previous).
- The Canadian economy generates a net increase of 19.4K jobs in March (+15.3K previous).
- This marks the fourth consecutive month of job growth.
- Even better, Canada saw full-time jobs growth for the fourth consecutive month.
- The 18.4K increase in March does pale in comparison to the 105.1K generated in February, though.
- Still, an increase in full-time jobs is good, since full-time jobs generally offer better pay and security compared to part-time jobs.
- Also, employment in oil-rich Alberta rose by 20K, all in full-time work, which a great sign of recovery, since Alberta was hit the hardest by the Great Oil Slump of 2014.
- Looking at the other labor indicators, Canada’s jobless rate deteriorated from 6.6% to 6.7%.
- But on an upbeat note, the higher jobless rate was due to the participation rate ticking higher from 65.8% to 65.9%
- Even so, the number of unemployed Canadians rose from 1,286K to 1,314K, which means that the Canadian economy wasn’t able to absorb the influx of new or returning workers.
- Canada’s headline CPI only increase by 0.2% month-on-month in February after jumped by 0.9% previously.
- Despite the slower reading, this still marks the second consecutive month of positive readings.
- The transportation component was the main driver for the previous month’s jump but became the major drag in February (-0.8% vs. +2.8% previous).
- And the slide in the transportation component was due to the 4.9% slump in gasoline prices after the 7.4% surge previously.
- Almost all other CPI components printed increases, with the exception of shelter (-0.1% vs. +0.4% previous) and healthcare (-0.1% vs. +0.7% previous).
- Year-on-year, headline CPI increased by 2.0% in February, a downtick from January’s +2.1%.
- Still, that’s the second-fastest increase since October 2014, but it does put an end to two consecutive months of ever-faster annual increases.
- Moreover, it sits right smack on the BOC’s 2.0% inflation target.
- The main drag to the year-on-year reading was even cheaper food prices (-2.3% vs. -2.1% previous) and the slower increase in the cost of shelter (+2.2% vs. +2.4% previous) and alcoholic drinks and tobacco products (+2.6% vs. +2.7% previous).
- These were partially offset by more expensive transportation costs (+6.6% vs. +6.3% previous) and higher clothing prices (+0.9% vs. +0.3% previous).
- And the faster increase in transportation costs was driven largely by the 23.1% surge in gasoline prices (+20.6% 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 lower from 1.7% to 1.6%.
- Meanwhile, the weighted median CPI, which filters out extreme movements specific to certain CPI components in a given month, held steady at 1.9% for the fourth consecutive month.
- 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, held steady at 1.3%.
- The reading for this CPI measure has been either at +1.3 or +1.4% since October 2016.
Business Conditions & Sentiment
- The RBC-Markit manufacturing PMI reading for March advanced from 54.7 to 55.5.
- This is the highest reading since October 2013.
- In addition, the PMI reading has been above the 50.0 stagnation level for 13 consecutive months now.
- Moreover, this marks the sixth consecutive month of improving readings.
- According to commentary from Markit, the higher reading was “driven by faster rises in production, new orders, and employment.”
- The additional commentary noted that “stronger domestic demand in March, especially among energy sector clients.”
- Regarding production, commentary from the report highlight that “the latest upturn [was] the steepest recorded for over three years.”
- New orders, meanwhile, “expanded at the strongest rate for almost two-and-a-half years in March.”
- The only dark cloud was that “subdued exports sales growth persisted in March, with the latest rise in new orders from abroad only marginal.”
- Moving on, the comprehensive Ivey PMI for March soared from 55.0 to 61.1.
- This is the best reading since January 2016.
- However, the inventories index also jumped from 51.4 to 61.7.
- This means that inventory levels increased, although it’s not clear if the increase was due to weaker-than-expected demand or because companies were expecting demand to increase.
- The prices index, meanwhile, fell from 61.1 to 57.0, which does not bode well for March CPI.
- The headline value of retail sales in Canada soared by 2.2% in January.
- This is the biggest monthly surge since March 2010.
- Even better, the surge in retail sales was broad-based, with 10 of the 11 store types reporting declines.
- Better still, sales were up in all Canadian provinces.
- The biggest driver for retail sales was the 3.8% jump in sales reported by motor vehicle and parts dealers.
