May 11, 2018 Table of Contents What we ll be watching... p. 4 Calendar of upcoming releases... p. 5 Annex Economic tables... A1 Week in review CANADA: Canadian employment fell 1.1K in April according to the Labour Force Survey, disappointing consensus which was expecting an increase. However, thanks to a one-tick drop in the participation rate to 65.4%, the unemployment rate managed to remain unchanged at 5.8%. Job increases in the private sector (+28K) were offset by declines in both the public sector (-13.6K) and self-employment (-15.6K). Employment in the goods sector fell 16K as declines in construction, manufacturing and resources more than offset gains in agriculture and utilities. Services-producing industries increased employment by 15K courtesy of gains in professional services, accommodation which dwarfed losses in finance, trade, health care, education. Full-time employment jumped 29K, offsetting declines of 30K for parttimers. Total employees average hourly earnings were up 3.6% year-on-year, the highest since 2012. Looking at provinces, Ontario created the most jobs in April (+9K) and continues to lead the nation on a 12-month average basis. Canada: Employment fell slightly in April Employment and unemployment rate 100 80 60 40 20 0-20 -40-60 -80 m/m chg. in thousands Employment (L) -100 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 NBF Economics and Strategy (data via Statistics Canada) Employment, 12- month average (L) Unemployment Rate (R) The April employment report is not as bad as it looks. True, the jobs decline was disappointing, particularly losses in cyclical sectors such as manufacturing and construction. The weakness was also largely due to declines in self-employment % 7.4 7.2 7.0 6.8 6.6 6.4 6.2 6.0 5.8 5.6 and the public sector. But more importantly, private sector employment rose by the biggest amount since November of last year. The tilt towards full-time jobs is also encouraging and largely explains the uptrend in wage inflation. Also positive is the further increase in employment of prime-age Canadians (age 25-54) which provides support for consumption spending and the housing market. On a 12-month average basis, total employment creation is running at a healthy 23K jobs/month, with more than half of that tally coming from the private sector. In April, dipped to an annualized rate of 214.4K units. Urban starts retreated 9.8K to 198.1K as groundbreaking slowed in both the multi-unit segment (-3.9K to 141.0K) and the single-unit category (-5.8K to 57.1K). Rural starts, for their part, sagged 1.3K to 16.3K. The modest drop at the national level was the result of a great deal of variation across the provinces. Indeed, starts fell 16.7% in British Columbia (to 41.1K), 6.6% in Ontario (to 70.0K), and 82% in Newfoundland (to 1.1K) while increasing 8.1% in Quebec (to 57.4K), 10.1% in Alberta (to 29.7K), and 21.4% in Nova Scotia (to 3.5K). Starts wilted in the month but remained relatively strong on a historical basis. Toronto saw a fairly major swing as starts plunged 29% in the single-family segment. Elsewhere, ground-breaking seemed to pick up. The sharp rise in Quebec was somewhat surprising as it came on the back of two previous upswings and occurred despite mounting interest rates and stricter mortgage requirements. The increase was due essentially to a 73% surge in multis (to 30.6K) in Montreal. On a quarterly basis, housing starts countrywide declined an annualized 8.4% in 2018Q1 and were on track to drop 16.8% in Q2 (assuming no change in May and June). After adding to growth in the second half of 2017, residential investment is gearing to detract from it in the first half of 2018. Canada: 214.4K dwelling units started in April Housing starts 300 Thousands, saar 280 260 240 220 200 180 160 140 120 100 2002 2004 2006 2008 2010 2012 2014 2016 NBF Economics and Strategy (data via CMHC) 6-m. mov. average Housing starts
In March, the value of applications grew 3.1% m/m to C$8.4 billion in seasonally adjusted terms. Construction intentions rose in both the residential segment (2.3%) and the non-residential segment (4.5%). On a 12-month basis, the value of permit applications climbed 10.8% in Canada as a whole. UNITED STATES: In April, the rose 0.2% as energy prices shot up 1.4% and food prices climbed 0.3%. Excluding food and energy, the CPI was up just 0.1% as higher prices for housing (owners equivalent rent in particular), apparel, medical care, and tobacco were offset by lower prices for autos, recreation and personal computers. On a year-on-year basis, the headline inflation rate ticked up to 2.5%, its highest level since February last year, while the core rate stayed put at 2.1%. The CPI data was less hot than anticipated as the core rate came in just below consensus. Excluding owners equivalent rent, the core CPI was even milder at about 1.6% year on year (see next chart). U.S.: Core inflation stable in April Core CPI 4.4 4.0 3.6 3.2 2.8 2.4 2.0 1.6 1.2 0.8 0.4 0.0-0.4 y/y % chg. Apr. 