Canada s Sales Are Disappointing in September

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1 WEEKLY NEWSLETTER Canada s Sales Are Disappointing in September #1 BEST OVERALL FORECASTER - HIGHLIGHTS ff United States: Steepest rise in leading indicator since ff Surprising drop in U.S. new durable goods orders. ff Canada: September saw disappointing results for retail and wholesale trade. A LOOK AHEAD ff A pullback in U.S. new home sales is anticipated. ff United States: After high levels in recent months, declines in the ISM manufacturing and consumer confidence indexes are expected. ff Canada: Real GDP by industry should be back in positive territory in September. ff Canada: The third quarter as a whole could end with real GDP growth of 1.7%. ff Canada s labour market is expected to continue its upward trend in November. FINANCIAL MARKETS ff Stock markets and oil continue to climb. ff Federal Reserve leaders concerns about inflation bring down bond yields. ff The U.S. dollar continues to lose ground. 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 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 ff As forecast, the leading indicator rose sharply in October. The 1.2% monthly gain, the strongest since December 2010, comes on the heels of a % increase in September (revised from -). The main positive contribution comes from the post-hurricane decrease in jobless claims. The ISM index, building permits, interest rates and consumer confidence also made positive contributions. ff Retail sales rose just % in September, coming in well below expectations. On the one hand, the increase in service station sales was not as high as the steep rise in oil prices suggested. On the other hand, new car dealer sales slumped somewhat during the month, whereas preliminary data had shown a significant increase. In real terms, sales were down 0.6% in September. ff Sales of existing homes increased 2.0% in October following September s % gain and August s 1.7% drop. This is the first time since fall 2016 that resales have recorded two monthly increases in a row. Annualized sales jumped from 5,370,000 to 5,480,000 units, the highest since June. All major areas saw higher sales. Single-family home and condo resales climbed 2.1% and 1.7%, respectively. ff Wholesale sales slid 1.2% in September, while most forecasters expected them to be slightly up for the month. With the exception of automotive products and building materials and supplies, all other sectors saw a considerable drop in sales. In real terms, sales fell %. However, this decline is offset by a 0.7% gain in inventory volume. ff New durable goods orders fell 1.2% in October, although the consensus expected a slight increase. The civil aviation sector dove 18.6%, adding to the 11.3% decline in military aviation. The auto sector, however, posted a gain of 1.7%. Excluding transportation, a % increase was observed in October. New capital goods orders, excluding defence and aviation, were down %, the first downward movement since June. Benoit P. Durocher, Senior economist Francis Généreux, Senior economist Retail trade has been hitting some bumps in recent months Real retail sales Monthly variation in % JAN APR. JUL. OCT. JAN APR. JUL. Sources: Statistics Canada and, Economic Studies 2

3 Financial Markets The Federal Reserve Remains Concerned About Weak Inflation The week cut short by Thanksgiving in the United States was good for stock markets. The week had opened amid concerns in Europe that the impasse in Germany could trigger the need for new elections. However, reassuring political developments later in the week and positive economic data contributed to maintaining a positive mood. North American stock markets jumped during Tuesday s session, driven by enthusiasm for tech stocks in particular. A new rise in oil prices and encouraging signs for holiday sales also boosted the stock markets. At the time of writing, the main North American indexes showed weekly gains of close to 1%. Despite the generally upbeat mood, bond yields continued to decline with the 10 year yield dropping to about 2.32% temporarily. Comments from Federal Reserve (Fed) Chair Janet Yellen and the minutes of the last meeting signaling rising concerns about weak inflation boosted U.S. bonds. That said, a rate hike at the December meeting is still almost fully expected. Bond yields in