2014, A BREAK OUT YEAR FOR GROWTH

Transcription

1 January 2014 CANADIAN OCTOBER GDP RISES MORE THAN EXPECTED 2014, A BREAK OUT YEAR FOR GROWTH CANADA S ECONOMY FLEXES ITS MUSCLES WEAK INFLATION REINFORCES ECB EASING BIAS

2 Volume 38, Number 1 January 2014 IN BRIEF HIGHLIGHTS THIS MONTH RBC ECONOMICS RESEARCH CRAIG WRIGHT SENIOR VICE PRESIDENT & CHIEF ECONOMIST DAWN DESJARDINS ASSISTANT CHIEF ECONOMIST Financial Markets & Financial System PAUL FERLEY ASSISTANT CHIEF ECONOMIST Macroeconomics ROBERT HOGUE SENIOR ECONOMIST Regional Economies LAURA COOPER ECONOMIST Public Policy NATHAN JANZEN ECONOMIST Macroeconomics JOSH NYE ECONOMIST Financial Markets and Microeconomics DAVID ONYETT-JEFFRIES ECONOMIST North American Financial System 2 CANADIAN OCTOBER GDP RISES MORE THAN EXPECTED The continuation of solid GDP growth in October 2013 implied limited slowing in the fourth quarter of 2013 growth relative to the third-quarter 2013 annualized rate of 2.7% , A BREAK OUT YEAR FOR GROWTH The world economy is headed for a breakout year with real GDP growth forecasted to accelerate for the first time since CANADA S ECONOMY FLEXES ITS MUSCLES Real GDP increased by 0.3% in October, which was faster than expected and set the stage for a second consecutive above-potential quarterly increase. Growth in the second half of 2013 was running much faster than the close to 2% pace recorded in the first half of the year and above the 2.1% average pace forecasted by the Bank of Canada in the October Monetary Policy Report. 8 WEAK INFLATION REINFORCES ECB EASING BIAS Survey-based indicators point to modest growth continuing in the euro area with the composite purchasing managers index remaining in expansionary territory for a sixth consecutive month in December. EDITOR Pattie Moran rbceconomicsresearch@rbc.com SUBSCRIPTION INFORMATION rbceconomicsresearch@rbc.com ECONOSCOPE is published and produced monthly by RBC Economics Research. Address all correspondence to the Editor, RBC Economics Research, RBC, 9th Floor, South Tower, 200 Bay Street, Toronto, Ontario, M5J 2J5. Royal Bank of Canada. The material contained in Econoscope is the property of Royal Bank of Canada and may not be reproduced in any way, in whole or in part, without express authorization of the copyright holder in writing. The statements and statistics contained herein have been prepared by RBC Economics Research based on information obtained from sources considered to be reliable. Royal Bank of Canada makes no representation or warranty, express or implied, with respect to its accuracy or completeness. This publication is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities. Econoscope is indexed in the Canadian Business Index available online in the Canadian Business & Current Affairs Database. Registered trade-mark of Royal Bank of Canada Printed on recycled and recyclable paper. Visit our web site...at and Get your issues delivered by ... by sending your request along with your address to rbceconomicsresearch@rbc.com.