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 NBF Economics and Strategy (data via Datastream) Owners equivalent rent CORE TOTAL Core excluding owners equivalent rent According to the (JOLTS), positions waiting to be filled in the United States surged to an all-time high of 6,550K in March. As a result, the ratio of job openings to unemployed persons climbed to 0.99, also a record high (by comparison, the ratio s pre-recession peak was only 0.70). Despite the high number of vacancies, hires slid from 5,511K to 5,425K in the month. As a result, the gap between job openings and hires widened even further, which suggests a mismatch between strong demand for labour among employers and the skill set of available workers. The report also showed that the quit rate (quits as a percentage of total employment) eked up to a cyclical high of 2.3% as 3,344K Americans decided to leave their jobs in the month, the highest number since early 2001. The recent increase in quits suggests that workers are growing more confident about their job prospects. Given that job switchers tend to see their salaries rise at a faster pace than job stayers do, the uptrend in quits could translate into faster wage growth. U.S.: Job openings surge to all-time high but hires fail to keep up Job openings and hires. Last observation: March 2018 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0-1,000-2,000-3,000 K 2002 2004 2006 2008 2010 2012 2014 2016 2018 NBF Economics and Strategy (U.S. Department of Labor via Datastream) Job openings Job openings exceeded hires by the widest margin ever in March, possibly the sign of a mismatch between the skills required by employers and those of available candidates In April, the stayed roughly unchanged at 104.8. The net percentage of polled firms that expected the economic situation to improve slid to 32% (compared with 48% in November). The report continued to evidence widespread labour shortages, with a cyclical-high 35% of firms reporting positions they could not fill. Failing to find suitable candidates to fill open positions, firms had to make sure to retain their existing employees, which prompted many to raise salaries to this end. Indeed, no less than 33% of firms indicated that they had enhanced worker compensation in the past three to six months, a percentage last seen in November 2000. U.S.: As qualified labour becomes scarcer, firms are raising wages NFIB small business optimism survey 40 36 32 28 24 20 16 12 8 4 0 % Percentage of firms having increased compensations in the last 3-6 months -4 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 NBF Economics and Strategy (data via Datastream) In April, the (PPI) for final demand surprised slightly on the downside, climbing a seasonally adjusted 0.1% m/m. The increase reflected flat prices for goods (+0.0%) and higher prices for services (+0.1%). Excluding the volatile items of energy and food, wholesale prices advanced 0.3%. On a 12-month basis, the headline and core PPI came in at 2.6% and 2.3%, respectively. In March, expanded just $11.6 billion to an annualized $3,874.9 billion. Non-revolving credit grew $14.2 billion to $2847.9 billion. Meanwhile, revolving credit, which Hires Percentage of firms reporting one or more hard to fill job openings 2
consists mainly of credit card loans, shrank $2.6 billion to $1,027.0 billion, for a second consecutive decline. The (IPI) was up 0.3% in April. The overall figure was positively affected by a 1.6% rise in the price of petroleum imports in the month. Excluding this category, prices inched up 0.1% m/m. On a 12-month basis, the headline IPI remained flat at 3.3% while the less volatile ex-petroleum gauge dropped two ticks to 1.7%. Kyle Dahms et al. 3
What We ll Be Watching In Canada, a lot of attention will be on the release of April s. The headline gauge may have risen 0.4% m/m (not seasonally adjusted), buoyed by above-seasonal gasoline price increases. Despite this rise, the yearon-year rate may have stayed put at 2.3% due to a negative base effect. Core prices, for their part, should have continued rising at a decent pace, reflecting an economy running above potential and the healthy state of the labour market. However, the annual rate of CPI-common should remain unchanged at 1.9%. In other news, both headline and ex-auto likely expanded for a third month in a row in March, helped by a strong upswing in gasoline prices which probably boosted gasoline station receipts. Also in March, may have posted another decent advance based on a healthy increase in exports of factory goods during the month. Previous NBF forecasts CPI (April, y/y chg.) 2.3% 2.3% Core common CPI (April, y/y chg.) 1.9% 1.9% Retail sales (March, m/m chg.) 0.4% 0.4% ex-autos Retail sales (March, m/m chg.) 0.0% 0.9% Manufacturing sales (March, m/m chg.) 1.9% 1.5% Canada: All quiet on the inflation front in April Consumer price index 2.6 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 y/y % chg. Mid-point of BoC s target range Headline Core (Common) 0.2 2013M09 2014M08 2015M07 2016M06 2017M05 2018M04 NBF Economics and Strategy (data via Bloomberg) NBF Forecasts In the U.S, we ll get information about economic activity in early Q2 thanks to April data. To start with, may have risen moderately in the month, echoing a slight expansion of output in the manufacturing sector. A positive contribution is also expected from mining, in line with a jump in the number of rigs operating in the country. Also in April, may have grown for a second consecutive month, but the expansion may have been limited by the stagnation of auto sales during the month. Excluding the latter category, sales could have advanced at a more convincing pace. We ll also get housing data for April, with small increases expected for both and. The first clues on the state of the manufacturing sector in May will be available with the publication of the and manufacturing surveys. Previous NBF forecasts Industrial production (April, m/m chg.) 0.5% 0.4% Retail sales (April, m/m chg.) 0.6% 0.2% Ex-autos retail sales (April, m/m chg.) 0.2% 0.5% Housing starts (April, saar) 1319K 1325K U.S: Third straight month of expansion for the industrial sector? Industrial production 1.6 m/m % chg. 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0-0.2-0.4 +0.4% -0.6 2017M04 2017M07 2017M10 2018M01 2018M04 NBF Economics and Strategy (data via Datastream) NBF Forecast Elsewhere in the world, numbers will be available for both the Eurozone and Japan. Still in Japan, we ll get April s. Several indicators for the month of April will also be released in China, including and. 4
