Residential Construction Picks Up in Canada Ahead of New Restrictive Measures

Transcription

1 WEEKLY NEWSLETTER Residential Construction Picks Up in Canada Ahead of New Restrictive Measures #1 BEST OVERALL FORECASTER - CANADA HIGHLIGHTS ff United States: Another solid gain for jobs. ff Second consecutive monthly drop in U.S. consumer confidence according to the University of Michigan index. ff Housing starts surge in Canada in November. ff The Bank of Canada (BoC) opts for the status quo again. ff Canada: The trade balance improved in October. ff Canada: Slowdown in labour productivity in the third quarter. A LOOK AHEAD ff The Federal Reserve is expected to resume its key interest rate hikes at its December 13 meeting. ff An uptick is expected for U.S. retail sales in November. ff United States: Gas prices likely spurred faster consumer price growth. ff Canada: Manufacturing sales expected to inch up in October. FINANCIAL MARKETS ff European markets have a good week, boosted by a break in the deadlocked Brexit negotiations. ff The BoC s cautious tone pulls down bond yields again. ff The loonie wipes out recent gains and falls back to US$0.78. CONTENTS Key Statistics of the Week... 2 United States, Canada A Look Ahead... 4 United States, Canada, Overseas Financial Markets... 3 Economic Indicators of the Week... 6 Tables Economic indicators... 8 Major financial indicators...10 François Dupuis, Vice-President and Chief Economist Carine Bergevin-Chammah, Economist Mathieu D Anjou, Senior Economist Benoit P. Durocher, Senior Economist Francis Généreux, Senior Economist Hendrix Vachon, Senior Economist, Economic Studies: or , ext desjardins.economics@desjardins.com desjardins.com/economics NOTE TO READERS: The letters k, M and B are used in texts and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. The data on prices or margins are provided for information purposes and may be modified at any time, based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. The opinions and forecasts contained herein are, unless otherwise indicated, those of the document s authors and do not represent the opinions of any other person or the official position of Group. Copyright 2017, Group. All rights reserved.

2 Key Statistics of the Week UNITED STATES CANADA ff The establishment survey shows that 228,000 new jobs were created in November following October s 244,000 new jobs (downgraded from 261,000). The construction sector created 24,000 jobs and manufacturing gained 31,000. There were 159,000 net hires in private sector services, following a gain of 213,000 jobs in October. The jobless rate remained at 4.1%. The average hourly wage ticked up in November after slipping % in October (upgraded from 0.0%) and gaining in September. The annual change went from % to 2.5%. ff The number of housing starts reached 252,184 units in November, compared with 222,695 units in October, growth that solidly outstrips expectations. This stems mainly from multi-unit housing in urban regions, although single-family dwellings also increased significantly. This boom is no doubt due to higher housing market activity ahead of tighter mortgage rules slated to come into force on January 1, ff After reaching a cyclical peak in October, the University of Michigan s consumer confidence index declined for the second time in a row in December, going from in October to 98.5 in November and then to 96.8 according to the preliminary version for December. The retreat recorded in December is due solely to the consumer expectations component (from 88.9 to 84.6), while the current situation component climbed again (from to 115.9). ff As predicted, the monetary authorities left their key interest rates unchanged for the second time. Note that growth of the Canadian economy slowed significantly in Q3, compared to its breathless pace during the first half of That made it less urgent to tighten monetary conditions across the country. However, growth perspectives look good for the Canadian economy in the coming quarters, which means key interest rates should go up again in a few months. But we do not know exactly when that will happen. ff Monthly growth in consumer credit was more modest than expected in October. The monthly change went from +US$19.21B in September to +US$22B. While revolving credit (lines of credit and credit cards) picked up some steam, term loans deflated. ff The value of merchandise exports bounced back in October with a % increase. Imports, however, declined %, paving the way for a significant improvement in the trade balance, which went up from -$3.4B to -$B. In real terms, exports rose % while imports slipped 3.2%. After a dismal summer, the fourth quarter is starting on a positive note for international trade. ff After three consecutive monthly increases, the ISM non manufacturing index slid in November from a cyclical peak of 6 to Eight of the non-manufacturing index s ten components retreated. One of the most pronounced drops was observed in new orders (-4.1 points). ff As expected, labour productivity dropped % in Q3 as a result of weaker growth in production than in the number of hours worked during the period. This lower productivity, combined with higher employee wages, led to a % rise in unit labour costs. ff The U.S. balance of trade in goods and services worsened in October, dropping from -US$44.9B in September to -US$48.7B the following month. This is the worst deficit since January. Imports shot up % while exports idled, suggesting that net exports could contribute negatively to real GDP growth in the fourth quarter. Benoit P. Durocher, Senior economist Francis Généreux, Senior economist 2