3 PAUL FERLEY, NATHAN JANZEN, LAURA COOPER CURRENT TRENDS CANADIAN OCTOBER GDP RISES MORE THAN EXPECTED HIGHLIGHTS GDP strength in October was broadly based with both goods-producing and service sectors rising. December 2013 employment unexpectedly declined a sizeable 45,900 following a 21,600 increase in November. Excluding the volatile motor vehicle and gasoline station components, retail sales rose a robust and stronger than expected 0.8% in October. Housing starts in Canada reached 188,000 units in 2013, which was the slowest annual pace of homebuilding activity since With the November trade deficit remaining sizeable after the revision to the October balance, net exports appear likely to provide a small drag on growth in the fourth quarter of The unadjusted all-items Canadian CPI index was unchanged, on a monthover-month basis, in November. LATEST AVAILABLE: OCTOBER Real GDP % change, month-over-month 0.8 RELEASE DATE: DECEMBER 23, October 2013 gross domestic product 0.4 (GDP) rose 0.3% following a 0.3% 0.2 increase in September. The strength was 0.0 broadly based with output among goodsproducing industries rising 0.4% while services output in total rose 0.3%. Within -0.6 goods-producing sectors, the increase was -0.8 more skewed to a sizeable 1.3% jump -1.0 in manufacturing output. Within manufacturing, there were gains in a number of areas. The increase in manufacturing was tempered by declines in agriculture Source: Statistics Canada (0.4%) and utilities (0.1%). Mining output was flat with a 0.8% drop in oil and gas extraction offset by a 1.0% gain in non-energy mining and a 3.0% surge in support activity (e.g., drilling and rigging services) for mining. The gain in services was helped by the wholesale trade component jumping 1.4% in October. Further support was provided by the transportation and warehousing component rising 0.8%, and the accommodation and food services component increasing 0.6%. Some offset was provided by real estate agents and brokers activity dropping 3.3%. The continuation of solid GDP growth in October implied limited slowing in the fourth quarter of 2013 growth relative to the third-quarter 2013 annualized rate of 2.7%. Unemployment Rate % of labour force Source: Statistics Canada EMPLOYMENT SINKS IN DECEMBER LATEST AVAILABLE: DECEMBER RELEASE DATE: JANUARY 10, 2014 Canadian employment in December 2013 sank 45,900 following a 21,600 increase in November. The drop in employment sent the December unemployment rate up sharply to 7.2% from 6.9% in November. Employment in goods-producing industries dropped 23,800 after a 5,900 rise in November. The weakness in December reflected declines in construction (14,100), agriculture (9,800) and forestry (8,000). Some offset was provided by a 7,500 rise 2 ECONOSCOPE, ROYAL BANK OF CANADA

4 in the manufacturing sector that added to the 24,900 gain in November. Serviceproducing sectors were also weak dropping 22,100 and led by educational services (18,500), accommodation and food services (16,000), and the other services component (15,000). The weakness was concentrated in full-time employment, which dropped 60,000 with a 14,200 rise in part-time employment. The weakness was also skewed to private employment (-26,300) and the self employed (-37,900) with public employment rising 18,200. We assume that the December decline will be more than reversed in subsequent months with the unemployment rate dropping back down closer to the November rate of 6.9% as we move into Retail Sales % change, month-over-month CANADIAN OCTOBER RETAIL SALES DROP LATEST AVAILABLE: OCTOBER RELEASE DATE: DECEMBER 20, 2013 Nominal retail sales in October 2013 unexpectedly fell 0.1% although this followed a robust 1.0% surge in September. On a volumes basis, retail sales rose 0.2%, which built further on a 1.0% surge in September. The increase in October was restrained by a larger than expected drop in auto sales of 1.9% and a price-related 1.6% decline in sales at gasoline stations. Excluding both the auto and gasoline station components, sales rose an impressive 0.8% following a 0.1% increase in September. This increase was led by a 1.7% surge in sales at food stores and by a 2.7% jump in electronic and appliance store sales, with additional strength also apparent in sales at miscellaneous retailers (0.8%) and clothing stores (0.4%). HOUSING STARTS FALL TO FOUR-MONTH LOW IN DECEMBER LATEST AVAILABLE: DECEMBER RELEASE DATE: JANUARY 9, 2014 Housing starts fell by 4.1% to an annualized 189,700 in December 2013 (see Housing Starts chart on page 4). The drop in overall housing starts reflected declines in both urban single-unit (-6.7%) and urban multiple-unit (-4.1%) starts. Rural starts rose by 4.1% to provide some offset. Weakness was concentrated in the Prairies (-18.7%), Ontario (-6.9%), and Atlantic Canada (-9.1%). In contrast, strength in the multiples component drove overall increases in British Columbia (14.5%) and Quebec (5.1%). Housing starts in Canada reached 188,000 units in 2013, which was the slowest annual pace of homebuilding activity since We anticipate that housing starts will transition to 182,000 annualized units in 2014 and moderate further to 174,000 annualized units by 2015, which would be a level Source: Statistics Canada ECONOMY AT A GLANCE % change from: Latest Previous Year month month ago Real GDP Oct Industrial production Oct Employment Dec Unemployment rate* Dec Manufacturing Production Oct Employment Dec Shipments Oct New orders Oct Inventories Oct Retail sales Oct Car sales Oct Housing starts (000s)* Dec Exports Nov Imports Nov Trade balance ($billlions)* Nov Consumer prices Nov * Levels are shown for the latest period and the same period a year earlier. Source: Statistics Canada, RBC Economics Research ECONOSCOPE, ROYAL BANK OF CANADA 3

