Housing Market Continues to Go Down in Canada

Transcription

1 WEEKLY NEWSLETTER Housing Market Continues to Go Down in Canada #1 BEST OVERALL FORECASTER - CANADA HIGHLIGHTS ff United States: Retail sales disappoint again, but industrial production rebounds. ff Household confidence in the U.S. continues to rise in according to the University of Michigan index. ff Consumer prices rose slightly in the United States. ff Canada: Household debt remains high. ff Canada: The housing market continues to follow a downward trajectory. A LOOK AHEAD ff The Federal Reserve, now chaired by Jerome Powell, is once again expected to increase the key rate on Wednesday. ff Canada: Retail sales could return to positive territory in. ff Canada: The annual inflation rate could rise from 1.7% to %. FINANCIAL MARKETS ff Fears of protectionism weakened the U.S. stock market. ff Stephen Poloz remains cautious. ff The Canadian dollar keeps sliding, dropping below US$7. 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 2018, Group. All rights reserved.

2 Key Statistics of the Week UNITED STATES CANADA ff Retail sales declined 0.1% in following a similar drop in. Automobile sales shrunk 0.9%, just as they did in. The value of service station sales dropped 1.2%. Excluding autos and gas, sales rose 0.3% after s 0.1% decrease. ff Household credit market debt rose % in the fourth quarter of 2017, an increase similar to that of household disposable income (+1.2%). Under these conditions, household debt remained virtually unchanged in Q4. The ratio of credit market debt to disposable income was at % in the fourth quarter, a level slightly lower than the historical peak of % recorded in the previous quarter. In addition, the effect of the gradual rise in interest rates is starting to show. According to our estimates, the average interest rate on household debt increased from 3.90% at the end of 2016 to 4.06% at the end of Interest payments relative to disposable income therefore went up from 6.28% to 6.55% in one year. If we also consider principal repayments, total debt service rose to 13.83% in the fourth quarter of ff After s increase, price fluctuations stabilized in. The consumer price index (CPI) rose % following the gain recorded the previous month. Energy prices went up 0.1%; a rise in natural gas prices cancelled the drop in gasoline and heating oil prices. The core index, which excludes food and energy, rose % after ticking up 0.3% in. There was another noticeable 1.5% jump in the price of clothing after a 1.7% increase in. Motor vehicle prices declined. The annual change in total CPI edged up from % to %, while core inflation remained steady at %. ff Industrial production bounced back in. The % gain, the strongest since October, comes on the heels of a 0.3% decrease (revised from -0.1%). Manufacturing rose 1.2%, helped by a 3.9% increase in the production of motor vehicles. There was also a remarkable 4.3% rebound in the mining sector, after a surprising 1.5% drop in. However, milder weather caused a 4.7% drop in energy production. ff The regional manufacturing indexes converged in. The New York Fed s Empire index increased from 13.1 to 2, while the Philadelphia Fed s index fell from 25.8 to 2. ff There were fewer housing starts in the United States in. The 7.0% decline came on the heels of a 10.1% jump in and another 7.1% decline in December. The annualized rate reached 1,236,000 units in, which is well below the consensus forecast. However, singlefamily housing starts rose %, while multi-unit housing starts dropped 28.0%. Building permits decreased 5.7% to 1,298,000 units, the lowest level since September. ff After dropping 13.8% in, existing property sales continued to adjust to the new, tighter mortgage rules, declining 6.5% in. Ontario (-5.4%) and British Columbia (-1%) remain among the most affected, with significant declines recorded in. The average price of existing properties has also been decreasing throughout Canada since the beginning of 2018, falling % in. ff As expected, manufacturers lost ground in, with a % decline in sales. The motor vehicle industry, which saw a 6.1% decrease during the month, weighed heavily on sales figures. In real terms, total sales fell %. On the other hand, inventory volumes increased %, so that the total impact of the manufacturing sector on economic growth in will be practically zero. Benoit P. Durocher, Senior economist ff In, the University of Michigan household confidence index rose once again according to its preliminary version, going from 99.7 to 102.0, its highest point since Francis Généreux, Senior economist 2