3 Financial Markets Optimism Over U.S. Tax Reform Fizzles Optimism surrounding the tax reform bill submitted by the U.S. Senate faded as the week advanced due to perceptions of potential complications. The S&P 500 index suffered its longest streak of negative sessions since last March. The index seemed poised to get back on track Friday morning. Canada s stock market recovered on Thursday from its mid-week difficulties, and it was slightly up on Friday compared to last week. Doubts about the effectiveness of oil output quotas drove down crude prices, but they were gaining steam by Friday. The price of a barrel of WTI (West Texas Intermediate) hovered to near US$57 at the time of writing, compared to near US$58 last Friday. In Europe, advances in Brexit negotiations seem to have given stock markets a boost. The FTSE 100 showed a weekly advance of more than 1%, while the DAX was up more than 2%. GRAPH 1 Stock markets Index Index 2,655 16,150 2,640 16,075 2,625 2,610 16,000 2,595 2,580 15,925 2,565 2,550 15, /10/ /11/ /11/ /11/ /11/ /12/07 S&P 500 (left) S&P/TSX (right) Sources: Datastream and, Economic Studies The Bank of Canada s (BoC) announcement that it was keeping its target rate at 1% reversed the recent uptrend in Canadian bond yields. The BoC s cautious side again dampened the impact of solid economic data; 2 year yields fell almost 3 basis points while 10 year yields shed 5 basis points. There was very little movement for short-term U.S. bonds, while 10 year yields declined 3 basis points. The greenback appreciated against several other currencies this week, despite more moderate optimism over tax reform in the United States. The week started off well for the loonie, which rose above US$0.79 in the wake of solid international trade data. The game changed on Wednesday when the BoC maintained its cautious stance. The drop in oil prices drove the loonie down further. Canada s currency temporarily recovered on Friday morning, helped by rising oil prices and strong data on housing starts in Canada. The euro continued its slight downtrend, falling below US$8. The pound sterling lost about once cent this week, and is back at close to US$1.34. Hendrix Vachon, Senior Economist Carine Bergevin-Chammah, Economist GRAPH 2 Bond markets 10-year yield In % points -5 In % /10/ /11/03 Spread (left) 2017/11/ /11/21 United States (right) 2017/11/ /12/07 Canada (right) Sources: Datastream and, Economic Studies GRAPH 3 Currency markets US$/C$ US$/ /10/ /11/ /11/ /11/21 Canadian dollar (left) 2017/11/ /12/07 Euro (right) Sources: Datastream and, Economic Studies 3