5 Housing Starts Thousands Source: Canadian Mortgage and Housing Corporation Merchandise Trade C$ billions, annualized Imports Exports Source: Statistics Canada Consumer Price Index % change, year-over-year that is more consistent with household formation in Canada. Statistics Canada s New Housing Price Index held steady on a month-over-month basis in November 2013 following a 0.1% gain recorded in October. New home prices were 1.4% above their year-ago level in November. In another release, building permits fell 3.7% on a month-over-month basis in November 2013 partially to retrace a 7.1% jump in October. NOVEMBER TRADE DEFICIT LARGER THAN EXPECTED LATEST AVAILABLE: NOVEMBER RELEASE DATE: JANUARY 7, 2014 The November 2013 merchandise trade deficit of $0.9 billion was much larger than the $0.1 billion expected. This represented an unchanged deficit from October s $0.9 billion with the earlier month being revised significantly from a previously estimated surplus of $0.1 billion. The unchanged November deficit resulted as both exports and imports were essentially unchanged in dollar terms. On a volumes basis (using 2007 chained dollars), the deficit rose marginally to $1.5 billion in November from $1.4 billion in October with the 0.4% drop in exports slightly outpacing a 0.3% drop in imports. CANADIAN CONSUMER PRICE INFLATION STAYED MODEST IN NOVEMBER LATEST AVAILABLE: NOVEMBER RELEASE DATE: DECEMBER 20, 2013 Canada s headline consumer price index was unchanged on a not seasonally adjusted basis in November On a year-over-year basis, the inflation rate rose to 0.9% from 0.7% in October. The Bank of Canada s core measure unexpectedly dipped 0.1% on an unadjusted basis in the month. The year-over-year rate dipped to 1.1% from 1.2% in October and 1.3% in September. Month-over-month growth in the unadjusted headline index was weighed down by falling gasoline prices, which fell 1.1% in the month; however, this did not prevent the year-over-year rate of growth in the component from rising to 0.4% from -4.3% in October as a larger 5.7% monthly drop in November 2012 fell out of the year-over-year calculation. Seasonal declines in travel services (-3.2%) and clothing (-2.0%) prices were also recorded with offset provided by a 1.6% increase in home insurance prices and a 1.5% increase in electricity prices Source: Statistics Canada 4 ECONOSCOPE, ROYAL BANK OF CANADA

