WEEKLY NEWSLETTER Employment Trend Still Strong in North America # BEST OVERALL FORECASTER - HIGHLIGHTS ff Jerome Powell nominated as Chair of the Federal Reserve. ff United States: Employment does not rebound as sharply as anticipated. ff The Federal Reserve hints at a December rate hike. ff Canada: Real GDP retreats in August. ff Canada s labour market remains lively. ff Canada : The trade balance was almost flat in September. A LOOK AHEAD ff Canada: The number of housing starts could edge down in October. FINANCIAL MARKETS ff The markets take a break after a good October. ff Strong job creation pushes Canadian yields up slightly. ff The pound deteriorates after the Bank of England dampens expectations of more monetary tightening. 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 Unsurprisingly, the Federal Reserve kept its key rates where they were at the meeting ended November. ff Real GDP by industry fell 0.% in August. This result is slightly lower than our forecast (%) and the consensus forecast (+0.%). Note that July posted close to zero growth. With two out of three months already completed, a clearer picture for the third quarter is now possible. Considering the fairly weak results seen in July and August, the carryover is only around % for the quarter. Even considering the possibility of a return to positive territory in September, it is unlikely that the third quarter will end with growth higher than 2%. ff The establishment survey shows there were 26,000 new jobs in October following September s 8,000 (revised from -33,000) job gain. There were 29,000 net hires in private sector services, following a loss of 3,000 jobs in September. The jobless rate dropped from 4.2% to 4.%. ff The ISM index went from 6 in September (its highest since May 2004) to 58.7 in October. Eight of the manufacturing index s ten components retreated. For its part, the nonmanufacturing ISM edged up in October, rising from 59.8 to 60.. ff Auto sales ticked down in October following their postharvey rebound. Annualized new motor vehicle sales went from 8.47 million (their highest point since July 2005) to 7.99 million, which is still more than expected. ff Real consumption jumped 0.6% in September after ticking down 0.% in August. The biggest monthly increase since March is primarily due to a % gain in durable goods consumption. Non-durable goods and services increased %. ff The Conference Board s consumer confidence index set a new cyclical record in October, going from 26 to 25.9, its highest point since December 2000. ff The S&P/Case-Shiller index of existing home prices in the 20 largest cities posted a monthly change of % in August. The index s annual change went from 5.83% to 5.92%. ff The merchandise trade balance stood at -$3.8B in September, similar to the previous month. The volume of the balance of international trade totals $0.8B in 2007 dollars for the third quarter, down from the second quarter s $4.72B in 2007 dollars. The third-quarter plunge in the trade balance is largely due to a decline in auto sector activity as a result of one-off work stoppages and changes to some models. On the other hand, given how lively auto sales are in North America, the international trade in automotive products should rise as of the fourth quarter. ff October ended with 35,300 jobs created, growth that solidly outstrips expectations. The trend for employment remains very strong: the six-month moving average has been holding within a relatively high band for the last year, between 2,700 and 39,800. The unemployment rate did tick up in October, going from 6.2% to 6.3%, due to an increase in the participation rate. Benoit P. Durocher, Senior economist ff Construction spending rose % in September after gaining 0.% in August (revised from %). Homebuilding is stagnant, while private non-residential construction is down %. Public construction jumped 5.%. ff The U.S. balance of trade in goods and services worsened slightly in September, dropping from -US$42.8B in August to -US$4B. Francis Généreux, Senior economist 2
