Howdy, forex buddies! We’ve got another BOC monetary policy statement coming up this Wednesday. And if you’re wondering how Canada’s economy has been faring lately, then today’s Economic Snapshot is jsut 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.
- 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 on 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).
- Monthly GDP growth for January 2017 was 0.63%
- Monthly GDP growth for February, meanwhile, was 0.03%
- Compared to GDP by the end of Q4 2016, that’s a quarter-on-quarter increase of 0.66%.
- The Canadian economy only saw a net increase of 3.2K jobs in April (+19.4K previous).
- This marks the ninth consecutive month of jobs growth.
- However the reading missed expectations for a 20K increase.
- Moreover, the increase in April is the smallest in nine months.
- Worse, the increase was due to 34.3K increase in part-time jobs offsetting the loss of 31.2K full-time jobs.
- This is the first decrease in full-time jobs after four consecutive months of increases.
- Also, this is the biggest loss of full-time jobs since July 2016.
- Looking at the other labor indicators, Canada’s jobless rate improves from 6.7% to 6.5%.
- This is the lowest jobless rate since October 2008.
- However, the improvement in the jobless rate was mainly due to the participation rate slumping from 65.9% to 65.6%.
- This is the worst reading for the participation rate in eight months.
- Moving on to wage growth, average hourly earnings fell by 0.15% to $26.08 in April.
- This is the first monthly fall in eight months.
- Year-on-year, average hourly earnings only increased by 0.66%.
- This marks the second consecutive month of weaker annual increases.
- Canada’s headline CPI only increase by 0.4% month-on-month in April (+0.2% previous).
- This marks the fourth consecutive month of positive readings.
- The 1.6% increase from the transportation component was the main driver, followed by the 0.7% increase for the cost of household operations, furnishings and equipment, and then the 0.3% increase in the cost of food items.
- The higher cost of transportation, in turn, was due to the higher cost of fuel, with gasoline surging by 9.5% (-1.1% previous).
- Almost all other CPI components printed increases, with the exception of clothing and footwear (-1.1% vs. +2.4% previous) and recreation and education (-0.9% vs. +1.5% previous).
- Year-on-year, headline CPI increased by 1.6% in April, matching the pace set in March, but below expectations for a 1.7% increase.
- The main drag to the year-on-year reading was even cheaper food prices (-1.1% vs. -1.9% previous) and lower prices for clothing and footwear (-2.0% vs. -0.9% 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, it ticked lower from 1.4% to 1.3%.
- This marks the third consecutive month of weaker readings.
- Moreover, the reading for April is the weakest since November 2013.
- Meanwhile, the weighted median CPI, which is a core measure that filters out extreme movements specific to certain CPI components in a given month, it also ticked lower from 1.7% to 1.6%.
- This also marks the third consecutive month of deteriorating readings.
- In addition, this is the poorest reading since September 2015.
- 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, it held steady at 1.3%.
- The marks the fourth consecutive month that the CPI measure has been holding steady at 1.3%.
Business Conditions & Sentiment
- The RBC-Markit manufacturing PMI reading for April climbed from 55.5 to 55.9.
- This is the highest reading since April 2011.
- In addition, the PMI reading has been above the 50.0 stagnation level for 14 consecutive months now.
- Moreover, this marks the seventh consecutive month of improving readings.
- According to commentary from the PMI report, the higher reading was “boosted by steeper rises in new orders and employment.”
- Also, April saw the “Sharpest upturn in stocks of inputs for almost five years.”
- Another bright spot is that “April data pointed to a moderate increase in new export orders, with the rate of expansion the fastest since March 2016.”
- In addition, “Stronger demand for raw materials contributed to a sharp and accelerated pace of cost inflation in April. Higher prices for steel and chemicals were mentioned in particular. Pressure on margins resulted in another robust increase in factory gate prices.”
- Moving on, the comprehensive Ivey PMI for April jumped from 61.1 to 62.4.
- This is the best reading since January 2016.
- However, the improved reading appears to be due mainly to prices index soaring from 57.0 to 70.9, because the other components actually deteriorated.
- The component that took the hardest hit was the inventories index since it dropped from 61.7 to 46.5.
