Non-energy export volumes declined for a fourth consecutive month with the cumulative drop more than reversing what had been an encouraging increase over the prior three months. Energy shipments provided some offset, rising 4.6% in volume terms. Part of the recent non-energy export weakness has been related to production disruptions in the auto and chemical sectors over the summer. We continue to expect modest growth in exports going forward as global trade flows improve and demand from the U.S. industrial sector strengthens.
Canada's streak of job growth continued unabated in October with employment rising 35k, well in advance of market expectations. And there were plenty of positive takeaways beyond the headline figure. Job gains were concentrated in private sector, full-time work and wage growth (helped by minimum wage hikes in several provinces) continued to trend higher from the lows recorded earlier this year. Youth labour market conditions, which Bank of Canada Governor Poloz put in the spotlight last week, also improved with employment for 15-24 year-olds rising 18k and labour force participation increasing.
Overall, October was a strong report, with robust full-time job gains, a slight uptick in the participation rate, and acceleration in hourly wage growth and growth in hours worked. This morning's data extends the streak of job gains to 11-months. Hourly wage growth is likely to raise some eyebrows at the Bank of Canada, holding above 2% for the second consecutive month and even accelerating a touch. With Governor Poloz emphasizing labour market developments as a key indicator of capacity pressures in last week's interest rate announcement, the persistent move back up to over 2.0% growth in wages will be viewed as confirmation that economic slack has largely diminished.
U.S. employers hired at a strong pace last month, and revisions showed the labor market weathered hurricane damage better than previously estimated. Disappointing was wages, it failed to break out, rising +2.4% from a year earlier, a slowdown from last month.
September marks the fourth consecutive month in which export volumes declined. For the quarter as a whole, they were down 3.8%. With imports falling by a slight 0.2% over the same period, net trade will weigh on overall growth in Q3 - which is now tracking under 2% - and provides a weak hand off for the fourth quarter.
The Canadian dollar depreciated on Tuesday versus its American counterpart. The monthly gross domestic product report published by Statistics Canada showed a 0.1 percent contraction in August. Declines in manufacturing, mining and the energy industry edged down the indicator despite rises in other sectors. The biggest red flag was the drop in manufacturing which contracted 1.0 percent. Manufacturing was down across the board with the biggest loses coming in chemical manufacturing.
The Canadian dollar lost ground versus its US counterpart as GDP figures unexpectedly reflected a contraction in the Canadian economy. Eurozone data on inflation, economic growth and unemployment out during today's session gave a mixed picture. The pound moved higher after some comments by Michel Barnier, the EU's chief Brexit negotiator, which suggested that Brexit talks are getting on the right path, while the dollar advanced following upbeat figures on consumer confidence.
August GDP unexpectedly dropped 0.1% following July's disappointing flat reading. Expectations going into the report were for a 0.1% increase. A key downward surprise was the 1.0% decline in manufacturing activity with the chemical component particularly weak. Some of the latter weakness was attributed to maintenance shutdowns which will eventually reverse though Statistics Canada also highlighted lower export demand.
Notch this one up for the Bank of Canada. With a number of shutdowns in the goods producing side of the economy leading to a modest contraction, third quarter growth is now tracking around 1.9% - in line with the Bank of Canada's forecast in last week's Monetary Policy Report.
The Canadian dollar is unchanged in the Tuesday session. Currently, USD/CAD is trading at 1.2655, up 0.06% on the day. On the release front, there are no Canadian events. The US will release the Richmond Manufacturing Index, which is expected to edge lower to 17 points. On Wednesday, the Bank of Canada will set the benchmark rate. The US will release Core Durable Goods Orders and New Home Sales.
After a rough week, the Canadian dollar is almost unchanged in the Monday session. Currently, USD/CAD is trading at 1.2634, up 0.04% on the day. On the release front, it's a quiet start to the week, with no major US events until Wednesday. Later in the day, Canada releases Wholesale Sales, which is expected to slow to 1.1 percent.
Today's inflation report was a mixed bag, with an energy-driven increase in the headline reading, little change in the Bank of Canada's core measures and a decline in ex food and energy inflation. Overall, there wasn't as much evidence this month that the economy's strong growth trend and limited economic slack are pushing inflation up toward the central bank's 2% target. Given their "particularly data dependent" stance, we think this gives the bank cover to be a bit more patient in removing accommodation following consecutive rate hikes in July and September. We don't see the bank raising their benchmark interest rate again next Wednesday.
Retail sales unexpectedly dropped 0.3% in August following a 0.4% gain in July. The decline in the more recent month was relatively broadly based led by a 2.5% plummet in sales at food stores that almost fully reversed cumulative gains over the previous four months. StatsCan commented on the weakness evident in housing-related sales components with building materials down 1.9% and furniture store sales off 2.4%. Eliminating the impact of overall price changes the volume of retail sales dropped a disappointing 0.7% following the 0.1% decline in July. This represents a sharp shift from the average monthly increase through Q2 of 0.5%.
Outside of energy prices, inflation made little progress in September. Moreover, the recent appreciation in the Canadian dollar, which was up 6.7% year-on-year in September, appears to be weighing on goods prices with higher import content. Core goods prices decelerated to -0.3% (y/y) in the month, with clothing and footwear prices leading the way (down 2.3% y/y).
Canadian retail sales fell slightly in August, down 0.3% month-on-month. With the effect of prices removed, the performance was softer, as volumes fell 0.7%. Despite solid sales growth among motor vehicle and parts dealers (+0.7%), a 2.5% drop in sales at food and beverage stores more than offset the gain. Across the remaining categories, Statistics Canada noted weakness at stores traditionally associated with housing: furniture and home furnishings (-2.4%), electronics/appliances (-0.2%), and building material and garden equipment stores (-1.9%).
