WEEKLY NEWSLETTER Hurricanes Cause a Drop in Employment in the United States # BEST OVERALL FORECASTER - HIGHLIGHTS ff United States: First drop in employment since 200. ff United States: Strongest monthly increase in car sales since 2009 s Cash for Clunkers. ff United States: ISM manufacturing index at its highest since 2004. ff Canada: Employment continues to climb in September. ff Canada: The trade balance deteriorated in August. A LOOK AHEAD ff Energy prices are expected to cause the U.S. consumer price index to rise again. ff The rebound in motor vehicle sales will lead to a sharp increase in retail sales. ff Canada: The number of housing starts may decline slightly in September. FINANCIAL MARKETS ff While the S&P 500 appears unstoppable, the referendum in Catalonia causes uncertainty in Europe. ff Bond markets take note of strengthening wage growth in the United States. ff The loonie falls below US$0. 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... 5 Tables Economic indicators... 7 Major financial indicators... 9 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 Desjardins, Economic Studies: 54 28 2336 or 866 866 7000, ext. 5552336 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 Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins 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. Desjardins 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 Desjardins Group. Copyright 207, Desjardins Group. All rights reserved.
Key Statistics of the Week ff The establishment survey indicates that 33,000 jobs were lost in September, following gains of 69,000 in August and 38,000 in. This is the first decrease since September 200. Food services, the sector hardest hit by the hurricanes, posted a loss of 04,700 jobs. Retailers trimmed 2,900 positions. The jobless rate dropped from 4.4% to 4.2%. The average hourly wage rose %. ff The Canadian labour market saw 0,000 jobs created in September. The trend, aided by a 6 month moving average, currently sits at 24,300, a result similar to that of the last few months. The slight dip from 65.7% to 65.6% in the participation rate helped keep the unemployment rate at 6.2%. Many other signs point to the strength of the labour market. For example, the number of total hours worked in the Canadian economy rose % in September thanks to a % gain in services. The strength of the labour market is also increasingly affecting compensation. The annual change for the average hourly wage continued to climb in September, reaching %. ff The ISM index went from 58.8 in August to 6 in September, its highest point since May 2004. Before that, the last time the ISM was this high was in December 987. Eight of the manufacturing index s ten components went up in September. New orders increased 4.3 points, while supplier deliveries went up 7.3 points. The price component jumped 9.5 points, the strongest growth due to Hurricane Harvey s effects on Texas. ff The non-manufacturing ISM index increased from 55.3 to 59.8 in September. This 4.5 point gain is the strongest since September 206. The level reached is the highest since May 2005, and the third highest since the index was created in 997. Eight of its ten components increased. The main increases were in new orders, production and prices paid. ff The annualized level of new car sales increased from 6.03 millions in August to 8.47 millions in September. This is the highest level since 2005, a time during which significant special discounts stirred up sales. The monthly gain of 5.3% is the highest since August 2009, when the Cash for Clunkers program was in high gear. This rebound is essentially due to purchases to replace vehicles damaged by Hurricane Harvey. ff In the United States, the balance of trade in goods and services improved slightly in August, increasing from -US$43.6B in to -US$4B. Exports of goods and services rose, while imports shrunk by. ff Construction spending grew % in August after declining.2% in (revised from -%). An increase of % in residential construction was noted, as well as a similar gain in private, non-residential construction. Public construction increased by 0.7%. Francis Généreux, Senior economist ff Merchandise exports decreased by % in August. This retreat was in addition to the 4.9% and 5.