- This means that inventory levels decreased, although it’s not clear if the decrease was due to stronger-than-expected demand or because companies were expecting demand to weaken.
- The headline value of retail sales in Canada increased by 0.7% in March (-0.4% previous).
- However, the increase in retail sales was not broad-based, with only 6 of the 11 store types reporting higher sales.
- Also, the large bulk of the increase in retail sales came from the 3.2% surge in sales reported by motor vehicle and parts dealers.
- However, sales from motor vehicles and parts dealers are stripped from the core reading.
- And that’s the core reading fell by 0.2% month-on-month, missing expectations for a 0.2% rise.
- Year-on-year, headline retail sales surged by 6.9% (+5.1% previous).
- This same rate of increase as in January 2017 and is a shared highest reading since June 2014.
- The faster year-on-year reading was mainly due to higher sales from motor vehicle and parts dealers (+10.2% vs. +2.8% previous).
- The total value of building permits issued in March was $7.0 billion, which is 5.8% lower compared to February.
- The drop was due to lower construction intentions for multiple family homes (-20.9%) and commercial buildings (-7.6%).
- These were partially offset by the 3.0% increase in single family homes (-4.9% previous) and the 10.5% increase for industrial buildings (-2.1% previous).
- Looking forward, the number of housing starts in April was 214.098K units, which is less than the previous month’s 252.305K increase.
- Meanwhile, Canada’s new housing price index (NHPI) continued to trend higher.
- NHPI for January increased by 0.2% to 100.7.
- NHPI has been trending higher since 2009.
- Of the 27 metropolitan areas surveyed, “new housing prices were up in 19 … with the largest increases in Oshawa (+1.1%) and Guelph (+0.9%).”
- Canada trade deficit narrowed from $1,081.3 million to $134.7 million in March.
- That’s in Canadian dollars or Loonies, by the way.
- Even so, this marks the second month of deficits after three consecutive months of surpluses.
- Also, there’s a net deficit in Q1 2017 compared to a small surplus in Q4 2016, so trade will likely be a drag on GDP, at least on a quarterly basis.
- The smaller trade gap in March was due to exports rising by 3.8% after falling by 2.5% in February.
- However, trade printed a deficit nonetheless because imports increased by 1.7% after a paltry 0.1% increase previously.
- The monthly rise in exports was driven mainly by the 6.8% increase in exports of consumer goods, the 7% increase in exports of energy products, and the 7.1% increase in exports of metal and non-metallic mineral products.
- The main drags, meanwhile, came from the 1.9% slide in exports of metal ores and non-metallic minerals and the 1.6% contraction in the exports of motor vehicle and parts.
- Year-on-year, exports surged by 12.9%.
- This is the fastest annual increase since July 2014.
Putting it all together
The BOC projects that Q1 2017 GDP grew by 2.2% year-on-year and 3.8% quarter-on-quarter annualized.
And based on the monthly GDP readings, GDP growth is currently on track to meet the BOC’s forecast, although that would also depend on whether or not GDP grew during the March period. And looking at the available indicators for GDP during the March period, there is probably nothing to worry about because retail sales picked up in March while the trade deficit narrowed. Construction intentions continue to fall, though, so private investment will likely be a drag again, although the full impact of that disappointing trend would only be felt in the longer-term.
Anyhow, growth may not be a problem, at least in the near term. However, CPI came in at 1.6% year-on-year in March, missing the BOC’s forecast of +2.0%. Moreover, the BOC forecasts that annual CPI will drift lower to 1.7% by the end of Q2, but the reading for April came in at 1.6%, which is already below the BOC’s forecasts. Worse, two out of three core measures that the BOC has been keeping an eye on have been trending lower.
And while labor market conditions looks mixed, they’re actually tilted more to the negative, since the participation rate dropped while wage growth has been slowing on an annual basis and even contracted for the first time in eight months. These imply weakness in the labor market, although it hasn’t translated to a significant hit for consumer spending yet.
As for Canada’s housing market problems, construction intentions for residential buildings fell in February and then again in March. The number of housing starts also moderated in April. While these developments would obviously be bad for GDP growth, they at least show that residential construction activity, which the BOC says is driven largely by speculation, is beginning to ease, lowering the risk for a housing market bubble.