Canada also fell, while weak wholesale and retail sales are another reason for the Bank of Canada to remain cautious. The Feds minutes hurt the greenback on Wednesday, and its slight downtrend continued afterwards. The release of excellent data lifted the euro, which edged closer to US$9. Euroland s PMI indexes pointed to sustained economic growth, which could encourage the European Central Bank to change its tone. The pound climbed back to US$1.33 and s exchange rate is again close to 111/US$. The loonie somewhat capitalized on oil s price hike to US$58 a barrel and the slumping U.S. dollar. The Canadian dollar was trading at more than US$0.785 on Friday. Disappointing data on retail sales in Canada limited the loonie s advance this week. Mathieu D Anjou, CFA, Senior economist Hendrix Vachon, Senior economist GRAPH 1 Stock markets Index Index 2,610 16,150 2,600 16,075 2,590 16,000 2,580 15,925 2,570 15,850 2,560 15,775 2,550 15, /10/ /10/ /10/ /11/ /11/ /11/23 S&P 500 (left) S&P/TSX (right) Sources: Datastream and, Economic Studies GRAPH 2 Bond markets 10-year yield In % points In % /10/ /10/20 Spread (left) 2017/10/ /11/07 United States (right) 2017/11/ /11/23 Canada (right) Sources: Datastream and, Economic Studies GRAPH 3 Currency markets US$/C$ US$/ /10/ /10/ /10/ /11/07 Canadian dollar (left) 2017/11/ /11/23 Euro (right) Sources: Datastream and, Economic Studies 3

4 A Look Ahead UNITED STATES MONDAY November 27-10:00 October ann. rate 625, ,000 September 667,000 New home sales (October) Rebounding by 18.9% in September, sales of new single-family homes reached their highest level since October 2007, a performance that is partially due to the posthurricane thrust. A decline in sales is now expected for October. The level achieved one month earlier is difficult to sustain and similar surges seen in recent years were generally followed by immediate slumps. What s more, while the level of building permits for single-family homes has been rising for the past two months, it points to lower sales. We expect sales to reach 630,000 units, which is still high. TUESDAY November 28-9:00 September y/y 6.00% 6.00% August 5.92% S&P/Case-Shiller existing home price index (September) Monthly growth in the price of homes accelerated in August, for the second straight month. The increase reached % after a % gain in July and a % uptick in June. We expect somewhat smaller monthly price growth in September; a advance is anticipated. The annual change in the S&P/Case-Shiller index should edge up from 5.9% to 6.0%. TUESDAY November 28-10:00 November October Conference Board consumer confidence index (November) In October, the Conference Board index reached its highest level since December After gaining 5.3 points last month, some easing in November is expected. The University of Michigan index has in fact shed a few points during the month. Also noted was a slight dip in the weekly Bloomberg and Gallup indexes in recent weeks. Among some of the factors, rising gas prices should offset the stock market s solid performance. All told, the Conference Board confidence index should slow to still very high and encouraging as the holiday shopping season begins. THURSDAY November 30 - October m/m September % Consumer spending (October) Real consumption in September showed the strongest mothy gain since March. The 0.6% advance was mostly due to the rebound in sales especially automobiles after the hurricanes. More modest growth is expected in October. Automobile sales declined slightly and retail sales posted fairly tepid growth. However, we expect real services to post good gains, based on energy output and data on food services. Real consumption probably advanced in October. Nominal consumption should reach if we add the % gain expected for the consumer expenditure deflator. Nominal personal income should also tick up by. FRIDAY December 1st - 10:00 November October 58.7 ISM manufacturing index (November) The ISM manufacturing index reached its highest level since May 2004 in September, but it lost 2.1 points in October. Another decline is expected for November a signal that the main regional manufacturing indexes are sending. This index should reach 57.5, which is still high. THURSDAY November 30 - Q $B -2-2 Q Balance of payments current account (Q3) The total value of merchandise exports declined 7.9% in the third quarter. The value of merchandise imports also retreated for the period, but to a lesser extent 4.9%. In such conditions, a slight deterioration in the current account balance is expected for Q3. 4