% declines recorded in June and, respectively. Bearing in mind the near-zero change in imports in August, the trade balance went from -$2.98B to -$3.4B. Expressed in real terms, exports recorded a cumulative decrease of 5.9% since last May. This raises certain questions about the strength of the Canadian export sector. That being said, the trend in foreign demand remains on the upswing, which is reassuring for the coming quarters. However, it bears noting that net exports are likely to contribute negatively to the change in real GDP for the third quarter. Benoit P. Durocher, Senior economist Trend in employment remains fairly strong Monthly change in employment In thousands Employment 60 6-month moving average 40 20 0-20 -40 205 206 207 Sources: Statistics Canada and Desjardins, Economic Studies 2
Financial Markets The Canadian Dollar Continues to Lose Steam The U.S. stock markets picked up where they left off, starting the fourth quarter with a bang. The S&P 500 topped 2,550 points Thursday before retracting on Friday. In contrast, Europe s stock markets were on more of a rollercoaster rise this week, roiled by the political uncertainties in Spain. The referendum on Catalonia s independence ended last Sunday with a stunning victory for the Yes side, but dissent grew among Catalonia s leaders. Moderates viewed the result as a negotiation tool for more autonomy within Spain, while the more radical figures argued for a unilateral declaration of independence. Spain s stock market declined.8% this week. Meanwhile, Canada s stock market was headed for a third consecutive week of gains despite the decline in oil prices to below US$50 a barrel. GRAPH Stock markets Index Index 5,800 2,550 5,650 2,530 5,500 2,50 2,490 5,350 2,470 5,200 2,450 5,050 2,430 4,900 207/08/24 207/09/0 207/09/ 207/09/9 207/09/27 207/0/05 S&P 500 (left) Bond yields were directionless for most of the week. From Monday to Thursday, the U.S. 0 year yield moved within a narrow range between 2.33% and 2.36%. Both ISM indexes exceeded expectations, which reinforced the assumption of additionnal monetary tightening in the United States this December, but did little to move the markets. The jobs data released on Friday did, however, especially the surprise growth in hourly wages, briefly pushing the U.S. 0 year yield to 0%. Yields in Canada trended mostly in line with U.S. yields, except for Thursday, when disappointing data on international trade drove them downward. S&P/TSX (right) Sources: Datastream and Desjardins, Economic Studies GRAPH 2 Bond markets 0-year yield In % points In % 2.3-0. - The Canadian dollar continues to suffer from downside adjustments to monetary tightening expectations in Canada. The loonie fell to below US$0 on Thursday, after the release of disappointing international trade data. Meanwhile, the U.S. dollar made gains against most other currencies due to fairly reassuring economic data, despite the painful hurricane season. The budget plan adopted in the United States is also raising hopes for economic stimulation announcements in the near term. The outcome of the referendum in Catalonia penalized the euro somewhat; Europe s common currency declined to about US$.7. Jimmy Jean, CFA, Senior economist Hendrix Vachon, Senior economist 2. - - 207/08/24.8 207/09/0 Spread (left) 207/09/ 207/09/9 United States (right) 207/09/27 207/0/05 Canada (right) Sources: Datastream and Desjardins, Economic Studies GRAPH 3 Currency markets US$/C$ US$/ 3.2 2.20.9 0.8 0.79 207/08/24.7 207/09/0 207/09/ 207/09/9 Canadian dollar (left) 207/09/27 207/0/05 Euro (right) Sources: Datastream and Desjardins, Economic Studies 3