Financial Markets Jerome Powell Nominated as Chair of the Federal Reserve There were no clear trends for the U.S. stock markets this week. That stability meant another good month, however, with the S&P 500 posting a % gain for October as a whole. The Dow Jones did even better with a gain of 4.3%; its large multinational members are benefiting from signs of acceleration in the global economy. Confirmation of the nomination of Jerome Powell on Thursday had little effect on the markets, since the choice had been expected. A new increase in oil prices, with the West Texas Intermediate (WTI) going above US$55 a barrel temporarily on Wednesday, boosted the S&P/TSX at the beginning of the week and the Canadian stock market was up % for October as a whole. U.S. bond yields dropped sharply at the beginning of the week, in reaction to the indictments issued against members of Donald Trump s election campaign and to the increasing signs that Jerome Powell would be nominated as Chair of the Federal Reserve (Fed). Expectations about the Fed meeting on Wednesday were limited. Calling the U.S. growth solid, U.S. monetary authorities still sent a signal that a key rate hike could come in December. Canadian bond yields were down a bit at the beginning of the week, partly following the U.S. trend, but bounced back on Friday after good labour market figures were released. There were no clear trends in the progress of the U.S. dollar this week, as it consolidated its recent gains. The euro edged up, although it was still below US$7 at time of writing, but the pound went down. The Bank of England raised interest rates on Thursday, but its statement was more cautious than expected about the possibility of continued tightening in the coming months. The Canadian dollar did not benefit much from the oil price hike to close to US$55 a barrel, but it did get a boost from encouraging Canadian employment figures. At time of writing, the loonie was worth around US$85 (CAN$.27/US$). GRAPH Stock markets Index Index 2,620 6,00 2,600 5,900 2,580 2,560 5,700 2,540 5,500 2,520 5,300 2,500 2,480 5,00 207/09/2 207/09/29 207/0/09 207/0/7 207/0/25 207//02 S&P 500 (left) S&P/TSX (right) Sources: Datastream and Desjardins, Economic Studies GRAPH 2 Bond markets 0-year yield In % points In % - - 2. - - 207/09/2 207/09/29 Spread (left) 207/0/09 207/0/7 United States (right) 207/0/25 207//02 Canada (right) Sources: Datastream and Desjardins, Economic Studies GRAPH 3 Currency markets Mathieu D Anjou, CFA, Senior economist Hendrix Vachon, Senior economist US$/C$ US$/ 2.20 9 0 8 9 7 8 6 7 207/09/2 5 207/09/29 207/0/09 207/0/7 Canadian dollar (left) 207/0/25 207//02 Euro (right) Sources: Datastream and Desjardins, Economic Studies 3
A Look Ahead TUESDAY November 7-5:00 September US$B 8.25 Desjardins 25.00 August 3.07 Consumer credit (September) In August, consumer credit posted its weakest monthly growth since April. Term loans were notably down, no doubt due to the plummeting car sales sparked by Hurricane Harvey, but September s renewed vigour in car sales should push credit back up again. Weekly data on bank loans has given us a glimpse of things to come. The monthly change in consumer credit should be close to US$25.0B. FRIDAY November 0-0:00 November 0 Desjardins 99.0 October 0 University of Michigan consumer confidence index(november preliminary) The University of Michigan consumer confidence index improved in October, despite the negative effects of the hurricanes and the hike in gas prices. The index has risen to 0, its highest level since January 2004. Another rise in November would be astonishing. Gas prices remain relatively high. Since the drop in hiring caused by the hurricanes has not affected confidence too badly, the employment rebound should not have a very strong influence. The fact that the October final version of the Michigan index was lower than the preliminary version (0) suggests that this index has probably