3 Financial Markets The Markets Remain Edgy Due to the Decisions Made in Washington Uncertainty is affecting the U.S. stock market. Donald Trump once again invoked national security on Monday night when he blocked the acquisition of Qualcomm by Broadcom, a Singapore-based microprocessor manufacturer. The decision revived fears of worsening U.S. protectionism and a potential trade war. Replacing Secretary of State Rex Tillerson with the CIA director on Tuesday morning only fed into the perception that U.S. diplomatic relations are becoming more rigid. The S&P 500 index fell throughout Tuesday s session, but was stable the rest of the week. On Friday morning, it was posting a weekly loss of close to 1%. Canada s stock market gained just over 1% over the week. The U.S. bond market sent contrasting messages this week. The 2 year yield ended the week up slightly, while the 10 year yield fell nearly 5 basis points, dropping back to around 5%. Disappointing retail sales and worries about trade wars in the years to come hurt the long-term yield, but did not seem to have a lasting impact on the 2 year yield. In Canada, the still-cautious tone from the Bank of Canada in Stephen Poloz s speech on Tuesday decreased expectations of monetary tightening, and pulled Canadian yields down. The 2 and 10 year yields continued to slide, ending up at around 0% and 5% on Friday morning. The U.S. dollar sagged on Tuesday in light of concerns over U.S. trade policy. Weak retail sales helped keep the greenback in retreat on Wednesday, but it then rebounded, although it did not make up all the ground lost since last Friday. Overall, the U.S. dollar mainly lost ground against the pound sterling and yen. It was more stable against the euro. The common currency was trading just above US$1.23 at the time of writing, essentially where it closed last Friday. It was a tough week for the Canadian dollar, which dropped back below US$7. The speech by Stephen Poloz contributed to the depreciation, as did concern about the pacing of U.S. protectionist measures and new downtrend in residential real estate. Hendrix Vachon, Senior Economist Carine Bergevin-Chammah, Economist GRAPH 1 Stock markets Index Index 2,825 15,950 2,775 15,750 2,725 15,550 2,675 15,350 2,625 15,150 2,575 14, /02/ /02/ /02/ /02/ /03/ /03/15 S&P 500 (left) S&P/TSX (right) Sources: Datastream and, Economic Studies GRAPH 2 Bond markets 10-year yield In % points /02/ /02/09 Spread (left) 2018/02/ /02/27 United States (right) 2018/03/07 In % /03/15 Canada (right) Sources: Datastream and, Economic Studies GRAPH 3 Currency markets US$/C$ US$/ /02/ /02/ /02/ /02/2018 Canadian dollar (left) 07/03/ /03/2018 Euro (right) Sources: Datastream and, Economic Studies 3

4 A Look Ahead UNITED STATES WEDNESDAY 21-10:00 ann. rate 5,400,000 5,400,000 5,380,000 Sales of existing homes () Resales have been on a downswing for some months; they declined % in December and 3.2% in. We do not expect them to bounce back in. The level of pending existing home sales seem to point to stagnation. We have also noted lower demand for mortgage loans in anticipation of purchases in. Bottom line: sales of existing homes should stay around 5,400,000 units. WEDNESDAY 21-14: % 1.75% 31st 1.50% Meeting of the Federal Reserve () The meeting that will end on Wednesday will be the first one led by Jerome Powell, Donald Trump s choice to succeed Janet Yellen. The change of leadership should not affect U.S. monetary policy. The Federal Reserve (Fed) has already raised its rates five times since the tightening cycle started, and another raise should be announced at the current meeting. 99.2% of the futures market expects it to happen. The comments made by the new Fed Chair at Wednesday afternoon s press conference, the subsequent statement and the Fed leaders new forecasts will provide more clarity on changes in monetary policy for It will be interesting to see whether the Fed predictions go up in response to the different stimuli coming out of Washington. THURSDAY 22-10:00 m/m % 0.8% % Leading indicator () After a % gain in, the leading indicator should continue upward in. Only two components should make negative contributions: the stock markets and building permits. All the other components should be positive, especially jobless claims and hours worked. A 0.8% monthly gain is expected. FRIDAY 23 - New durable goods orders () New durable goods orders were disappointing in with a decline of 3.6%, mainly due to the aviation sector, but also with a 0.3% drop in non-transportation orders. Data released by Boeing points to a rebound in civil aviation. Military orders will likely go up again after plummeting 45.6% in. Automobiles are also expected to post more energetic growth. Durable goods orders, not including transportation, should pick up again in. The new orders component of the ISM manufacturing index is still quite high. In addition, lower corporate taxes and the possibility of completely writing off new equipment investments should have a positive effect sooner or later. All told, a % gain is expected for new orders not including transportation, and total durable goods orders should rebound by %. m/m 1.7% % -3.6% FRIDAY 23-10:00 ann. rate 620, , ,000 Sales of new homes () Sales of new individual homes were down in three of the past four months. In contrast with the December gains, this is the worst monthly drop since August The 593,000 level in was the lowest since August, and there has been a decline of close to 15% since December s recent peak. Better results are expected for, due to improved weather conditions among other things. Moreover, the number of building permits, coupled with the NAHB confidence index, is still high and points to growth in new home sales. We expect sales to go to 635,000 units. CANADA TUESDAY 20 - m/m % % December - Wholesale trade () Canadian wholesalers could be posting somewhat mixed results for. On the one hand, several sectors should pick up again after experiencing difficulties in December. On the other hand, lower exports of goods could put the brakes on some wholesale sales, especially in the automobile products sector. Bottom line: there could be hardly any monthly change in total sales for. 4