6 DAWN DESJARDINS FINANCIAL MARKETS 2014, A BREAK OUT YEAR FOR GROWTH The world economy is headed for a breakout year with real GDP growth forecasted to accelerate for the first time since Global growth steadily slowed to just 2.9% in 2013 from 5.2% in 2010, as heavy and widespread fiscal restraint, political uncertainty, and the implementation of structural reforms weighed on activity. To be sure, banking sector reforms and additional government spending cuts are likely to limit growth in some regions; however, with much of the heavy lifting already done, forecast surprises, should they come, are likely to be to the upside. The arrival of the long-awaited global growth upturn will likely have limited implications for monetary policy in the near term. In December 2013, the US Federal Reserve made a tentative step in pulling back the amount of ongoing stimulus by announcing a $10 billion cut to the monthly bond purchase program. By itself, this was a small step, however, it signalled that policymakers view the downside risks to the economy as having dissipated. With that said, further cuts to this program are predicated on the economy maintaining this improved momentum. In Canada, the Bank is watching for evidence that the strengthening in the US will translate into higher demand for Canadian exports while the European Central Bank (ECB) continues to remind markets that there are policy tools, including asset purchases that could be implemented if the economic outlook does not improve. In the UK, the Bank of England s (BoE) forward policy guidance linking the level of the unemployment rate to the timing of policy changes looks likely to be reset to ensure that the rest of the economy is able to catch up with the sharp improvement in labour market conditions. HIGHLIGHTS Stronger global growth is likely in With significant excess capacity keeping global inflation low, central banks are likely to keep their policy rates steady. The US Federal Reserve trimmed its monthly bond purchase program by $10 billion although it will still buy $75 billion of securities this month. Financial markets took the Fed s announcement in stride. More tapering is likely to be announced later this month given the improved tone in the economic data. Financial markets took the Fed s December 2013 announcement that it would taper its asset buying program in stride with US stock markets continuing to chalk up gains. US ECONOMY FULL STEAM AHEAD Third-quarter 2013 annualized US GDP growth was revised upward to 4.1% from 3.6%, reflecting faster consumer spending growth and modestly firmer business investment. The final revision showed a slightly more favourable composition in the drivers of the quarterly increase although it was still a sizeable inventory build that provided the biggest contribution. Data on activity in the fourth quarter point to another solid gain, and we upwardly revised our forecast to show a 3.0% annualized increase even after incorporating a drop in government spending related to the shutdown of the federal government in October and the partial reversal of the third quarter s inventory build. Retail sales, industrial production, and durable goods orders all showed strong increases in October and November. Similarly, the real trade deficit narrowed in this period to stand well below the third-quarter average, which ECONOSCOPE, ROYAL BANK OF CANADA 5

7 US Real GDP Quarter-over-quarter annualized % change Forecast Source: Bureau of Economics Analysis, RBC Eco. Research Fed Funds Rate % Annual Growth Rates 12 13f 14f 15f Real GDP Forecast Source: Federal Reserve Board, RBC Economics Research is consistent with net exports giving a lift to the economy s growth rate in the fourth quarter. All of this good news was accompanied by somewhat modest employment growth, with a weak December payroll report limiting the fourth-quarter average gain to 172,000, which marked only a slight strengthening from the 167,000 average increase in the third quarter. Nonetheless, recent job numbers show the unemployment rate dropped down to an average of 7.0% in the fourth quarter from 7.8% a year ago. MEASURED STEPS Despite the run of stronger growth reports, inflation pressures remain tame with the annual increase in both the overall and core measures remaining well below the Fed s objective of 2% as of November Thus, the Fed s decision to start the taper process reflected its assessment that the improvement in economic growth and labour market conditions would eventually translate into the inflation rate reaching the 2% target. We expect the economy will be able to maintain the above-potential growth exhibited in the second half of 2013, thereby keeping downward pressure on the unemployment rate and reducing the amount of spare capacity in the economy. Against this backdrop, the Fed is likely to continue gradually reducing the size of its monthly purchase program with the upcoming meeting in late January 2014 providing the next opportunity. This will be the last meeting with Chairman Bernanke as head of the Federal Reserve with Janet Yellen stepping into the role on February 1, Further reductions in the size of the monthly bond buying program are contingent on labour market conditions continuing to improve and inflation moving toward the long-term objective, and even then, policy changes will be made in measured steps. Our baseline view is that the Fed will cut the size of the program at upcoming meetings by $10 billion per month with the program likely to end in the second half of Changes to the more traditional policy tool, the fed funds rate target band, will be slower, with the current range of 0.00% to 0.25% likely to be maintained throughout Our forecast is for the unemployment rate to break through the Fed s 6.5% threshold and the inflation rate to approach the 2% objective in mid-2015, setting up for the Fed to raise the funds target band late in the year. The profile for Fed policy is consistent with interest rates rising, albeit at a slow pace. The yield on the twoyear bond is expected to hold below 1.0% throughout 2014 while the 10-year rate is forecasted to reach 3.6% by year end. Short-term interest rates are likely to rise more aggressively in 2015 with the two-year rate projected to end 2015 at 2.05% and the 10-year at 4.20%. 6 ECONOSCOPE, ROYAL BANK OF CANADA