levelled out. So we expect the University of Michigan index to drop from 0 to 99.0. WEDNESDAY November 8-8:5 October 20,000 Desjardins 22,000 September 27,000 Housing starts (October) The country-wide number of housing starts is quite high, but conditions are becoming a bit less favourable since interest rates started to climb last July. That could slow down new construction somewhat. Under the circumstances, we expect slightly fewer housing starts in October. OVERSEAS TUESDAY November 7-5:00 September m/m 0.6% August -% : Retail sales (September) The Euroland real GDP climbed nicely in Q3. However, there were two consecutive drops in retail sales for the first two months of the quarter: -% in July and -% in August. In September, sales were higher in and consumption was up in, suggesting more positive results for Euroland retail sales in that month. Among the other indicators to be released in the euro zone this week will be Monday s final versions of the PMI indexes. s industrial production results will be released on Tuesday, and those of and Italy on Friday. 4
Economic Indicators Week of November 6 to 0, 207 Day Hour Indicator Period Previous data MONDAY 6 2:0 Speech of the New York Fed President, W. Dudley 3:5 5:00 Speech of the Federal Reserve Vice Chairman, R. Quarles Consumer credit (US$B) TUESDAY 7 8.25 25.00 3.07 230,000 % 232,000 % 229,000 % WEDNESDAY 8 THURSDAY 9 8:30 0:00 Initial unemployment claims Wholesale inventories final (m/m) 30 - Nov. 3 0:00 4:00 Michigan s consumer sentiment index preliminary Federal budget (US$B) Nov. 0 99.0 0-45.8 0:00 PMI-Ivey index 58.0 59.6 3:00 Speech of the Bank of Canada Governor, S. Poloz 8:5 8:30 Housing starts (ann. rate) Building permits (m/m) 20,000 -% 22,000 -% 27,00-5.5% 8:30 New housing price index (m/m) 0.% 0.% FRIDAY 0 MONDAY 6 TUESDAY 7 WEDNESDAY 8 THURSDAY 9 FRIDAY 0 Note: Desjardins, Economic Studies are involved every week in the Bloomberg survey for Canada and the United States. Approximately 5 economists are consulted for the Canadian survey and a hundred or so for the United States. The abbreviations m/m, q/q and y/y correspond to monthly, quarterly and yearly variation respectively. Following the quarter, the abbreviations f, s and t correspond to first estimate, second estimate and third estimate respectively. The times shown are Daylight Saving Time (GMT - 4 hours). Forecast of Desjardins, Economic Studies of the Desjardins Group. 5
Economic Indicators Week of November 6 to 0, 207 Country Hour Indicator Period m/m (q/q) y/y Previous data m/m (q/q) y/y OVERSEAS MONDAY 6 Italy Italy Australia 2:00 3:45 3:45 3:50 3:50 3:55 3:55 4:00 4:00 5:00 22:30 Factory orders PMI composite index PMI services index PMI composite index final PMI services index final PMI composite index final PMI services index final PMI composite index final PMI services index final Producer price index Reserve Bank of Australia meeting Nov. -% 7.% 54.3 53.0 57.5 57.4 56.9 55.2 55.9 54.9 % % 0% 3.6% 54.3 53.2 57.5 57.4 56.9 55.2 55.9 54.9 % 0% TUESDAY 7 China Italy --2:00 3:30 4:00 5:00 Trade balance (US$B) Industrial production PMI construction index Retail sales Retail sales 39.45 -% 4.4% % % 0.6% 2.8% 28.50 % 53.4 -% -% -%.2% WEDNESDAY 8 New Zealand China China 0:00 0:00 2:45 2:45 5:00 8:50 20:30 20:30 Leading indicator preliminary Coincident indicator preliminary Trade balance ( M) Current account ( B) Reserve Bank of New Zealand meeting Current account ( B) Consumer price index Producer price index 06.6 07.2 5.9 7.7-4,700-4,54 - Nov..75%.75% 2,053.3 2,266.9.7% 6.6% % 6.9% THURSDAY 9 United Kingdom United Kingdom United Kingdom Mexico 2:00 2:00 4:30 4:30 4:30 4:00 23:30 Trade balance ( B) Current account ( B) Trade balance ( M) Construction Industrial production Bank of Mexico meeting Tertiary industry activity index Nov. 2 25.0-4,600 -% % % % % 2 7.8-5,626 0.6% % 7.00% -% FRIDAY 0 Italy 2:45 2:45 4:00 Industrial production Wages preliminary Industrial production Q3 0.6% 3.% % 0.