Strong Growth Persists in Canada

Transcription

1 WEEKLY NEWSLETTER Strong Growth Persists in Canada # BEST OVERALL FORECASTER - HIGHLIGHTS ff United States: Another August with disappointing job growth. ff U.S. real GDP growth for the second quarter was revised upward. ff United States: The ISM manufacturing index rose to its highest level since 20. ff Conference Board index shows new improvement in U.S. household confidence. ff Canada: Real GDP jumped 4.5% in the second quarter. A LOOK AHEAD ff Canada: The trade balance could deteriorate somewhat in. ff Canada: Employment should continue to rise. ff The Bank of Canada could opt to maintain the status quo in its September decision. FINANCIAL MARKETS ff Stock markets recover fairly quickly from geopolitical and climate disruptions. ff A rate hike in September is now plausible in Canada, according to the markets. ff The Canadian dollar hits US$. 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...0 François Dupuis, Vice-President and Chief Economist Mathieu D Anjou, Senior Economist Benoit P. Durocher, Senior Economist Francis Généreux, Senior Economist Jimmy Jean, 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 207, Group. All rights reserved.

2 Key Statistics of the Week UNITED STATES ff The establishment survey shows that 56,000 net hires were made in August, after 89,000 (downgraded from 209,000) new jobs were created in. Construction hired 28,000 new workers and manufacturing upped its ranks by 36,000. The resources sector created 6,000 new jobs. Private sector services created 95,000 new jobs, almost half of s total of 79,000 new hires. The average hourly wage was up % in August, after a % increase in. The annual change in the hourly wage stayed put at 2.5%. ff Real GDP rose 4.5% (quarterly annualized) in the second quarter. This gain follows a 3.7% increase in the first quarter. Cumulative growth since the beginning of the year is therefore 4.% (annualized), the kind of performance not seen since Domestic demand has remained strong in the second quarter (+3.5%), posting another exceptional gain in household consumer spending (+4.6%). The rebound in non-residential investments also continued on the back of a 7.4% increase. Goods and services exports rose 9.6%, while imports climbed 7.4%. Improvement in the trade balance contributed +0.5% to the annualized quarterly change in real GDP. The only dark spot, albeit not really one, is the decline in residential investment (-4.7%). Since such a slowdown is desired, this cannot be much of a complaint. It should help reduce the risk posed by the vitality of the housing market for the country s financial stability. It now remains to be seen whether this pullback will continue in the next few quarters. ff The jobless rate moved from 4.3% to 4.4%. ff The ISM manufacturing index was up 2.5 points in August, going from 56.3 to This is its highest level since March 20. Five of its ten components increased. The new orders component slipped point, however. ff Real GDP rose 3.0% (annualized) in the second quarter of 207, according to the preliminary estimate for national accounts. This is slightly more than the 2.6% increase of the advance estimate. This is also a brisk acceleration compared with the.2% gain recorded in the first quarter. The upward revision stems from stronger growth in consumption and slower imports. ff The current account balance fell to -$6.3 billion in the second quarter, compared with -$2.9 billion in the first quarter. Trade in goods is behind much of this deterioration, whereas the value of imports rose sharply. Benoit P. Durocher, Senior economist ff According to the Conference Board index, consumer confidence improved for a second straight month, climbing from 7.3 in to 2 in, then to 22.9 in August. This is the highest level since March. The increase is essentially due to the present situation component (+5.8 points), while the expectations component only added point. ff Construction spending slid % in, following a.4% decline in. We note a % increase in residential construction, but a % contraction in private non-residential construction. Public construction fell.4%. ff As expected, the monthly change in the S&P/Case-Shiller index of existing home prices in the 20 largest cities was weak again in, a situation likely due to poorly reflected seasonal factors. The % monthly gain follows a % loss in April, and a % gain in May. The index s annual change went from 5.74% to 5.65%. Exceptional growth in real GDP in the second quarter of 207 Contributions to annualized quarterly change in real GDP In % Francis Généreux, Senior economist 4, ,2 2,7 3,7 Change in inventories and residual error Gross fixed capital formation 0 Consumption -2 Total -4-6 Net exports Q3 206 Q4 Q 207 Sources: Statistics Canada and, Economic Studies 2

