Retail Sales Rebound in Canada and the United States

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1 WEEKLY NEWSLETTER Retail Sales Rebound in Canada and the United States #1 BEST OVERALL FORECASTER - CANADA HIGHLIGHTS ff Retail sales in the United States rebounded significantly in. ff Canada: The total annual inflation rate rises from 1.5% to %. ff Canada: The trade balance in constant dollars worsened in February. ff Canadian businesses feel less confident. A LOOK AHEAD ff A new slowdown in real GDP growth in the United States is expected for Q1. ff United States: After strong gains in February, home sales probably fell in January. ff The Bank of Canada is expected to leave its key rates where they are. FINANCIAL MARKETS ff The Canadian stock market posted a good weekly performance. ff Bond yields settled close to last Friday s levels. ff The euro retreats on the release of disappointing indicators in Europe. 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, Deputy Chief Economist Carine Bergevin-Chammah, 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 2019, Group. All rights reserved.

2 Key Statistics of the Week UNITED STATES CANADA ff Retail sales jumped % in after falling % in February. This marks the strongest monthly growth since September Motor vehicle sales climbed 3.1%, and the value of service station sales increased 3.5%. Excluding motor vehicles and gas, sales rose 0.9% after falling 0.7% in February. Sales were up sharply for clothing stores (+%), furniture stores (+1.7%), nonstore retailers (+%) and miscellaneous (+%). ff The total consumer price index (CPI) rose 0.7% in, in line with our expectations. As expected, the spike in gas prices boosted inflation for the month. Excluding this component, total monthly CPI growth would have been around %, corresponding more or less to seasonal fluctuations. In other words, prices for the other components increased relatively slowly in. The total annual inflation rate went from 1.5% to %. The annual average change in the Bank of Canada s (BoC) three benchmark indexes rose to % from % in February. It is interesting to note how close inflation is getting to the median target. This trend has been corroborated by the BoC benchmark indexes for several months. ff Industrial production fell 0.1% in after an equivalent increase in February. Manufacturing output marked time after two consecutive declines: - % in January and -% in February. This stagnation occurred despite motor vehicle output plunging %. Mining sector output was down an astonishing %. Energy production performed better than expected, with a small % gain as the milder weather pointed to a contraction after the 3.7% jump in February. ff The U.S. balance of trade in goods and services improved for the second month in a row, up from -US$59.9B in December (the worst since October 2008) to -US$5B, then -US$49.4B in February. This is the smallest deficit since June. Exports increased %, while imports only grew %. ff The leading indicator gained % in after rising 0.1% in February. This is the highest increase since September The gain in the leading indicator in is largely due to fewer jobless claims, but also to the rise in household confidence, stock market gains and improved credit conditions. No component contributed negatively. Francis Généreux, Senior economist ff The value of merchandise exports fell % in February, while the value of imports decreased %. In real terms, exports dropped 3.8% and imports %. Therefore, the balance went from +$0.14B to -$8B in 2012 dollars. ff According to the BoC s establishment survey, sales growth expectations remain positive, but they did moderate during recent quarters. This is due to the difficulties of the energy sector, the slowdown in the housing market, and the impact of global trade tensions. As a result, the survey indicator dipped slightly into negative territory, a sign of the decline in business confidence. ff Retail sales rose % in February, lifted by price hikes (especially gas) and a rebound in motor vehicle sales. However, in real terms, sales increased only %. ff Manufacturing sales fell % in February. Sales were down in 15 of the 21 main industries, accounting for 65.9% of the entire manufacturing sector. In real terms, sales were down %, while inventories were up %. Benoit P. Durocher, Senior economist 2