5 FRIDAY December 1st - September August m/m -% Real GDP by industry (September) The different economic results were fairly mixed in September. The volume of manufacturing sales advanced during the month, but their inventories were down. The opposite took place at wholesalers sales volumes declined and inventories rose. At retailers, sales volumes declined by 0.6% in September. Nothing to cheer about here. Other data, however, allow for some optimism. For one, the number of hours worked was up 0.6% in September, with services up %. In the end, the change in real GDP by industry for September is expected to tick up. FRIDAY December 1st - Q ann. rate 1.6% 1.7% Q % Real GDP (Q3) The expected increase in real GDP by industry for September, combined with the almost flat change in July and the % drop in August, mean that an annualized quarterly gain of 1.7% is expected for the third quarter as a whole. This marks a clear slowdown compared to the significant rises recorded in the first two quarters of Domestic demand should once again contribute to economic growth in the third quarter, but its support will largely be offset by the negative contribution arising from the trade balance deterioration. That Statistics Canada will undertake a historical revision of results as of 2014 is also worth noting. FRIDAY December 1st - November 10,000 10,000 October 35,300 Labour Force Survey (November) After 35,300 new jobs were created in October, the labour market s advance should slow somewhat in November to get back to a level that is more in line with the recent months trend. A slowdown could start to affect this trend, with economic growth losing steam in the last few months. In the end, about 10,000 new jobs are expected to be created in November. The unemployment rate could however tick down from 6.3% to 6.2%. OVERSEAS DURING THE WEEK : Economic indicators Among the indicators to be released in the euro zone this week, several confidence indexes for November will be out on Wednesday. The flash version of the consumer confidence index is particularly encouraging, with the reading moving from - to +, the highest level since January For its part, Euroland s composite PMI index rebounded to a new peak in November, moving from 56.0 to The advance estimate for November s inflation will be released on Thursday. The annual change in the total consumer price index was % in October. The unemployment rate for October will also be out on Thursday; the rate was 8.9% in September. DURING THE WEEK : Economic indicators Several monthly indicators for October will be released this week in. Retail sales will be made public Tuesday evening. Retail sales were up % in September. Industrial output and housing start data will be released Wednesday evening. The unemployment rate and the consumer price index will be published Thursday. 5

6 Economic Indicators Week of November 27 to December 1st, 2017 Day Hour Indicator Period Previous data UNITED STATES MONDAY 27 10:00 19:00 New home sales (ann. rate) Speech of the New York Fed President, W. Dudley 625, , ,000 TUESDAY 28 9:00 10:00 Goods trade balance preliminary (US$B) Retail inventories preliminary (m/m) Wholesale inventories preliminary (m/m) S&P/Case-Shiller home price index (y/y) Consumer confidence % 6.00% % % 5.92% WEDNESDAY 29 10:00 10:00 12:45 14:00 Real GDP (ann. rate) Q3s 3.2% Pending home sales (m/m) 1.2% Testimony of the Federal Reserve Chairman, J. Yellen, before a Committee of Congress Speech of the San Francisco Fed President, J. Williams Release of the Beige Book 3.1% 3.0% % 240, , ,000 % % % % % 62.3 % % % 59.0 % % 1.6% 1.3% ,500,000 % ,450,000 % ,000, % - -% THURSDAY 30 Initial unemployment claims Personal income (m/m) Personal consumption expenditures (m/m) Personal consumption expenditures deflator Total (m/m) Excluding food and energy (m/m) Total (y/y) Excluding food and energy (y/y) 9:45 Chicago PMI index FRIDAY :00 10:00 Total vehicle sales (ann. rate) Construction spending (m/m) ISM manufacturing index MONDAY 27 TUESDAY 28 WEDNESDAY 29 --Industrial product price index (m/m) Raw materials price index (m/m) THURSDAY 30 Current account balance ($B) Q FRIDAY 1 Net change in employment