A Look Ahead FRIDAY October 3 - September Desjardins August m/m % 0.7% FRIDAY October 3 - September Desjardins August m/m.4% % -% FRIDAY October 3-0:00 October Desjardins September 95.3 94.0 95. Consumer price index (September) Buoyed by an increase in gas prices, the consumer price index (CPI) in August reached its highest monthly growth since January. That trend should continue through September. Hurricane Harvey s rampage pushed national average gas prices up close to 2% in September. Since gas prices usually go down in September, seasonal adjustments will only aggravate that hike. Not including food and energy, we can expect the index to rise %, as it did in August. The total CPI is expected to rise by 0.7%. The annual change should go from % to %, which would be highest inflation rate since March. Core inflation should remain stable at.7%. Retail sales (September) Hurricane Harvey affected August s retail sales figures worse than expected. The % drop was in contrast to the consensus forecast of a increase. We will probably still feel the effect of the hurricanes in September, but the other way. There has already been a spike in new automobile sales. The 5.3% monthly increase is the highest since the 2009 Cash for Clunkers program. Gas prices have also gone up a lot, which should translate into positive sales values at service stations. However, we expect only a very slight increase in sales other than automobiles and gas; the post-harvey recovery will be offset by the negative impact of Irma in Florida. We predict a % increase in total sales, which would be the strongest gain since March 205, although the hurricanes could throw that forecast into disarray. University of Michigan consumer confidence index (October preliminary) The University of Michigan confidence index was down slightly in September after a strong increase in August. It went from 93.4 in to 96.8 in August, then down to 95. according to the final September version. Several signs point toward another drop in confidence in October. One of them is the point decline in the Conference Board index for September. The weekly household confidence indexes compiled by Bloomberg and Gallup have also gone down in the past week. And gas prices are still high after Hurricane Harvey s rampage through Texas. The stock market did well, however, gaining over 2% since September 25. Bottom line: we expect the University of Michigan index to slip from 95. to 94.0, which is still above the level. TUESDAY October 0-8:5 September ann. rate n/a Desjardins 20,000 August 223,200 Housing starts (September) Housing starts for multi-family dwellings in urban regions went up to 45,68 units in August, which is historically quite high. That might lead to a drop closer to trend level in September. Interest rate increases since the summer should also start to affect residential construction somewhat. Under the circumstances, we predict slightly fewer housing starts in September. OVERSEAS THURSDAY October 2-5:00 August m/m % Euro zone: (August) Euroland industrial production was up in after a % drop in June and a.4% leap in May. Most indicators point to production increasing nicely. The PMI manufacturing index dropped over the summer but has now bounced back to an alltime high. Manufacturing confidence is also going up. We will have to wait for the August industrial production figures from (Monday) and France and Italy (Tuesday) to confirm a new monthly increase in euroland production since August. 4