3 Financial Markets The U.S. Stock Market Takes a Breather The U.S. stock market struggled a bit this week. The disappointing earnings of the financial sector in the United States dragged down the main stock indexes on Monday. For Tuesday s session, it was mainly the health care sector that dampened the stock market amid investor concerns that stricter regulations would be introduced. Encouraging GDP data in China released overnight between Tuesday and Wednesday saw stock indexes soar at opening, only to fall back down on lasting concerns in the health care sector. The release on Thursday of stronger-thanexpected retail sales in the United States lifted the U.S. stock markets temporarily. All in all, the S&P 500 was showing a nearly flat performance for the week. The Canadian stock market fared better, with most of the gains recorded on Monday and Thursday. At the time of writing, the S&P/TSX index was up by almost 1% for the week. U.S. bond yields climbed considerably on Tuesday and early Wednesday as rising inflation expectations began to be felt, supported by rising oil prices. These expectations faded by Wednesday, however, lowering bond yields. Despite the small jump on Thursday morning on the release of U.S. retail sales data, bond yields failed to recoup the ground lost the day before. U.S. 2-year and 10-year yields now stand at about 2.40% and 5%, respectively. Bond yields in Canada fell on Monday, but they recovered on Tuesday and Wednesday. At the time of writing, the 2-year yield was around 0% and the 10-year yield was close to. It was generally quiet on the foreign exchange market this week. The loonie was subject to a bit more volatility due to the more pessimistic snapshot drawn from the Bank of Canada s survey. The loonie then started to rise, especially on Wednesday with the release of solid data in China and an improved global environment that was more favourable to risk-taking. Several other currencies also recorded gains that day. However, most of these gains were erased by Thursday morning, as the disappointing data in Europe heightened investors cautious stance. Even the greenback seemed to benefit on Thursday from the better-than-expected retail sales data in the United States. The loonie was trading just below US$ at the time of writing, despite the solid data on retail sales in Canada. GRAPH 1 Stock markets Index Index 2,925 16,600 2,900 16,500 2,875 16,400 2,850 16,300 2,825 16,200 2,800 2,775 16,100 2,750 16,000 2,725 15, /03/ /03/ /03/ /04/ /04/ /04/17 S&P 500 (left) S&P/TSX (right) Sources: Datastream and, Economic Studies GRAPH 2 Bond markets 10-year yield In % points In % /03/ /03/14 Spread (left) 2019/03/ /04/01 United States (right) 2019/04/ /04/17 Canada (right) Sources: Datastream and, Economic Studies GRAPH 3 Currency markets US$/C$ US$/ Hendrix Vachon, Senior Economist Carine Bergevin-Chammah, Economist /03/ /03/ /03/ /04/2019 Canadian dollar (left) 09/04/ /04/2019 Euro (right) Sources: Datastream and, Economic Studies 3

4 A Look Ahead UNITED STATES MONDAY 22 - ann. rate 5,300,000 5,375,000 February 5,510,000 Existing home sales () In February, home resales posted the highest monthly growth since December However, the 1% gain came on the heels of an overall decline of 12.6% between November 2017 and January That increase may be fleeting, though, because another decline is expected for, as suggested by the 1.0% drop in pending home sales. The increase in applications for mortgage loans in anticipation of purchases is nevertheless an encouraging sign. All in all, sales of existing homes are expected to come in at just under 5,400,000 units, well above recent lows. TUESDAY 23rd - ann. rate 650, ,000 February 667,000 New home sales () For the first time since winter 2018, new single-family home sales increased for two months in a row: January (+8.2%) and February (+4.9%). Those two gains have almost wiped out the losses of previous months. A slight decrease in new home sales is now expected for. Sales should reach 625,000 units. THURSDAY 25-8:30 m/m % -0.7% February -% New durable goods orders () New orders were down % in February, due mainly to a pullback in the aviation sector. Boeing s figures point to another negative contribution from that sector in. The automobile sector should also push orders down. We expect a slight gain of % for new orders not including transportation, after two 0.1% drops in a row. That would be in line with the level of the new orders component of the ISM manufacturing index. On the whole, total durable goods orders should go down 0.7%. FRIDAY 26-8:30 Q st est. ann. rate % % Q rd est. % Real GDP (Q1 first estimate) After a strong 4.2% gain in spring 2018 and a 3.4% gain in the summer, U.S. real GDP growth slowed to % at the end of last year. We expect it has grown even more slowly in Q Very little growth in real consumption is forecasted, about +% annualized. Household spending was affected by a slump in sales of durable goods, automobiles in particular. It should be noted that the rebound in retail sales in eased the expected weakness in consumption. In terms of investment, relatively modest gains are expected. Nevertheless, better contributions from net exports, business inventories and State and local spending will largely offset the weakness in consumption. All in all, we expect an annualized % gain in real GDP. Final domestic demand may grow at about 1.0%. nd CANADA TUESDAY 23rd - 8:30 February January m/m 0.1% 0.1% % WEDNESDAY 24-6 Wholesale trade (February) As attested by the % drop in exports in February, some wholesale sectors could experience difficulties this month. That is the case for the automobile industry and construction equipment and supplies, for example. In the circumstances, there should be practically no increase in wholesale trade for February. Meeting of the Bank of Canada () Despite some encouraging signs, such as the faster than expected growth of real GDP by industry in January, Canada s economic outlook is still very uncertain. In addition, domestic demand has not stopped adjusting to the higher interest rates, and the energy sector is still affected by weaker oil production. In those circumstances, there is every reason to believe that the new Monetary Policy Report will once again feature a downward revision of the Bank of Canada forecasts, including for Canada s real GDP. It is more than likely that the monetary authorities will stick with the status quo, leaving the target for the overnight rate at. 4