4 A Look Ahead UNITED STATES WEDNESDAY December 13 - November m/m October % Consumer price index (November) The consumer price index (CPI) slowed in October after two months of sharper increases triggered by rising gas prices. The CPI s % uptick in October marks the weakest growth since July. New growth is expected in November, fuelled once again by gas prices. The national average price at the pump rose by only % last month, while it usually falls more than 4.4% in November. Seasonal adjustment factors will put upward pressure on the monthly increase in the CPI. We expect the core CPI, which excludes food and energy, to post a monthly gain, as it did in October. The total CPI is expected to rise by. The annual change is expected to rise from 2.0% to %. Core inflation should remain stable at %. WEDNESDAY December 13-1 December % % November 1st % Federal Reserve meeting (December) After a quarterly pause in September, the Federal Reserve (Fed) is poised to order another gradual interest rate increase at its last meeting in A 25 point increase in the key rate would bring the centre of the target band to what was recently projected by the Fed leaders median forecast. The futures market has in fact pegged at more than 98% the probability of a 25 point increase. The comments made by Fed Chair Janet Yellen at the last press conference of her term, the subsequent statement and the Fed leaders new forecasts will provide more clarity on changes in monetary policy for It would be surprising if Jerome Powell s arrival as Fed Chair in February shakes things up. THURSDAY December 14 - November m/m October Retail sales (November) Following the post-hurricane 1.9% rebound in September, retail sales naturally slowed down in October with growth of. The lull in automobile sales was largely responsible for this slowdown. This industry posted another decline in November, based on the data for new automobile sales published early in the month. Rising gas prices should trigger a rebound in the value of service-station sales, however. Sales growth, excluding automobiles and gas, is expected to be somewhat stronger than in October, or compared with. Total sales are expected to tick up. FRIDAY December 15-9:15 November m/m October % Industrial production (November) The post-hurricane rebound in industrial production that began in September extended to October, with a monthly increase of % the sharpest rise since April. More modest growth for November is expected. It would not be surprising if the 1.3% jump in manufacturing output comes in slower. We noticed that the number of hours worked has moderated. However, the current production component of the ISM manufacturing index improved once again in November. We expect to see another decline in production in mining, on the basis of hours worked. Energy production should come in slower than October s 2.0% gain in the post-hurricane rebound. Temperature deviations from seasonal norms point to a slight increase in energy demand, but the risk of a pullback still exists. All told, industrial production should rise by, like manufacturing output. The reading of the New York Fed s Empire index will provide the first clues of the manufacturing sector s strength in December. CANADA FRIDAY December 15 - October m/m September % Manufacturing sales (October) Based on international merchandise trade data, exports in several sectors were up in October, which should reflect positively on manufacturing sales. However, some sectors, including aeronautics, saw their exports decline, which could stifle the increase in total sales. Bottom line: Manufacturing sales are expected to post a slight gain in October. 4

5 OVERSEAS THURSDAY December 14-7:00 December % % November 2nd % : Bank of England meeting (December) Despite the prevailing uncertainty in the, persistent high inflation forced the Bank of England (BoE) to raise the cost of money in November. The BoE indicated nevertheless that if further rate hikes were ordered, they would be very gradual and limited. As a result, we do not expect any movements in December. It will however be interesting to review the report on the decision to assess the probability of another rate hike this winter. Among the economic indicators to be released this week, the consumer price index for November will be released Tuesday. Inflation reached a cyclical peak of 3.0% in October. The unemployment rate will be published Wednesday. Retail sales for November will be released Thursday. THURSDAY December 14-7:45 December % % October 26 % : European Central Bank meeting (December) Following an earlier decision to cut its asset purchases by half, the European Central Bank (ECB) should not announce any policy changes. This measure will take effect early in the year and the new pace of purchases will be kept up until the end of summer An accumulation of solid economic data in the euro zone could nevertheless force the ECB to adopt a more optimistic tone. It will be interesting to note the changes in the main statement issued by the ECB and review the comments made by Mario Draghi at his press conference. Among the economic indicators to be published this week in the euro zone, industrial production for October will be released Wednesday. Output was down % in September. The signs are currently mixed: industrial production fell % in October in, but jumped 1.9% in France. Data on job creation in the third quarter will also be released Wednesday. The preliminary version of the PMI indexes for December will be published Thursday, while the Euroland trade balance for October will be released Friday. 5

6 Economic Indicators Week of December 11 to 15, 2017 Day Hour Indicator Period Previous data UNITED STATES MONDAY 11 TUESDAY 12 Producer price index Total (m/m) Excluding food and energy (m/m) 1 Federal budget (US$B) WEDNESDAY 13 Consumer price index Total (m/m) Excluding food and energy (m/m) Total (y/y) Excluding food and energy (y/y) 1 Federal Reserve meeting 2.2% % 0% $ % % 0% % 2.0% % % 239,000 % 240,000 % % 236, % 0.7% -% % -% % 0.0% % % 19.4 % 77.0% 8 % THURSDAY 14 Initial unemployment claims Export prices (m/m) Import prices (m/m) Retail sales Total (m/m) Excluding automobiles (m/m) 10:00 Business inventories (m/m) FRIDAY 15 9:15 9:15 16:00 Empire manufacturing index Industrial production (m/m) Production capacity utilization rates Net foreign security purchases (US$B) 4-8 CANADA MONDAY 11 TUESDAY 12 WEDNESDAY 13 THURSDAY 14 FRIDAY 15 12:40 National balance sheet New housing price index (m/m) Speech of the Bank of Canada Governor, S. Poloz Q3 9:00 Manufacturing sales (m/m) Existing home sales Note:, Economic Studies are involved every week in the Bloomberg survey for Canada and the United States. Approximately 15 economists are consulted for the Canadian survey and a hundred or so for the United States. The abbreviations m/m, q/q and y/y correspond to monthly, quarterly and yearly variation respectively. Following the quarter, the abbreviations f, s and t correspond to first estimate, second estimate and third estimate respectively. The times shown are Eastern Standard Time (GMT - 5 hours). Forecast of, Economic Studies of the Group. 6