Economic Indicators Week of October 9 to 3, 207 Day Hour Indicator Period Previous data MONDAY 9 TUESDAY 0 0:00 20:00 Speech of the Minneapolis Fed President, N. Kashkari Speech of the Dallas Fed President, R. Kaplan WEDNESDAY 7:5 4:00 Speech of the Chicago Fed President, C. Evans Minutes of the Federal Reserve meeting Bond markets closed (Columbus Day) THURSDAY 2 Initial unemployment claims Producer price index Total (m/m) Excluding food and energy (m/m) 0:5 Speech of a Federal Reserve Governor, L. Brainard 0:30 Speech of a Federal Reserve Governor, J. Powell FRIDAY 3 Consumer price index Total (m/m) Excluding food and energy (m/m) Total (y/y) Excluding food and energy (y/y) Retail sales Total (m/m) Excluding automobiles (m/m) 0:00 Michigan s consumer sentiment index preliminary 0:00 Business inventories (m/m) 0:25 Speech of the Chicago Fed President, C. Evans :30 Speech of the Dallas Fed President, R. Kaplan 3:00 Speech of a Federal Reserve Governor, J. Powell Oct. 2-6 252,000 257,000 260,000 % 0.7% % % % % 2.3%.8% 0.7% % %.7% % %.7% Oct..4% % 95.3 % % 94.0 0.7% -% % 95. % n/a n/a 20,000 % 223,200-3.5% n/a % MONDAY 9 TUESDAY 0 8:5 WEDNESDAY THURSDAY 2 FRIDAY 3 Markets closed (Thanksgiving Day) Housing starts (ann. rate) Building permits (m/m) --New housing price index (m/m) Note: Desjardins, 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 Desjardins, Economic Studies of the Desjardins Group. 5
Economic Indicators Week of October 9 to 3, 207 Country Hour Indicator Period m/m (q/q) y/y Previous data m/m (q/q) y/y OVERSEAS MONDAY 9 Japan 2:00 9:50 Current account ( B) % 3.0%,978.6 % 2,032.9 TUESDAY 0 France Italy United Kingdom United Kingdom United Kingdom 2:00 2:00 2:45 4:00 4:30 4:30 4:30 Trade balance ( B) Current account ( B) Trade balance ( M) Construction 9.6 7.0 % 2.5% -2,800 % % % % 9.5 9.4 % -2,872 -% % - WEDNESDAY Japan 9:50 Producer price index % 3.0% % 2.9% THURSDAY 2 China Japan France Euro zone --0:30 2:45 5:00 Trade balance (US$B) Tertiary industry activity index Consumer price index final 38.05 - % % % 49 - % 3.2% FRIDAY 3 2:00 Consumer price index final.8%.8% 4.0% 3.7% 4.4% 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). 6
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 $B) GDP deflator (2009 = 00) Labor productivity (2009 = 00) Unit labor cost (2009 = 00) Employment cost index (Dec. 2005 = 00) Current account balance ($B) VARIATION (%) LEVEL ANNUAL VARIATION (%) Quart. ann. year 206 205 204 3. 3.3 - -7.3 6.7 --3.5 4.3 --3.2 4..6-5.5-33.4-2.. -45.7 2.9 3.6.4 2.3 0 5.0 3.3..2.8 2. -434.6 2.9-3.5 6.9 67.8 4.3 4.5.8-373.8 7,03,853 2,895 594. 2,30 5.5 2,8 2,795 7,68 3.0 08. 08.8 29.7-23. Statistics representing the level during the period; * New statistic in comparison with last week. Monthly economic indicators REF. MONTH Leading indicator (200 = 00) VARIATION (%) LEVEL -3 months -6 months - year 58.8 57.8 2.3 57.2 4.4 5.7 ISM manufacturing index * ISM non-manufacturing index * 59.8 55.3 57.4 55.2 56.6 9.8,890 2,802 3,754 474,84 2-0. -0. - 7.3 24.9.4 03.5 2.5.2 5.9 3.2 377,993 3.6 * 04.7 76. 47,684 233,52,874,80-76.9.2,90-76.6.,29 75.8.4,288 75.8 5.7 5.5 3.0,64 Building permits (k),272,230,68,29,200 New home sales (k) 56 58 606.0 65.0 567.0 5,350 5,440 5,620 5,470 5,340 * -42,395-43,558-46,395-44,507-4,30 Nonfarm employment (k)2 * 46,659-33.0 274.0 836.0,777 Unemployment rate (%) Consumer price (982 984 = 00) * 4.2 245.0 4.4 4.4 4.5 4.9 252.5.7.4 Excluding food and energy 3.2 0. Producer price (2009 = 00) Export prices (2000 = 00) Import prices (2000 = 00) 2.9 22.9 23.0 0.7 2.3 2. 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) (2007 = 00) Production capacity utilization rate (%) New machinery orders ($M) New durable good orders ($M) Business inventories ($B) Housing starts (k) Existing home sales (k) Commercial surplus ($M) Excluding food and energy Personal cons. expenditure deflator (2009 = 00) 28.8 6 - month 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. 7