5 FRIDAY 23 - m/m % % FRIDAY 23 - December m/m 1.2% % -0.8% Consumer price index () Gas prices at the pump remained virtually unchanged in. However, seasonal fluctuations are usually quite high in, particularly for clothing, and average around +. If we also factor in the upward trend of other determinants, should close with a monthly growth of % of the total consumer price index. The total annual inflation rate could climb from 1.7% to %. Retail sales () The seasonally adjusted price of goods was up 0.3% in. Furthermore, gas prices were up 4.5% for the month, which will inflate the value of sales at service stations. However, preliminary data shows that the number of new automobiles sold was down slightly in after December s significant hike. Taking into account the general conditions that are still very favourable, particularly an unemployment rate close to record lows, total sales could pick up again in. OVERSEAS THURSDAY : PMI indexes () After reaching a new peak in, the Euroland composite PMI index lost 1.7 points in. The 57.1 level is still quite high, and continues to suggest that the euro zone s economy is growing nicely. Among other euro zone indicators to be released this week, Monday will bring the trade balance. Foreign trade has made a significant contribution to the growth of real GDP in recent quarters. The preliminary version of the consumer confidence index will be released on Tuesday. After reaching a cyclical peak in, that index went down noticeably in. The German Ifo business confidence index and the French business confidence index will be released on Thursday. THURSDAY 22-8:00 % % 8 % : Meeting of the Bank of England () The most recent economic figures have been more muted in the, but excess production capacity remains low and inflation is still high. The Bank of England (BoE) still maintains that the inflation is due to the pound s earlier depreciation and higher gas prices, but does not deny the existence of an inflationary imbalance between supply and demand. Further interest rate hikes are needed, but the BoE has indicated that they will be gradual and limited. The next rate hike could come in May when the latest report on inflation is released. With regard to economic indicators, several interesting statistics will come out next week, including consumer prices (Tuesday), labour market data (Wednesday) and retail sales (Thursday). 5

6 Economic Indicators Week of 19 to 23, 2018 Day Hour Indicator Period Previous data UNITED STATES MONDAY 19 9:40 TUESDAY 20 Speech of the Atlanta Fed President, R. Bostic WEDNESDAY 21 10:00 14:00 Current account (US$B) Existing home sales (ann. rate) Federal Reserve meeting THURSDAY 22 10:00 Initial unemployment claims Leading indicator (m/m) FRIDAY 23 8:10 10:00 10:30 19:00 Speech of the Atlanta Fed President, R. Bostic Durable goods orders (m/m) New home sales (ann. rate) Speech of the Minneapolis Fed President, N. Kashkari Speech of the Boston Fed President, E. Rosengren Q ,400, % -12 5,400, % -10 5, % ,000 % 231, % 226,000 % 1.7% 620,000 % 635, % 593,000 % % -% - 1.7% 2.0% % % % 1.7% % 1.7% 1.5% 1.2% 0.9% % % -0.8% -% CANADA MONDAY 19 TUESDAY 20 WEDNESDAY 21 THURSDAY Wholesale sales (m/m) Wholesale inventories (m/m) --Speech of the Bank of Canada Senior Deputy Governor, C. Wilkins FRIDAY 23 Consumer price index Total (m/m) Excluding food and energy (m/m) Total (y/y) Excluding food and energy (y/y) Retail sales Total (m/m) Excluding automobiles (m/m) 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 Daylight Saving Time (GMT - 4 hours). Forecast of, Economic Studies of the Group. 6