Unemployment rate Real GDP by industry (m/m) Real GDP (ann. rate) Q3 10, % 1.6% 10, % 1.7% 35, % -% 4.5% 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 November 27 to December 1st, 2017 Country Hour Indicator Period m/m (q/q) y/y Previous data m/m (q/q) y/y OVERSEAS MONDAY 27 TUESDAY 28 France Germany 2:45 4:00 7:00 18:50 Consumer confidence Money supply M3 Consumer confidence Retail sales 101 Dec WEDNESDAY 29 South Korea France France Germany United Kingdom China China --2:45 2:45 8:00 18:50 19:01 20:00 20:00 Bank of Korea meeting Personal consumption expenditures Real GDP preliminary Business climate Consumer confidence final Industrial confidence Services confidence Economic confidence Consumer price index preliminary Industrial production preliminary Consumer confidence PMI manufacturing index PMI non-manufacturing index Q3 THURSDAY 30 United Kingdom Germany France Italy Italy -0:00 2:45 4: Nationwide house prices Retail sales Housing starts Consumer price index preliminary Unemployment rate Consumer price index estimate Unemployment rate Consumer price index preliminary Household spending Consumer price index Consumer price index Tokyo Unemployment rate % % 2.9% % 4.1% -2.8% -2.9% % 1.2% % % 1% 1% 1.6% % 8.9% 8.9% % % - % % -% - 2.8% 2.8% FRIDAY 1 Italy France Germany Italy United Kingdom 3:45 3:50 3:55 4:00 4:00 4:30 PMI manufacturing index PMI manufacturing index final PMI manufacturing index final PMI manufacturing index final Real GDP final PMI manufacturing index Q % 10.7 % % 0% -% % % % % % 7.2% % % 56.5 % % % % -% % % % 2.8% % 1.6% % % 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 $B) GDP deflator (2009 = 100) Labor productivity (2009 = 100) Unit labor cost (2009 = 100) Employment cost index (Dec = 100) Current account balance ($B)1 1 VARIATION (%) LEVEL ANNUAL VARIATION (%) Quart. ann. 1 year ,157 11,922 2, , ,194 2,789 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 ($M) Excluding automobiles ($M) Industrial production (2007 = 100) Production capacity utilization rate (%)1 New machinery orders ($M) New durable good orders ($M) Business inventories ($B) Housing starts (k)1 * VARIATION (%) LEVEL month -3 months -6 months -1 year ,970 12,796 3, , , * , ,006 1,889 1, , , , ,328 Building permits (k)1 1,297 1,225 1,230 1,228 1,285 New home sales (k) Existing home sales (k)1 * 5,480 5,370 5,440 5,560 5, ,495-42,765-43,543-44,812-38,466 Nonfarm employment (k)2 147, ,004 Unemployment rate (%)1 Consumer price ( = 100) Commercial surplus ($M) Excluding food and energy Personal cons. expenditure deflator (2009 = 100) Excluding food and energy Producer price (2009 = 100) Export prices (2000 = 100) Import prices (2000 = 100) 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 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 1,849,280 1,061, , , ,940 11, , ,879 1,823, , , , , , ,207 Production capacity utilization rate (%)1 Disposable personal income ($M) Corporate net operating surplus (2007 $M) ,213, , 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. 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 ($M) Aug. Aug. * VARIATION (%) LEVEL 1,741, ,369 53, ,861 49,061-1 month -3 months -6 months -1 year * 35, * 61,990-3, ,181-3, ,257 43,560 46, Employment (k)2 18, Unemployment rate (%)1 Average weekly earnings ($) Aug. Aug , , 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,, 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) ,603 23,583 1, ,579 23,358 1, ,581 23,434 1, ,443 21,814 1, ,416 21,080 1, ,213 19,152 1, ,603 23,591 1, ,408 21,280 1, ,191 19,098 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 - Treasury bill 3 months -0 Treasury bonds 2 years -1 Treasury bonds 5 years -4 Treasury bonds 10 years -5 Treasury bonds 30 years S&P/TSX index (level) Exchange rate (C$/US$) Exchange rate (C$/ ) 16, , , , , , , , , Overseas ECB Refinancing rate Exchange rate (US$/ ) United Kingdom BoE Base rate Bonds 10 years FTSE index (level) Exchange rate (US$/ ) 7, , , , , , , , , Germany Bonds 10 years DAX index (level) 6 13, , , , , , , , ,513 BoJ Main policy rate Nikkei index (level) Exchange rate (US$/ ) -0 22, , , , , , , , , CRB: Commodity Research Bureau; WTI: West Texas Intermediate; ECB: European Central Bank; BoE: Bank of England; BoJ: Bank of Note: Data taken at markets closing, with the exeption of the current day where they were taken at 11:00 a.m. 10