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 $M) VARIATION (%) LEVEL ANNUAL VARIATION (%) Quart. ann. year 206 205 204 Current account balance ($M),849,280,06,240 353,77 27,850 67,940,072 598,305 593,879,823,927 5.0 09.5 4.6-6,39 4.5 4.6 2.5-4.7 7. --9.6 7.4 3.5 -.4 - -3. 3.7 3.8 --5.2 3.5 2.5 2.9 -.6 3.0-8.6-45.0-0.7-66,968 3.8-3,86 3.4 - - -67,553 2.8 3.2 9,392 5.8-48,207 Production capacity utilization rate (%) Disposable personal income ($M) Corporate net operating surplus (2007 $M) 85.0,23,848 263,764 --6.8-7.5 --5.3 38.5 8 3.7-4.5 8 4.4-9.5 8 3.2 8.2 Business inventory change (2007 $M) Exports (2007 $M) Imports (2007 $M) Final domestic demand (2007 $M) GDP deflator (2007 = 00) Labour productivity (2007 = 00) Unit labour cost (2007 = 00) Statistics representing the level during the period; * New statistic in comparison with last week. Monthly economic indicators REF. MONTH VARIATION (%) LEVEL - month -3 months -6 months - year,74,04 375,42 52,5 223.2 7,922 49,30 - - 22-3.5 2. -3. 94.0 3.0 -.6 2 3.7 3.8 7.3 3.4 83.7 7.8 36,094 6.5 * 62,382-3,43-2,983 -,076 4.9 -,382 -,928 Exports ($M) Imports ($M) * * 43,630 47,043 - - -5.7-3.7 0.7-3.0 Employment (k)2 * 8,454 4.4 24.3 26.6 Unemployment rate (%) Average weekly earnings ($) * 6.2 97 6,277 3 6.2-0. 8.6 0. 6.5 48.9 6.7 34.2 7.0.8 25.0.4 25.6 29.7 0. * 2. 96.3 943,426 - -3.5 0.7 - -5. 4.5 6. 9.2 Gross domestic product (2007 $M) (2007 $M) Manufacturing sales ($M) Housing starts (k) Building permits ($M) Retail sales ($M) Excluding automobiles ($M) Wholesale trade sales ($M) Commercial surplus ($M) Number of salaried employees (k)2 Consumer price (2002 = 00) Excluding food and energy Excluding 8 volatile items Industrial product price (2002 = 00) Raw materials price (2002 = 00) Money supply M+ ($M) 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
,, OVERSEAS Major financial indicators PREVIOUS DATA ACTUAL LAST 52 WEEKS IN % (EXPECTED IF INDICATED) Oct. 6 Sep. 29 - 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).25 6 7 2.37 2.90 2,547 22,753,273 85 49.3.25 4.49 2 2.33 2.86 2,59 22,405,284 83.09 5.67.25 2.27.64 5 7 2,46 2,798,346 8.8 47.44.25 3.40 5 2.39 2.93 2,425 2,44,20 72.56 44.25 0.28 2.37 3.00 2,356 20,656,266 87. 55 2 5.27.73 7 2,54 8,240,253 88.32 49.76.25.6 2.3 3.9 2,552 22,775,347 95.4 54.48 2 0.75.23.8 8 2.9 2,35 20,622,243 84.25 49.30 9 0.23.74 7 2,085 7,888,27 66.50 48 Canada Overnight target Treasury bill 3 months Treasury bonds 2 years Treasury bonds 5 years Treasury bonds 0 years Treasury bonds 30 years 0 7 5.78 2.3 2.50 0 0 2.75 2.0 7 0 3 2.7 8 2.34 0.76.6.47.88 6 5 0.76.2.60 6 9 0.73.7.82 0.6.82 2.3 2.53 8 8 0.9.68 4 2 2 5.3.80 Spread with the U.S. rate (% points) Overnight target - Treasury bill 3 months -9 Treasury bonds 2 years 4 Treasury bonds 5 years - Treasury bonds 0 years -4 Treasury bonds 30 years -0 - -4 3-0.7-3 -8 - -9 8-7 -3-0.75-7 -4-8 - -7 - -6-2 -0.79-0.78-0.74 0 - -4-7 -5 0 2 8-7 -2-4 -0.7-3 - - -7-0.75-4 -3-9 -4-8 S&P/TSX index (level) Exchange rate (C$/US$) Exchange rate (C$/ ) 5,70.254.4709 5,635.2470.473 4,985.254.4627 5,027.2876.4680 5,667 406.497 4,566 298.4895 5,922 749 20 5,305 29.4506 4,509.20 828 Overseas Euro zone ECB Refinancing rate Exchange rate (US$/ ) 0.729 0.84 0.2035 0.40 0 590 0.20 0.2035 0.06 0 387 United Kingdom BoE Base rate Bonds 0 years FTSE index (level) Exchange rate (US$/ ) 7 7,57 055.40 7,373 397 5 7,378 99 7 7,35.2892 3 7,349.2374 7 7,044.2434 7,548 593.20 7,25.2684 7 6,693.2049 Bonds 0 years DAX index (level) 7 2,95 6 2,829 2 2,304 7 2,389 3 2,225-5 0,49 7 2,97 0,922-7 0,259 Japan BoJ Main policy rate Nikkei index (level) Exchange rate (US$/ ) 20,69 2.82 20,356 9 9,275 07.85 9,929 3.90 8,665 7 6,860 02.92 20,69 8.8 9,22 3 6,252 02.99 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. 9