3 Financial Markets A Strong Economy is Driving the Loonie and Canadian Rates Up The mood was rather bleak on the stock markets at the opening bell Monday. Geopolitical tensions involving North Korea had intensified over the weekend, while the devastation caused by Hurricane Harvey caused uncertainty as to the impact on the U.S. economy. However, investors did not dwell on these uncertainties for long. The U.S. stock market even posted gains at each trading session this week, and was poised for a weekly gain of %. The S&P/TSX also managed to eke out some gains: although the price of oil had anything but a smooth week, the Canadian stock market benefited from some upward pressure on gold prices. In bond markets, Canada stole the show. Stronger-than-expected growth in real GDP in the second quarter has the markets giving credence to a rise in key interest rates at the meeting next Wednesday. This led to a spike in the short-term rates to.34% at the time of writing, the Canadian rate sitting slightly above its U.S. equivalent, something not seen since spring 205. In the United States, rates tended to decline during the week. Economic data have been mixed: growth was revised upward for the second quarter, but job creation in August disappointed. The spreads between the Canadian and U.S. rates therefore compressed substantially as the week progressed. The U.S. dollar started the week on a negative note when the attention turned to Hurricane Harvey, but bounced back as of Tuesday, stimulated by encouraging economic data. However, comments from the U.S. Secretary of the Treasury, who seemed favourable to a weak dollar, and disappointing employment statistics, then brought downward pressure on the greenback. The euro started strong out of the gate, even topping US$.205 by Tuesday. Rumours that the European Central Bank was worried about the strength of the euro and that it would not be prepared to announce its plan for scaling back its securities purchases brought the euro down slightly below US$.9 Friday. In Canada, economic growth well above expectations and the increasing likelihood of a hike in key rates on September 6 buoyed the loonie after a difficult start to the week. The Canadian currency even briefly touched US$ Friday morning. GRAPH Stock markets Index Index 2,490 5,300 2,480 5,250 5,200 2,470 5,50 2,460 5,00 5,050 2,450 2,440 5,000 2,430 4,950 2,420 4, /07/20 207/07/28 207/08/07 207/08/5 207/08/23 207/08/3 S&P 500 (left) S&P/TSX (right) Sources: Datastream and, Economic Studies GRAPH 2 Bond markets 0-year yield In % points - In % /07/ /07/28 Spread (left) 207/08/07 207/08/5 United States (right) 207/08/23 207/08/3 Canada (right) Sources: Datastream and, Economic Studies GRAPH 3 Currency markets US$/C$ US$/ Jimmy Jean, CFA, Senior economist Hendrix Vachon, Senior economist /07/ /07/28 207/08/07 207/08/5 Canadian dollar (left) 207/08/23 207/08/3 Euro (right) Sources: Datastream and, Economic Studies 3

4 A Look Ahead UNITED STATES WEDNESDAY Sept. 6 - US$B WEDNESDAY Sept. 6-0:00 August Trade balance (May) The U.S. trade balance improved in, due to a slight increase in exports and a decrease in imports. is expected to show a slight deterioration, however. Preliminary data for trade in goods point to a.3% contraction in exports, while imports declined %. The deficit should tick up from US$43.6 billion to US$44.5 billion. ISM non-manufacturing index () The ISM non-manufacturing index lost 3.5 points in, the sharpest monthly drop since November At 53.6, this index is at its lowest point since August 206. We expect a slight increase for August 207. Most household confidence indexes have improved this month and, consumption is performing quite well. Whether Hurricane Harvey hovered over Texas long enough to impact this data remains to be seen. Instead, we expect the non-manufacturing index to improve slightly from 53.9 to TUESDAY Sept. 5 - Q %.4% Labour productivity () Business sector output was up.3% in the second quarter. However, the number of hours worked in the private sector was up.2%, meaning that worker productivity will come in almost flat for the period. The weak productivity gain combined with an uptick in worker compensation should bump up unit labour costs. WEDNESDAY Sept. 6 - $B International merchandise trade () Once corrected for seasonal fluctuations and expressed in Canadian dollars, commodity prices were down % in energy prices alone declined by.8% for the month. This should reduce the value of exports in several natural resource sectors. Furthermore, U.S. data show a 3.6% decline in industrial production in the automobile industry, which could translate to a decline in exports and imports inside this industry. Regarding imports in other sectors, vigorous domestic demand should pave the way for an increase in. In such conditions, international merchandise trade could deteriorate further for the month. WEDNESDAY Sept. 6-0:00 September Bank of Canada meeting (September) In its Monetary Policy Report (MPR), the Bank of Canada expected real GDP growth of 3.4% in the second quarter of 207, driving the total gain for 207 overall to 2.8%. Instead, the results of the economic accounts point to growth of 4.5% in the second quarter, meaning that 207 could end with slightly more than 3.0% growth. Considering Canada s strong economic growth, monetary authorities will have to keep increasing key rates in the months ahead. If the door to a new increase is closed at the September meeting, weak inflation will likely allow the Bank of Canada to wait until October, when its update to the Monetary Policy Report is released. FRIDAY Sept.8 - August Labour force survey (August) Canada s job market has been running smoothly for the past few months. With very robust growth reported recently, all signs suggest the labour uptrend will continue in August. Job creation to the tune of about 33,000 is therefore expected. The unemployment rate could hold steady at 6.3%. FRIDAY Sept. 8 - Q 5,000 33,000 0, % 83.3% Industrial capacity utilization rate () Industrial production rebounded by a quarterly annualized 9.6% in the second quarter; a strong surge that should be a boon to the industrial capacity utilization rate. That said, increased industrial capacity in Canada s economy could curb the recovery of the utilization rate to some degree, as the growth in non-residential investment in the second quarter attests. 4