7 Economic Indicators Week of December 11 to 15, 2017 Country Hour Indicator Period m/m (q/q) y/y Previous data m/m (q/q) y/y OVERSEAS MONDAY 11 Italy Japan Japan 18:50 23:30 Retail sales Producer price index Tertiary industry activity index -% 3.3% % - 3.4% 3.4% TUESDAY 12 4:30 4:30 5:00 5:00 Consumer price index Producer price index ZEW survey Current situation ZEW survey Expectations 3.0% 3.0% % % 2.8% WEDNESDAY 13 Italy China China Japan 2:00 4:30 5:00 5:00 21:00 21:00 23:30 Consumer price index final Industrial production ILO unemployment rate Net change in employment Industrial production Industrial production Retail sales Industrial production final % % % 3.4% -1.3% 2.4% 4.2% 4.3% Q3 % 0.0% 3.3% -% 3.3% 6.2% 6.2% % % 5.9% THURSDAY 14 France France France France Switzerland Norway Mexico Japan 2:45 3:00 3:00 3:00 3:30 3:30 3:30 3:30 4:30 7:00 7: :50 Consumer price index final PMI composite index preliminary PMI manufacturing index preliminary PMI services index preliminary PMI composite index preliminary PMI manufacturing index preliminary PMI services index preliminary Swiss National Bank meeting PMI composite index preliminary PMI manufacturing index preliminary PMI services index preliminary Bank of Norway meeting Retail sales Bank of England meeting European Central Bank meeting Bank of Mexico meeting Tankan large manufacturers index Q4 % % % % % % 7.25% 24 % % % % 0,00 % 7.00% 22 FRIDAY 15 France Russia 2:45 5:00 5:30 Wages final Trade balance ( B) Bank of Russia meeting Q % % % - Note: In contrast to the situation in Canada and the United States, disclosure of overseas economic fi gures is much more approximate. The day of publication is therefore shown for information purposes only. The abbreviations m/m, q/q and y/y correspond to monthly, quarterly and yearly variation respectively. The times shown are Eastern Standard Time (GMT - 5 hours). 7

8 UNITED STATES Quarterly economic indicators REF. QUART. Gross domestic product (2009 $B) Consumption (2009 $B) Government spending (2009 $B) Residential investment (2009 $B) Non-residential investment (2009 $B) Business inventory change (2009 $B)1 Exports (2009 $B) Imports (2009 $B) Final domestic demand (2009 $B) GDP deflator (2009 = 100) Labor productivity (2009 = 100) Unit labor cost (2009 = 100) Employment cost index ( 2005 = 100) Current account balance ($B)1 1 VARIATION (%) LEVEL 2017 Q2 ANNUAL VARIATION (%) Quart. ann. 1 year ,170 11,921 2, , ,193 2,787 17, Statistics representing the level during the period; * New statistic in comparison with last week. UNITED STATES Monthly economic indicators REF. MONTH Leading indicator (2010 = 100) ISM manufacturing index1 VARIATION (%) LEVEL month -3 months -6 months -1 year ISM non-manufacturing index1 * Cons. confidence Conference Board (1985 = 100)1 Personal consumption expenditure (2009 $B) Disposable personal income (2009 $B) Consumer credit ($B) Retail sales ($M) * ,972 12,817 3, , , * , ,375 1,889 1, , , , ,328 Building permits (k)1 1,316 1,225 1,230 1,228 1,285 New home sales (k) Excluding automobiles ($M) Industrial production (2007 = 100) Production capacity utilization rate (%)1 New machinery orders ($M) New durable good orders ($M) Business inventories ($B) Housing starts (k)1 Existing home sales (k)1 5,480 5,370 5,440 5,560 5,530 1 * -48,731-44,890-45,162-48,147-43,069 Nonfarm employment (k)2 * 147, ,066 2,071 Unemployment rate (%)1 Consumer price ( = 100) * Excluding food and energy Producer price (2009 = 100) Export prices (2000 = 100) Import prices (2000 = 100) Commercial surplus ($M) Excluding food and energy Personal cons. expenditure deflator (2009 = 100) 1 Statistic shows the level of the month of the column; 2 Statistic shows the variation since the reference month; * New statistic in comparison with last week. 8