- The only drag, meanwhile, was the 0.1% fall in sales from sporting goods, hobby, book and music stores.
- Retail sales from motor vehicle and parts dealers are stripped from the core reading.
- However, the increase in sales from the other store types ensured that the core reading printed a 1.7% increase.
- This is the biggest monthly increase for the core reading since January 2015.
- Year-on-year, headline retail sales surged by 4.5%.
- This is the best reading in 11 months and marks the second straight month of improving readings.
- The faster year-on-year reading was mainly due to higher sales from food and beverage stores (+1.5% vs. +0.6% previous) and gasoline stations (+17.8% vs. +12.8% previous).
- The total value of building permits issued in February was $7.5 billion, which is 2.5% lower% compared to January.
- The drop was due to lower construction intentions for single-family homes (-5.4%), industrial buildings (-2.7%), and institutional buildings (-16.2%).
- These were partially offset by multi-family residential buildings, which increased by 3%, and commercial buildings, which rose by 1%.
- Meanwhile, the number of housing starts in February was 210.207K units, which is more than the previous month’s 208.934K increase.
- Canada’s new housing price index (HPI) continued to trend higher.
- HPI for January increased by 0.1% to 100.1.
- HPI has been trending higher since 2009.
- Of the 27 metropolitan areas surveyed, “new housing prices were up in 14, down in 7 and unchanged in 6,” with Toronto being the top contributor.
- Canada reported a rather disappointing $972.1 million trade deficit in December.
- That’s in Canadian dollars or Loonies, by the way.
- This is the first deficit after three consecutive months of surpluses.
- The trade gap was due to exports contracting by 2.41%, although the slight 0.60% increase in imports also had a small negative contribution.
- Not only that, 8 of 11 sections reported decreases to boot.
- And the largest drags to export value were the 10.6% slump in farms, fishing, and intermediate foods products, the 2.6% tumble in exported energy products, the 5.1% decline in forestry products, the 15.2% plunge in aircraft and other transport equipment, and the 4.3% drop in consumer goods.
- In terms of export destinations, exports to the U.S., Canada’s main export market, saw a 1.2% decrease.
- Exports to China, Canada’s second major export market, fell by 17.3%.
- Interestingly enough, exports to the U.K. surged by 16.6%, making the U.K. Canada’s third-largest export market.
Putting it all together
Canada’s GDP growth slowed in Q4, at least on a quarter-on-quarter basis. If the quarter-on-quarter reading of 0.6% is annualized, however, then it comes in at 2.6%, which is better than the BOC’s forecast of 1.5%, according to the BOC’s January Monetary Policy Report. The year-on-year reading of 1.9% also beats the BOC’s forecast of 1.6%. Even so, there were signs of weakness, since private business investment slumped in Q4 on both a monthly and year-on-year basis.
Inflation, meanwhile, is already beating the BOC’s forecast of 1.8% for Q1 by coming in at 2.0% as of February, which also happens to meet the BOC’s inflation target.
Looking forward, trade was okay in January but did rather poorly in February by printing the first deficit after three months of surpluses.
And Markit’s PMI report for March noted that exports remained anemic, so trade could potentially be weak again in March, threatening the pace of GDP growth.
But on a more upbeat note, consumer spending seems to be picking up the pace, which may offset the weakness in trade. And Markit’s PMI report is also painting an optimistic picture for consumer spending in February and March. And it also helped that labor conditions appeared to be improving since full-time jobs increased for the fourth consecutive month as of March.
With regard to business investment, overall construction intentions for both residential and non-residential buildings fell, which may translate to weaker business investment. After all, one of the major contributors to the slump in business investment in Q4 2016 was the 5.9% drop in investment in non-residential buildings, as noted in one of the bullet points earlier.
As for inflation, the inflation sub-index for Ivey’s PMI report shows that prices are still increasing but continued to trend lower, which may translate to further weakness in CPI.
Overall, a rather mixed picture, since the labor market seems to be improving and domestic demand looks set to continue strengthening. However, prospects for trade look shaky while business investment may suffer from weaker investment in the non-residential building again. Also, inflation remains strong, but leading indicators point to potential weakness.