5 OVERSEAS THURSDAY Sept. 7-7:45 September % 20 % : European Central Bank meeting (September) The euro zone s economy is doing better, and expectations are high that the European Central Bank (ECB) will announce a reduction in its securities purchases. This announcement would not affect purchases in October 207, however, and would probably only take effect in early 208. Weak inflation does not warrant any rush to end purchases. The euro s recent appreciation could in fact prompt the ECB to downgrade its inflation forecasts, which will be released at the same time as its monetary policy decision. The ECB has previously indicated that a 0% increase in the euro would translate to about a % decrease in consumer prices. Among the indicators to be released in the euro zone this week, retail sales in will be published Tuesday; sales posted 0.5% growth in. The final version of real GDP growth in the second quarter will also be released on Tuesday. The previously published non-annualized % gain is not expected to change, but we will know the results for demand per component. The data on industrial output in will be released Thursday, while the results in France will be known Friday. 5

6 Economic Indicators Week of September 4 to 8, 207 Day Hour Indicator Period Previous data UNITED STATES MONDAY 4 TUESDAY 5 7:30 0:00 9:00 Speech of a Federal Reserve Governor, L. Brainard Factory orders (m/m) Speech of the Dallas Fed President, R. Kaplan WEDNESDAY 6 0:00 4:00 Trade balance Goods and services (US$B) ISM non-manufacturing index Release of the Beige Book THURSDAY 7 2:5 9:00 20:5 Initial unemployment claims Nonfarm productivity final (ann. rate) Unit labor costs final (ann. rate) Speech of the Cleveland Fed President, L. Mester Speech of the New York Fed President, W. Dudley Speech of the Kansas City Fed President, E. George FRIDAY 8 8:45 0:00 5:00 Speech of the Philadelphia Fed President, P. Harker Wholesale inventories final (m/m) Consumer credit (US$B) Markets closed (Labor Day) -3.2% -2.8% 3.0% August ,000.2% 0.4% 260,000.6% % 236, % % 0.4% % % Sept. MONDAY 4 Markets closed (Labor Day) TUESDAY 5 WEDNESDAY 6 0:00 International trade ($B) Labour productivity (q/q) Unit labour costs (q/q) Bank of Canada meeting Sept % 0.4% % -0.4% THURSDAY 7 0:00 Building permits (m/m) PMI-Ivey index -% 6 2.5% 6 FRIDAY 8 Industrial capacity utilization rate Net change in employment Unemployment rate 5, % 85.0% 33, % 83.3% 0, % Note:, Economic Studies are involved every week in the Bloomberg survey for Canada and the United States. Approximately 5 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 September 4 to 8, 207 Country Hour Indicator Period m/m (q/q) y/y Previous data m/m (q/q) y/y OVERSEAS DURING THE WEEK China Trade balance (US$B) MONDAY 4 5:00 PMI construction index Producer price index 52.0 % 2.% 5 -% 2.5% TUESDAY 5 Australia Italy Italy France France 0:30 3:45 3:45 3:50 3:50 3:55 3:55 4:00 4:00 5:00 Reserve Bank of Australia meeting PMI composite index PMI services index PMI composite index final PMI services index final PMI composite index final PMI services index final PMI composite index final PMI services index final PMI composite index PMI services index Retail sales Sept. 0% % 2.6% 0% % 3.% WEDNESDAY 6 Brazil --2:00 Bank of Brazil meeting Factory orders Sept. 9.25% % 5.8% 9.25% % 5.% THURSDAY 7 Japan Japan France France Sweden Japan Japan :00 :00 2:00 2:45 2:45 3:30 5:00 7:45 9:50 9:50 Leading indicator preliminary Coincident indicator preliminary Industrial production Trade balance ( M) Current account ( B) Bank of Sweden meeting Real GDP final Minutes of the European Central Bank meeting Current account ( B) Real GDP final Sept. Sept % 4.6% -% % % %, % % -4, % % %,522.5 % FRIDAY 8 France China China 2:00 2:00 2:45 2:30 2:30 Trade balance ( B) Current account ( B) Industrial production Trade balance ( M) Construction Industrial production Consumer price index Producer price index % 3.6% -.