9 CANADA Quarterly economic indicators REF. QUART. Gross domestic product (2007 $M) Household consumption (2007 $M) Government consumption (2007 $M) Residential investment (2007 $M) Non-residential investment (2007 $M) VARIATION (%) LEVEL ANNUAL VARIATION (%) Quart. ann. 1 year Current account balance ($M)1 * * 1,860,679 1,071, , , ,508 17, , ,543 1,847, , , , , , ,779 Production capacity utilization rate (%)1 Disposable personal income ($M) Corporate net operating surplus (2007 $M) * ,208, , Business inventory change (2007 $M)1 Exports (2007 $M) Imports (2007 $M) Final domestic demand (2007 $M) GDP deflator (2007 = 100) Labour productivity (2007 = 100) Unit labour cost (2007 = 100) 1 Statistics representing the level during the period; * New statistic in comparison with last week. CANADA Monthly economic indicators REF. MONTH Gross domestic product (2007 $M) Industrial production (2007 $M) Manufacturing sales ($M) Housing starts (k)1 Building permits ($M) Retail sales ($M) Excluding automobiles ($M) * * VARIATION (%) LEVEL 1,750, ,405 53, ,225 49,061-1 month -3 months -6 months -1 year , * 61,990-1, ,364-2, , ,403 * * 44,456 45, Employment (k)2 18, Unemployment rate (%)1 Average weekly earnings ($) , , Wholesale trade sales ($M) Commercial surplus ($M)1 Exports ($M) Imports ($M) Number of salaried employees (k)2 Consumer price (2002 = 100) Excluding food and energy Excluding 8 volatile items Industrial product price (2002 = 100) Raw materials price (2002 = 100) Money supply M1+ ($M) 1 Statistic shows the level of the month of the column; 2 Statistic shows the variation since the reference month; * New statistic in comparison with last week. 9

10 UNITED STATES, CANADA, OVERSEAS Major financial indicators PREVIOUS DATA ACTUAL LAST 52 WEEKS IN % (EXPECTED IF INDICATED) month -3 months -6 months -1 year Higher Average Lower United States Federal funds target Treasury bill 3 months Treasury bonds 2 years Treasury bonds 5 years Treasury bonds 10 years Treasury bonds 30 years S&P 500 index (level) DJIA index (level) Gold price (US$/ounce) CRB index (level) WTI oil (US$/barrel) ,647 24,288 1, ,642 24,232 1, ,582 23,422 1, ,461 21,798 1, ,432 21,272 1, ,260 19,757 1, ,648 24,290 1, ,424 21,464 1, ,239 19,732 1, Canada Overnight target Treasury bill 3 months Treasury bonds 2 years Treasury bonds 5 years Treasury bonds 10 years Treasury bonds 30 years Spread with the U.S. rate (% points) Overnight target -5 Treasury bill 3 months Treasury bonds 2 years Treasury bonds 5 years -8 Treasury bonds 10 years -1 Treasury bonds 30 years S&P/TSX index (level) Exchange rate (C$/US$) Exchange rate (C$/ ) 16, , , , , , , , , Overseas ECB Refinancing rate Exchange rate (US$/ ) BoE Base rate Bonds 10 years FTSE index (level) Exchange rate (US$/ ) 9 7, , , , , , , , , Bonds 10 years DAX index (level) , , , , , , , , ,190 Japan BoJ Main policy rate Nikkei index (level) Exchange rate (US$/ ) 22, , , , , , , , , CRB: Commodity Research Bureau; WTI: West Texas Intermediate; ECB: European Central Bank; BoE: Bank of England; BoJ: Bank of Japan Note: Data taken at markets closing, with the exeption of the current day where they were taken at 11:00 a.m. 10