5 OVERSEAS DURING THE WEEK : Economic indicators A number of major indicators for will be released on Thursday evening. They will shed light on s real GDP growth predictions for Q1. Retail sales had dipped % in February, while industrial output climbed 0.7%. s housing starts and unemployment rate will also be released at the same time, as will the first estimate of inflation in Tokyo in. TUESDAY 23rd - Euro zone: Consumer confidence index Consumer confidence is starting to show signs of stabilizing in the euro zone. The negative trend that had set in since the cyclical peak in December 2017 stopped a year later, and confidence has been edging up since the beginning of We can now hope that this recent upward trend continued in. As for business confidence, some French indicators will be released on Wednesday, 24, as will Germany s Ifo business indexes

6 Economic Indicators Week of 22nd to 26, 2019 Day Hour Indicator Period Previous data UNITED STATES MONDAY 22 Existing home sales (ann. rate) 5,300,000 5,375,000 5,510,000 New home sales (ann. rate) 650, , , n/a % 200, % 192,000 -% Q1f % 97.0 % 96.9 % 96.9 TUESDAY 23 WEDNESDAY 24 THURSDAY 25 8:30 8:30 Initial unemployment claims Durable goods orders (m/m) 8:30 Real GDP (ann. rate) Michigan s consumer sentiment index final FRIDAY 26 CANADA MONDAY 22 TUESDAY 23 8:30 8:30 Wholesale sales (m/m) Wholesale inventories (m/m) 0.1% n/a 0.1% % % % Bank of Canada meeting Release of the Bank of Canada Monetary Policy Report WEDNESDAY 24 THURSDAY 25 FRIDAY 26 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 22nd to 26, 2019 Country Hour Indicator Period m/m (q/q) y/y Previous data m/m (q/q) y/y OVERSEAS MONDAY 22 TUESDAY 23 Euro zone Consumer confidence preliminary WEDNESDAY 24 France France Germany Germany Germany --0:30 1:00 1:00 2:45 2:45 4:00 4:00 4:00 Bank of meeting All industry activity index Leading indicator final Coincident indicator final Business confidence Production outlook Ifo survey Business climate Ifo survey Current situation Ifo survey Expectations THURSDAY 25 Sweden 3:30 19:30 19:30 19:50 19:50 Bank of Sweden meeting Consumer price index Tokyo Unemployment rate Industrial production preliminary Retail sales -5% -5% % 2.4% 2.3% 0.1% -3.8% 0.7% % 1.0% % FRIDAY 26 France Russia 0:00 1:00 2:45 6:30 Vehicle production Housing starts Consumer confidence Bank of Russia meeting n/a 4.4% % 7.75% % % n/a n/a % -% % -% % 7.0% 4.2% 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 $B) GDP deflator (2009 = 100) Labor productivity (2009 = 100) Unit labor cost (2009 = 100) Employment cost index (Dec = 100) Current account balance ($B)1 1 VARIATION (%) LEVEL ANNUAL VARIATION (%) Quart. ann. 1 year ,765 13,032 3, , ,553 3,509 19, 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 ($B) Housing starts (k)1 Building permits (k)1 New home sales (k)1 Existing home sales (k)1 Commercial surplus ($M)1 Nonfarm employment (k)2 Unemployment rate (%)1 Consumer price ( = 100) Excluding food and energy Personal cons. expenditure deflator (2009 = 100) Excluding food and energy Producer price (2009 = 100) Export prices (2000 = 100) Import prices (2000 = 100) 1 * * * * * * * VARIATION (%) LEVEL ,012 14,617 4, , , , ,499 2,017 1,162 1, ,510-49, , month -3 months -6 months -1 year ,273 1, ,930-51, ,206 1, ,210-50, ,280 1, ,350-54,868 1, ,290 1, ,610-55,719 2, 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 , , , , , , ,063,439 1,166, , , ,315 13, , ,843 2,036, , ,237, ,372 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 1,949, ,479 56, ,829 50,615 36,872 63,547-2,895 47,971 50,865 18, ,012 16, ,001,502-1 month -3 months -6 months -1 year , , , 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 LAST 52 WEEKS IN % (EXPECTED IF INDICATED) ACTUAL 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) ,898 26,511 1, ,907 26,412 1, ,801 25,502 1, ,671 24,706 1, ,768 25,444 1, ,670 24,463 1, ,931 26,828 1, ,753 25,145 1, ,351 21,792 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 Treasury bonds 2 years Treasury bonds 5 years Treasury bonds 10 years Treasury bonds 30 years S&P/TSX index (level) Exchange rate (C$/US$) Exchange rate (C$/ ) 16, , , , , , , , , Ov erseas Euro zone ECB Refinancing rate Exchange rate (US$/ ) United Kingdom BoE Base rate Bonds 10 years FTSE index (level) Exchange rate (US$/ ) 0 7, , , , , , , , , Germany Bonds 10 years DAX index (level) , , , , , , , , ,382 BoJ Main policy rate Nikkei index (level) Exchange rate (US$/ ) 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