% 4.8% -% %.2% 7.8% % 4.7% % % % 5.7% 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 3.0-6.0 3.9 -- - 3.0 2.8-4.4 -- 3.2 5.5-0.6 33.4-2. -45.7 2.9 3.6.4 0 5.0 3.3.2 2. -434.6 2.9-0.6 6.9 67.8 4.3 4.5-373.8 7,57,922 2,894 585.0 2,323 35.8 2,94 2,789 7,697 3.6 08.9 09.0 30.6-23. 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 - 6 56.3.7 54.8 4.0 5 ISM manufacturing index * ISM non-manufacturing index * 60. 59.8 53.9 57.5 54.6 * * * 25.9,970 2,796 3,766 483,895 20.6 0.6 2 9.4 0.2 5.5 4.4 383,834 2. 4.6 * 04.6 76.0 478,455 238,404,889,27 75.8.4,83-0.6 76.6 - -3.0,27 75.9,89 75.6 7.0 8.2 3.6,062 Building permits (k),225,272,275,260,270 New home sales (k) 667.0 56 69.0 638.0 57 5,390 5,350 5,50 5,700 5,470 Commercial surplus ($M) * -43,495-42,765-43,543-44,82-38,466 2 * 47,00 26 487.0 98 2,004 * 4. 246.4 4.2 4.3 4.4 4.8.7 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) Existing home sales (k) Nonfarm employment (k) Unemployment rate (%) Consumer price (982 984 = 00) 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) 28.6 58.7 - month 252.9 0. * 3. * 3.4 0. 3.4 24.0 23.8 2.9 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 4.6-4.7 7. --9.6 7.4 -.4 - -3. 3.7 3.8 --5.2 2.9-3.0-8.6-45.0-0.6-66,968 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 80.6 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 $M) GDP deflator (2007 = 00) Labour productivity (2007 = 00) Unit labour cost (2007 = 00) Statistics representing the level during the period; * New statistic in comparison with last week. Monthly economic indicators REF. MONTH VARIATION (%) LEVEL - month -3 months -6 months - year,74,44 372,369 53,532 27.3 7,543 48,926-226.0-5.5 - - - 23.4-4..7 25 5.6 4.3 28.8 0.6 6.9 35,766 - - 5. * 62,823-3,80-3,8-3,302 5.0-7 0. -4,257 Exports ($M) Imports ($M) * * 43,560 46,740 - - -6.0-5.8-7.0 -.7 - Employment (k)2 * 8,489 35.3 2 29.7 25.7 Unemployment rate (%) Average weekly earnings ($) * 6.3 974.6 6,336 3 6.2 38.9 6.3 5.4 6.5 36.6 7.0.7 3 25.8 29.9 0..2 * * * 96.4 945,263 - - 0. -.7-3.4 6.3 8.3 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 ($M) Number of salaried employees (k)2 Consumer price (2002 = 00) Excluding food and energy Excluding 8 volatile items Industrial product price (2002 = 00) Raw materials price (2002 = 00) Money supply M+ ($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) Nov. 3 27 - 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) 7 3 5 2.83 2,580 23,525,267 88.06 54.62 8 9 4 3 2.94 2,58 23,434,270 86.89 53.92 5 7 7 2.9 2,549 22,774,272 86 49.34 6 6 2 7 2.84 2,477 22,093,258 80.68 49.57 0 8 8 5 2.99 2,399 2,007,228 77.92 46.23 0 7 0.24.78 7 2,085 7,888,304 80 44.07 7 3 2.3 3.9 2,58 23,525,347 95.4 54.62 8.29 6 3 2.93 2,384 2,02,244 84.03 49.56 0 2.29 3 0 2,32 8,260,27 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 0.44 7 7 8 0 3.43 6 9 4 0 8 5.78 2.3 9 5 3.24 4 2 5 0 0.68 9 4 2.5 0 4 2 0.67 6 2 0 2 2.3 3 0.62 0.62 7.27.74 8 0 2 5.22 7 Spread with the U.S. rate (% points) Overnight target - Treasury bill 3 months -7 Treasury bonds 2 years 9 Treasury bonds 5 years -5 Treasury bonds 0 years -8 Treasury bonds 30 years -5-5 6-8 -4-0.60 - -7 4 9-4 - -0-3 -8-5 -9-0 -7-0.62-9 - -4 7-8 -8-0.62-5 7 8-7 -2-6 9-2 -9-9 -0.65-5 -4-0.63-9 -4-8 S&P/TSX index (level) Exchange rate (C$/US$) Exchange rate (C$/ ) 6,00.2768.483 5,954.2808.4870 5,728 36.470 5,258.2652.4894 5,582 652 04 4,509 404.4929 6,029 749 20 5,394 080.4524 4,555.20 828 Overseas ECB Refinancing rate Exchange rate (US$/ ) 64 60 734 772 998 38.2035 8 387 United Kingdom BoE Base rate Bonds 0 years FTSE index (level) Exchange rate (US$/ ) 0.27 7,553 073 9 7,505 29.40 7,523 066.22 7,52 037 6 7,297.298 4 6,693 9 0 7,556 593.22 7,293.2756 7 6,730.2049 Bonds 0 years DAX index (level) 6 3,469 9 3,28 6 2,956 2 2,298 2 2,77 6 0,259 7 3,469 4 2,6 7 0,457 BoJ Main policy rate Nikkei index (level) Exchange rate (US$/ ) 22,539 4.33 22,008 3.69 20,69 5 9,952 0.69 9,446 3 6,905 03.4 22,539 8.8 9,564 3 6,252 04.47 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 :00 a.m. 9