8 DAWN DESJARDINS FINANCIAL MARKETS CANADA S ECONOMY FLEXES ITS MUSCLES Real GDP increased by 0.3% in October 2013, which was faster than expected and set the stage for a second consecutive above-potential quarterly increase. Growth in the second half of 2013 was running much faster than the close to 2% pace recorded in the first half of the year and above the 2.1% average pace forecasted by the Bank of Canada in the October Monetary Policy Report. We upwardly revised our fourthquarter forecast to 2.6% from 2.4%, only marginally slower than the third-quarter 2.7% rise. The upgrade reflected signs of strength in business investment and consumer spending as well as a firming in housing starts. The stronger than expected gains in these spending components more than made up for the soft performance in the trade sector in both October and November. Disappointingly weak exports and imports in the two-month period set up for net exports to act as a drag on growth in the fourth quarter. GOVERNOR POLOZ SEES CURRENT POLICY RATE AS APPROPRIATE In early January 2014, Governor Poloz stated that the current level of interest rates would remain appropriate until the data flow changes. The Governor acknowledged that inflation has been underperforming the Bank s models although this has not translated into a shift in inflation expectations, which remain anchored about the 2% target. He reiterated the Bank s view that the global outlook has improved and correspondingly the expectation that Canadian export growth will strengthen ahead. While 2013 marked a year of extreme volatility in monthly employment data, including a sharp drop in December, employment in the fourth quarter was still up 0.9% relative to a year ago with the unemployment rate dropping to 7.0% in the quarter from 7.2% a year ago. Back-to-back quarters of above-potential growth will chip away at the output gap; however, the economy will need to maintain this pace for the next couple of years to reach full capacity and eliminate the slack in labour markets. We expect the Bank of Canada to maintain the current level of policy stimulus with the overnight rate at 1.0% in CANADIAN DOLLAR S FALL BUILDS SPEED Even with the economic news surprising on the side of strength, the currency s tumble took on speed in early 2014, losing 1.2% against the US dollar in the first five trading days of the year. The slide began in late October 2013 when the Bank shifted away from its mild tightening bias. Fundamentally weakening commodity prices outside of energy reduced rate hike expectations, and the significant slowing in foreign purchases of Canadian bonds supported the Canadian dollar s losses. We, however, view the recent negative sentiment as overdone given the general improvement in the economic backdrop and our view that although the Bank will not raise the policy rate in 2014, neither will it lower the overnight rate. HIGHLIGHTS Canada s economy is likely to record another above-potential quarter of growth in the fourth quarter of The economy maintained a solid clip in October 2013, leading us to revise our fourth-quarter 2013 forecast upward to 2.6%. While the growth picture is improving, inflation remains low and is running below the Bank s target band. The Canadian dollar took a drubbing in early 2014; however, the improvement in the economic data flow and steady Bank of Canada policy will likely put an end to the rapid pace of decline. Canada's Real GDP Quarter-over-quarter % change, annualized rate Annual Growth Rates 12 13f 14f 15f Real GDP Source: Statistics Canada, RBC Economics Research Forecasts ECONOSCOPE, ROYAL BANK OF CANADA 7