Economic Calendar Canada & U.S. 5
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Economics and Strategy Montreal Office Toronto Office 514-879-2529 416-869-8598 Stéfane Marion Marc Pinsonneault Kyle Dahms Warren Lovely Chief Economist and Strategist Senior Economist Economist MD & Head of Public Sector Strategy stefane.marion@nbc.ca marc.pinsonneault@nbc.ca kyle.dahms@nbc.ca warren.lovely@nbc.ca Paul-André Pinsonnault Matthieu Arseneau Jocelyn Paquet Senior Fixed Income Economist Senior Economist Economist paulandre.pinsonnault@nbc.ca matthieu.arseneau@nbc.ca jocelyn.paquet@nbc.ca Krishen Rangasamy Senior Economist krishen.rangasamy@nbc.ca Angelo Katsoras Geopolitical Analyst angelo.katsoras@nbc.ca General This Report was prepared by National Bank Financial, Inc. (NBF), (a Canadian investment dealer, member of IIROC), an indirect wholly owned subsidiary of National Bank of Canada. National Bank of Canada is a public company listed on the Toronto Stock Exchange. The particulars contained herein were obtained from sources which we believe to be reliable but are not guaranteed by us and may be incomplete and may be subject to change without notice. The information is current as of the date of this document. Neither the author nor NBF assumes any obligation to update the information or advise on further developments relating to the topics or securities discussed. The opinions expressed are based upon the author(s) analysis and interpretation of these particulars and are not to be construed as a solicitation or offer to buy or sell the securities mentioned herein, and nothing in this Report constitutes a representation that any investment strategy or recommendation contained herein is suitable or appropriate to a recipient s individual circumstances. In all cases, investors should conduct their own investigation and analysis of such information before taking or omitting to take any action in relation to securities or markets that are analyzed in this Report. The Report alone is not intended to form the basis for an investment decision, or to replace any due diligence or analytical work required by you in making an investment decision. This Report is for distribution only under such circumstances as may be permitted by applicable law. This Report is not directed at you if NBF or any affiliate distributing this Report is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that NBF is permitted to provide this Report to you under relevant legislation and regulations. National Bank of Canada Financial Markets is a trade name used by National Bank Financial and National Bank of Canada Financial Inc. National Bank Financial Inc. or an affiliate thereof, owns or controls an equity interest in TMX Group Limited ( TMX Group ) and has a nominee director serving on the TMX Group s board of directors. As such, each such investment dealer may be considered to have an economic interest in the listing of securities on any exchange owned or operated by TMX Group, including the Toronto Stock Exchange, the TSX Venture Exchange and the Alpha Exchange. No person or company is required to obtain products or services from TMX Group or its affiliates as a condition of any such dealer supplying or continuing to supply a product or service. Canadian Residents NBF or its affiliates may engage in any trading strategies described herein for their own account or on a discretionary basis on behalf of certain clients and as market conditions change, may amend or change investment strategy including full and complete divestment. The trading interests of NBF and its affiliates may also be contrary to any opinions expressed in this Report. NBF or its affiliates often act as financial advisor, agent or underwriter for certain issuers mentioned herein and may receive remuneration for its services. As well NBF and its affiliates and/or their officers, directors, representatives, associates, may have a position in the securities mentioned herein and may make purchases and/or sales of these securities from time to time in the open market or otherwise. NBF and its affiliates may make a market in securities mentioned in this Report. This Report may not be independent of the proprietary interests of NBF and its affiliates. This Report is not considered a research product under Canadian law and regulation, and consequently is not governed by Canadian rules applicable to the publication and distribution of research Reports, including relevant restrictions or disclosures required to be included in research Reports.
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