Canadian retail sales unexpectedly fell in August due to the biggest month-over-month drop in purchases of food and beverages in three-years.= Headline retail sales fell -0.3%. Market expectations were looking for a strong +0.5% gain. On a year-over-year basis, retail sales rose +6.9%.
The Canadian dollar is almost unchanged in the Friday session, as USD/CAD stays close to the 1.25 line. In European trade, the pair is trading at 1.2488, up 0.03% on the day. On the release front, Canada releases key consumer spending and inflation data. CPI is expected to accelerate to 0.3%. The markets are also expecting an improvement in retail sales reports, with Core Retail Sales and Retail Sales expected at 0.5% and 0.3%, respectively. In the US, Existing Home Sales is expected to slow to 5.30 million, and Federal Reserve Chair Janet Yellen will deliver remarks at an event in Washington.
Inflation and retail sales numbers out of Canada on Friday will be scrutinized for clues to a possible year-end rate hike by the Bank of Canada, following recent remarks from BoC Governor Stephen Poloz that suggested a pause after two consecutive hikes.
Canadian manufacturing sales unexpectedly jumped 1.6% in August after declining sharply in each of the two prior months. Most of the upward surprise came from a rebound in the motor vehicle component where sales rebounded 12.9% after an almost 20% drop in July. The auto component is notoriously volatile over the traditional July-August 'retooling' period in the industry but earlier reports had suggested a risk another significant sales decline in August.
An atypically hawkish Bank of Canada raised interest rates back-to-back in July and September, helping to fuel and extend a Canadian dollar rally and USD/CAD downtrend within the third quarter of this year. Starting in early September, however, as the battered US dollar began to rebound from multi-year lows, the Canadian dollar lost ground against the greenback, helping to boost USD/CAD into recovery mode. Over more than a month, USD/CAD has risen in a bullish correction that has been driven in part by higher anticipation of a Federal Reserve interest rate hike by the end of the year.
The Canadian dollar was lower against its US counterpart on Friday. The loonie had appreciated versus the dollar all week and after the release of a disappointing US inflation data it rose even higher, but US NAFTA proposals it reversed course. The US tabled an idea a higher regional content for autos to be part of the free tariff access. Current North American content requirement is 62.5 percent and the US wants to increase that to 85 percent (with 50 percent of that being US content). Negotiations have been tense after the US also proposed a five year term for the updated NAFTA, to which both Canada and Mexico had already objected.
Today's report is a bit of mixed bag, with starts pulling back, but remaining above expectations and the decline concentrated in the volatile multifamily starts. While starts in Toronto remain under close watch, given past regulatory changes, the overall market appears to be taking higher interest rates in stride and remains healthy.
It was a busy summer for Canadian homebuilders with another 217k annualized housing starts in September capping off a strong Q3. Ontario finally saw a moderation in starts in September although it would be a bit of a stretch to attribute it to the recent slowing in resales - the province's quarterly pace of housing starts was still the second-fastest in a decade.
Canada posted a tenth consecutive job gain in September, extending the best streak in nearly a decade. But the bigger story in today's employment report is that wages are finally starting to pick up after a period of puzzlingly slow growth. Average hourly wages were up 2.2% from a year ago, largely due to acceleration in the last few months. It appears tight labour market conditions, including a near-decade-low unemployment rate and limited 'hidden' slack, are finally having an effect.
Is there any stopping the Canadian labour market? While the details have often been mixed, Canada has now turned in ten straight months of job gains, and, in a welcome change, the details of September's report were generally encouraging. While hiring was concentrated in the public sector, you have to go back to 2006 to find a month with stronger full-time job gains, and the unemployment rate remained at a post-crisis low.
U.S non-farm payroll (NFP) saw the first negative reading in seven years at -33k. Headline affected by distortion due to August hurricanes. The unemployment rate, fell two-tenths of a percentage point to +4.2%, a level not seen since early 2001. Workers' wages jumped last month, another figure that may have been affected by the storms. Average hourly earnings rose 12 cents, or 0.45% from a month earlier. Wages were 2.9% higher from a year earlier.
Exports fell 1.0% in nominal terms and 1.5% controlling for price changes. The August pullback marks a third consecutive monthly export volumes drop with non-energy exports once again leading the way lower. The international trade data is notoriously volatile and much of the recent pullback looks to be just a retracement from four consecutive quarters of gains, culminating in a 10% jump in overall export volumes in Q2 that was clearly not sustainable.
August marks the third consecutive month of declines in export volumes, which now sit 6% lower than the peak reached in May. This weak handoff for the third quarter suggests that net trade is likely to detract from overall growth during the quarter. Even with this disappointing report, economic activity remains on track to expand by a solid 2.2% in Q3.
The Canadian dollar finished the week lower versus its US counterpart after the gross domestic product in Canada was flat in July. The economy had registered 8 consecutive months of strong growth that prompted the Bank of Canada (BoC) to raise interest rates twice in the last three months. Dovish comments form the central bank governor Stephen Poloz earlier in the week and the slowdown in the momentum of the economy raise serious questions about another rate hike this year.
Canada's 8-month long streak of monthly GDP growth finally came to an end in July with GDP holding steady at June's level. Most of the July weakness was in goods production with non-conventional oil production pulling back for a second straight month after a surge in output in May and manufacturing output inching lower. Services output rose another 0.2% in July despite a 0.6% drop in finance and insurance output that Statistics Canada noted may have been impacted by the timing of U.S. and Canadian holidays in July. The (unusually) long streak of increases over the prior year means that GDP was still up a solid 3.8% year-over-year in July, reflecting broadly-based gains across goods & services sectors.
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