9 DAWN DESJARDINS, JOSH NYE FINANCIAL MARKETS WEAK INFLATION REINFORCES ECB EASING BIAS HIGHLIGHTS The euro area continues to grow modestly, but inflation remains well below the ECB s target. With the UK unemployment nearing the MPC s 7% threshold, we expect forward guidance will be strengthened in February Sub-trend growth in 2014 will see the RBA keep rates low for an extended period. Above-trend growth and an expected pickup in inflation put the RBNZ on track to begin tightening in March. Survey-based indicators point to modest growth continuing in the euro area with the composite purchasing managers index (PMI) remaining in expansionary territory for a sixth consecutive month in December 2013; however, the headline index continues to mask divergences within the core economies as German activity strengthens while French readings point to further contraction in the euro area s second-largest economy. Italian and Spanish readings improved in December and indicated expansion in both economies. Overall, we expect euro area growth will pick up modestly to a 0.3% pace in the fourth quarter from 0.1% in the third quarter. Weak underlying growth has kept inflation subdued, with the flash estimate showing prices rose just 0.8% in the year to December. We forecast inflation will remain below the ECB s target in 2015 and thus expect rates will be held at current levels for that period. While deterioration in the economic outlook or further softening in inflation could lead the ECB to act on its easing bias, continued contraction in business credit makes it more likely that the ECB s next move will be to implement targeted measures to boost lending by announcing another longer-term refinancing operation (LTRO) linked to credit creation Eurozone Real GDP Growth % change, quarter-over-quarter Forecast BANK OF ENGLAND LIKELY TO ADJUST FORWARD GUIDANCE Strong PMI readings in the final quarter of 2013 are consistent with growth being maintained at the solid 0.8% non-annualized pace seen in the third quarter. Although the composite PMI trended lower in the quarter, it stood at an elevated 59.2 in December, which is consistent with the economy continuing to grow at a solid clip, albeit at a more sustainable 0.5% quarterly rate. The unemployment rate continued to fall faster than anticipated, having dipped to 7.4% in October from 7.6% in the previous month, with expectations for a further decline in November. With the unemployment rate moving rapidly toward the Monetary Policy Committee s (MPC) current 7.0% threshold, we think it likely that the BoE would adjust the forward guidance in the February Inflation Report to emphasize that despite the drop in the unemployment rate, slack remains in the economy. A broadening in the forward guidance will be aimed at allaying concerns that a rate hike is imminent, and we expect the policy rate will be held at its current level at least through Annual Growth Rates 12 13f 14f 15f Real GDP Source: Eurostat, RBC Economics Research RESERVE BANK OF AUSTRALIA (RBA) TO KEEP RATES LOW FOR LONG Growth in Australia is likely to remain anaemic although strength in retail sales in November 2013 hint that the RBA s rate cuts may be gaining some traction. With that said, a weak labour market is likely to keep the economy growing at a subpar pace in the near term. Consumer spending and exports need to become the main sources of growth going forward, as the economy transitions away from relying 8 ECONOSCOPE, ROYAL BANK OF CANADA

10 heavily on resource-driven investment. Given the weak pace of growth and limited inflationary pressures, the RBA maintained a mild easing bias in December with the minutes of that meeting showing that the Board has not closed off the possibility of a further reduction in the Official Cash Rate (OCR). With that said, Governor Stevens recently hinted at limitations to further monetary policy stimulus with the cash rate at an historic low. While we maintain our call for a final 25-basis point cut in the second quarter of 2014, we acknowledge the hurdle to do so remains high. More importantly, we expect the cash rate to stay at an historical low for an extended period in ECB Refi Rate % Forecast RESERVE BANK OF NEW ZEALAND (RBNZ) ON TRACK FOR RATE HIKE Growth in New Zealand accelerated to a 1.4% non-annualized pace in the third quarter from 0.3% in the second quarter, validating expectations that the economy shifted into higher gear in the second half of Strengthening demand boosted underlying price pressure, with inflation picking up to a 1.4% year-over-year rate in the third quarter, following a year of sub-1% inflation readings. Solid growth momentum and the pickup in inflation (with further increases expected) put the RBNZ on track to tighten monetary policy in the first quarter of While a move could come as early as January, we expect the first rate hike will be made in March as the RBNZ awaits further evidence on the effects of macro-prudential measures introduced in October to curb high house price inflation. We expect 75 basis points of hikes in 2014 bringing the official cash rate to 3.25% by year end Source: ECB, RBC Economics Research ECONOSCOPE, ROYAL BANK OF CANADA 9