7 Economic Indicators Week of 19 to 23, 2018 Country Hour Indicator Period m/m (q/q) y/y Previous data m/m (q/q) y/y OVERSEAS SUNDAY 18 Japan 19:50 Trade balance ( B) MONDAY 19 6:00 6:00 Trade balance ( B) Construction % TUESDAY 20 3:00 5:30 5:30 6:00 6:00 11:00 Producer price index Consumer price index Producer price index ZEW survey Current situation ZEW survey Expectations Consumer confidence preliminary 0.1% 2.0% % 0.1% 2.7% % WEDNESDAY 21 Brazil New Zealand Japan --5:30 16:00 20:30 Bank of Brazil meeting ILO unemployment rate Reserve Bank of New Zealand meeting PMI manufacturing index preliminary 6,50 % 4,4 % 1,75 % 6,75 % 4,4 % 1,75 % 54,1 THURSDAY 22 Japan France France France France France Japan 0:30 3:45 3:45 4:00 4:00 4:00 4:30 4:30 4:30 5:30 8:00 19:30 All industry activity index Business confidence Production outlook PMI composite index preliminary PMI manufacturing index preliminary PMI services index preliminary PMI composite index preliminary PMI manufacturing index preliminary PMI services index preliminary Current account ( B) PMI composite index preliminary PMI manufacturing index preliminary PMI services index preliminary Ifo survey Business climate Ifo survey Current situation Ifo survey Expectations Retail sales Bank of England meeting Consumer price index -% % 1.4% 0.1% % % 1.5% FRIDAY 23 Russia 6:30 Bank of Russia meeting 7.25% % 3.0% % 1.6% 1.4% 7.50% 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 Daylight Saving Time (GMT - 4 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 Q3 ANNUAL VARIATION (%) Quart. ann. 1 year ,272 12,028 2, , ,230 2,883 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 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 ($M) VARIATION (%) LEVEL -1 month -3 months -6 months -1 year * ,049 12,915 3, , * 392, * * * * * * , ,029 1,917 1,236 1, ,380-56, , ,329 1, ,560-53, ,299 1, ,500-49, ,172 1, ,420-45,385 1, ,288 1, ,650-48,692 2, * Excluding food and energy Producer price (2009 = 100) Export prices (2000 = 100) Import prices (2000 = 100) * * * Excluding automobiles ($M) Industrial production (2007 = 100) Production capacity utilization rate (%)1 New machinery orders ($M) New durable good orders ($M) Business inventories ($B) Housing starts (k)1 Building permits (k)1 New home sales (k)1 Existing home sales (k)1 Commercial surplus ($M)1 Nonfarm employment (k)2 Unemployment rate (%)1 Consumer price ( = 100) 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) Business inventory change (2007 $M)1 Exports (2007 $M) Imports (2007 $M) Final domestic demand (2007 $M) GDP deflator (2007 = 100) Labour productivity (2007 = 100) Unit labour cost (2007 = 100) Current account balance ($M)1 Production capacity utilization rate (%)1 Disposable personal income ($M) Corporate net operating surplus (2007 $M) 1 VARIATION (%) LEVEL ANNUAL VARIATION (%) Quart. ann. 1 year , , , , , ,869,857 1,074, , , ,738 13, , ,304 1,865, , ,232, ,320 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 ($M) Wholesale trade sales ($M) Commercial surplus ($M)1 Exports ($M) Imports ($M) Employment (k)2 Unemployment rate (%)1 Average weekly earnings ($) 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 VARIATION (%) LEVEL -1 month -3 months -6 months -1 year 1,760, ,355 54, ,572 49, , ,994-1, , ,442-2, ,839 47, , , , * 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) ,759 24,973 1, ,787 25,336 1, ,732 25,219 1, ,676 24,652 1, ,500 22,268 1, ,378 20,915 1, ,873 26,617 1, ,539 22,789 1, ,329 20,404 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 -1 Treasury bonds 2 years Treasury bonds 5 years -5 Treasury bonds 10 years -0 Treasury bonds 30 years S&P/TSX index (level) Exchange rate (C$/US$) Exchange rate (C$/ ) 15, , , , , , , , , Overseas ECB Refinancing rate Exchange rate (US$/ ) BoE Base rate Bonds 10 years FTSE index (level) Exchange rate (US$/ ) , , , , , , , , , Bonds 10 years DAX index (level) , , , , , , , , ,904 Japan BoJ Main policy rate Nikkei index (level) Exchange rate (US$/ ) 21, , , , , , , , , 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