% -3,250-4,564 -% % -% % % 0.5%.6% 5.4% 2.4% % 2.6% 0.9% %.4% 5.5% 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) Exports (2009 $B) Imports (2009 $B) Final domestic demand (2009 $B) GDP deflator (2009 = 00) Labor productivity (2009 = 00) Unit labor cost (2009 = 00) Employment cost index (Dec = 00) Current account balance ($B) VARIATION (%) LEVEL 207 Q ANNUAL VARIATION (%) Quart. ann. year ,030,854 2, , ,82 2,796 7, Statistics representing the level during the period; * New statistic in comparison with last week. UNITED STATES Monthly economic indicators REF. MONTH Leading indicator (200 = 00) ISM manufacturing index ISM non-manufacturing index Cons. confidence Conference Board (985 = 00) Personal consumption expenditure (2009 $B) Disposable personal income (2009 $B) Consumer credit ($B) Retail sales ($M) Excluding automobiles ($M) Industrial production (2007 = 00) Production capacity utilization rate (%) New machinery orders ($M) New durable good orders ($M) Business inventories ($B) Housing starts (k) * VARIATION (%) LEVEL month -3 months -6 months - year * * * 22.9,909 2,823 3, , , ,08 229,6,869, , , , ,223 Building permits (k),230,275,228,300,75 New home sales (k) ,440 5,50 5,560 5,690 5,330-43,642-46,39-45,283-44,607-43,835 Nonfarm employment (k)2 * 46, ,097 Unemployment rate (%) Consumer price ( = 00) * Existing home sales (k) Commercial surplus ($M) Excluding food and energy Personal cons. expenditure deflator (2009 = 00) Excluding food and energy Producer price (2009 = 00) Export prices (2000 = 00) Import prices (2000 = 00) * * 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 $M) VARIATION (%) LEVEL ANNUAL VARIATION (%) Quart. ann. year Current account balance ($M) 207 Q 207 Q,849,280,06, ,77 27,850 67,940, , ,879,823, , , , , , ,207 Production capacity utilization rate (%) Disposable personal income ($M) Corporate net operating surplus (2007 $M) 207 Q 83.3,23, , Business inventory change (2007 $M) Exports (2007 $M) Imports (2007 $M) Final domestic demand (2007 $M) GDP deflator (2007 = 00) Labour productivity (2007 = 00) Unit labour cost (2007 = 00) 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) Building permits ($M) Retail sales ($M) Excluding automobiles ($M) Wholesale trade sales ($M) Commercial surplus ($M) Exports ($M) Imports ($M) Employment (k)2 Unemployment rate (%) Average weekly earnings ($) Number of salaried employees (k)2 Consumer price (2002 = 00) Excluding food and energy Excluding 8 volatile items Industrial product price (2002 = 00) Raw materials price (2002 = 00) Money supply M+ ($M) * * VARIATION (%) LEVEL,739, ,94 53, ,062 48,992 - month -3 months -6 months - year , ,433-3, , ,990 46,53 50, , * * , * * * , 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) Sep month -3 months -6 months - year Higher Average Lower United States Federal funds target Treasury bill 3 months Treasury bonds 2 years Treasury bonds 5 years Treasury bonds 0 years Treasury bonds 30 years S&P 500 index (level) DJIA index (level) Gold price (US$/ounce) CRB index (level) WTI oil (US$/barrel) ,477 22,05, ,443 2,84, ,477 22,093, ,439 2,206, ,383 2,006, ,80 8,492, ,48 22,8, ,38 20,236, ,085 7,888, Canada Overnight target Treasury bill 3 months Treasury bonds 2 years Treasury bonds 5 years Treasury bonds 0 years Treasury bonds 30 years Spread with the U.S. rate (% points) Overnight target - Treasury bill 3 months - Treasury bonds 2 years Treasury bonds 5 years -2 Treasury bonds 0 years -2 Treasury bonds 30 years S&P/TSX index (level) Exchange rate (C$/US$) Exchange rate (C$/ ) 5, , , , , , , , , Overseas ECB Refinancing rate Exchange rate (US$/ ) BoE Base rate Bonds 0 years FTSE index (level) Exchange rate (US$/ ) 7 7, , , , , , , , , Bonds 0 years DAX index (level) 8 2,73 2, , , ,027 0, ,889, ,259 Japan BoJ Overnight rate Nikkei index (level) Exchange rate (US$/ ) 9,69 6 9, , , , , , , , 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 :00 a.m. 0