11 FORECAST DETAIL CANADA RBC FORECASTS OF THE ECONOMY AND FINANCIAL MARKETS = Forecast Annual Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q GROWTH IN THE ECONOMY PERIOD-OVER-PERIOD ANNUALIZED PERCENT CHANGE UNLESS OTHERWISE INDICATED Household consumption Durables Semi-Durables Non-durables Services Government expenditures Residential investment Business investment Non-residential structures Machinery & equipment Final domestic demand Exports Imports Inventories (change in $b) Real gross domestic product OTHER INDICATORS YEAR-OVER-YEAR PERCENTAGE CHANGE UNLESS OTHERWISE INDICATED Business and labour Productivity Pre-tax corporate profits Unemployment rate (%)* Inflation Headline CPI Core CPI External trade Current account balance ($b) % of GDP Housing starts (000s)* Motor vehicle sales (mill., saar)* INTEREST AND EXCHANGE RATES %, END OF PERIOD Overnight Three-month Two-year Five-year year year Canadian dollar * Quarterly averages, level Source: Bank of Canada, Statistics Canada, RBC Economics Research forecasts January ECONOSCOPE, ROYAL BANK OF CANADA

12 FORECAST DETAIL UNITED STATES RBC FORECASTS OF THE ECONOMY AND FINANCIAL MARKETS = Forecast Annual Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q GROWTH IN THE ECONOMY PERIOD-OVER-PERIOD ANNUALIZED PERCENT CHANGE UNLESS OTHERWISE INDICATED Consumer spending Durables Non-durables Services Government spending Residential investment Business investment Non-residential structures Non-residential equipment Intellectual property Final domestic demand Exports Imports Inventories (change in $b) Real gross domestic product OTHER INDICATORS YEAR-OVER-YEAR PERCENTAGE CHANGE UNLESS OTHERWISE INDICATED Business and labour Productivity Pre-tax corporate profits Unemployment rate (%)* Inflation Headline CPI Core CPI External trade Current account balance ($b) % of GDP Housing starts (000s)* Motor vehicle sales (mill., saar)* INTEREST RATES %, END OF PERIOD Fed funds Three-month Two-year Five-year year year Yield curve (10s-2s) * Quarterly averages, level Source: U.S. Bureau of Economic Analysis, RBC Economics Research forecasts January 2014 ECONOSCOPE, ROYAL BANK OF CANADA 11

13 CURRENT TRENDS CURRENT ECONOMIC INDICATORS CANADA - US COMPARISONS FROM FROM YEAR- LATEST FROM FROM YEAR- LATEST PRECEDING YEAR TO- MONTH PRECEDING YEAR TO- MONTH MONTH AGO DATE MONTH AGO DATE BUSINESS Industrial production Oct Nov. Mfg. inventory - shipments (level) Oct Nov. New orders in manufacturing Oct Nov. Business loans - Banks Nov Dec. Index of stock prices Dec Dec. HOUSEHOLDS Retail sales Oct Dec. Auto sales Oct Dec. Total consumer credit Oct Nov. Housing starts Dec Nov. Employment Dec Dec. PRICES Consumer price index Nov Nov. Producer price index Oct Nov. INTEREST RATES Policy rate Dec Dec. 90-day commercial paper rates Dec Dec. Government bonds (10 years) Dec Dec. Seasonally adjusted % changes unless otherwise indicated. Interest rates are levels. 1 The U.S. series is an index. 2 Canada = S&P/TSX; United States = S&P Excludes credit unions and caisses populaires. 4 Canada s producer price index is not seasonally adjusted. January ECONOSCOPE, ROYAL BANK OF CANADA

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