Wednesday, August 16, 2006
The Canadian Economy at a glance
The Canadian Economy at a glance
The Canadian economy stood still in May following minor 0.1% increases
in March and April GDP. The May GDP reading came in well below market
expectations of a 0.3% gain. Growth in goods-producing industries fell
for the third consecutive month (-0.5%), led by weakness in the mining, oil
and gas extraction and construction sectors. The services producing industries
advanced by a relatively tame 0.2% and were unable to make up for
the weakness in the goods-producing sector. The largest gains were registered
in wholesale trade, the financial sector and public administration,
while retail trade was down. The energy sector declined 1.5% in May due
in part to temporary closures of east coast oil fields, suggesting that some
of this month’s weak growth should be reversed in the months ahead.This
GDP report supports our forecast that the Bank of Canada will hold rates
steady at its next rates setting meeting on September 6.
Latest job report not all bad news
Latest month: July
The labour market lost 5,500 jobs in July, well below market expectations
of a 23,000 gain and slight decrease from June levels. On the positive side,
the 5,500 job losses were entirely due to a 27,000 drop in part-time jobs
RBC Economics
Continuously updated analyses of six key economic indicators tracking emerging trends in the Canadian economy.
Canada
EcoTrends
Latest data available: August 11, 2006
Highlights
The Canadian economy stood still in May following
minor 0.1% increases in March and April GDP.
However, the 1.5% decline in the energy sector was
due in part to temporary closures of east coast oil
fields, suggesting that some of the economic weakness
should be reversed in the months ahead.
The labour market lost 5,500 jobs in July. On
the positive side, the job losses were entirely due to a
27,000 drop in part-time jobs with full-time jobs increasing
by 21,600. The participation and employment
rates both stand near all-time highs.
After April’s robust 1.7% month-over-month
gain, retail sales fell 0.6% in May. However, despite
May’s weakness, retail sales continue to be positive
for the domestic economy.
Housing starts rose to a 236,500 in July, just
slightly above slightly above June's 236,400 starts.
We expect the housing market to gradually slow but
anticipate that robust labour market conditions will
prevent housing activity from deteriorating too sharply.
Canada’s merchandise trade surplus rose to
C$4.7 billion in June from C$4.1 billion in May. Although
the surplus was narrower in the second quarter
than in the first, demand for Canadian exports remains
very strong, especially energy exports..
The all-items consumer price index (CPI) fell
by 0.2% in June. The CPI excluding the eight most
volatile components (CPIX) also fell 0.2% in the
month and slipped to 1.7% from a year ago, thus providing
the Bank of Canada with some breathing room.
with full-time jobs increasing by 21,600. The loss of 33,000 manufacturing
jobs was nearly offset by the 22,000 jobs created in the construction sector
as construction shifts from the housing sector to the commercial, industrial
and institutional sectors.The unemployment rate rose to 6.4% from 6.1%
on the back of an increase in the participation rate, a positive development
since more Canadians enter the labour market when job prospects are attractive.
The participation and employment rates both stand near all-time
highs. Average hourly earnings rose yet again to 3.7% on a year-over-year
basis, well above CPI inflation of 2.5%, with real wage gains averaging
1.2%. The rise in average hourly earnings and overall job creation this year
remain consistent with above-trend economic growth. The labour market
lost 5,500 jobs in July. On the positive side, the job losses were entirely due
to a 27,000 drop in part-time jobs with full-time jobs increasing by 21,600.
The participation and employment rates both stand near all-time highs.
Retail sales stage a retreat
Latest month: May
After April’s robust 1.7% month-over-month gain, retail sales fell 0.6% in
May. Sales in the automotive sector, which make up more than one-third
of total retail sales in Canada, fell by 2.1%. Excluding autos, retail sales
fell 0.2%. Sales at food and beverage stores declined 0.6%. Increases in
the other five retail sectors partially offset these declines. Adjusted for prices
increases, real retail sales fell 0.6% following a gain of 1.2% in April.
Despite May’s weakness, retail sales continue to be strongly supportive of
the domestic economy. Assuming no growth at all in June, real retail sales
would still register a robust 7.2% growth rate in the second quarter.
Housing starts stronger than expected
Latest month: July
Housing starts rose to a 236,500 (seasonally adjusted annual rate) in July,
just slightly above June's 236,400 starts, but much stronger than the market
consensus call for 225,000. The residential housing market has slowed
from the abnormally strong first quarter but remains relatively robust. Starts
averaged 247,600 in the first quarter and 229,100 in the second. Activity in
July was supported by the 3.9% rise multiple-unit starts. Single-unit starts
slipped by 3.5% and were at the lowest level this year. Year-to-date starts
were 3.1% above year-ago levels with multi-unit starts growing by 4.3%
and single-unit starts by a more modest 0.9%. Going forward, we expect
the housing market to gradually slow but anticipate that robust labour market
conditions will prevent housing activity from deteriorating too sharply
even in the face of high energy prices and modest further increases in interest
rates. This report supports our view that the Canadian economy is growing
at decent clip and is consistent with our call that the Bank of Canada may
need to implement some future policy action to quell inflationary pressures
later this year.
Trade surplus continues to grow
Latest month: June
Canada’s merchandise trade surplus increased to C$4.7 billion in June from
C$4.1 billion in May. The increase in exports was broad-based with only
agricultural and fishing products posting a decline. The largest increases
were in the energy and industrial product sectors. Imports fell by 0.7%,
posting the second consecutive decline and the fourth decrease this year.
Imports of machinery and equipment, industrial goods and materials, energy
products and forestry products fell. Agricultural and fishing products,
autos and other consumer goods posted gains.In constant dollars, exports
increased by 0.7%, while imports were little changed. Real imports of merchandise
goods were up at a 7.3% annual rate in the second quarter, while
exports were down at a 7.7% annual rate, indicating that net trade was a
drag on real GDP growth in the quarter. However, this report shows that
demand for Canadian exports remains very strong, especially energy, and
is supporting a decent sized trade surplus.
Core inflation rate pulls back
Latest month: June
The all-items consumer price index (CPI) fell by 0.2% in June and was
2.5% higher than a year ago. The all-items index excluding the eight most
volatile components (CPIX) also fell 0.2% in the month and slipped to
1.7%, well below forecasts for a rise to 2.1%. Higher gasoline prices, homeowners’
replacement costs and electricity prices supported the month-overmonth
increase in the CPI. The pace of increase in gasoline prices slowed
to 15.4% from 18.6% in May, while natural gas prices increased at a 6.5%
year-over-year rate, down from May’s 15.6%. For the CPIX, lower prices
for clothing and the purchase and leasing of autos offset higher homeowners'
replacement costs and rising prices for restaurant meals and paper supplies.
With the CPIX inflation rate falling back in June, the case for the
Bank of Canada to raise the policy rate in the near-term has been lessened.
The core inflation rate averaged 1.8% in the second quarter, bang on the
Bank’s forecast. Still, the case for an increase in the overnight rate can be
made given that the economy is operating in a state of excess demand and
recent indicators suggest that the economy continued to grow at an abovepotential
rate in the second quarter.
Source: "Financial Markets Monthly", Economics Departnment, RBC Financial Group.
For more information please contact A. Mark Argentino
A. Mark Argentino Associate Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc.
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1
BUS 905-828-3434
FAX 905-828-2829
E-MAIL mark@mississauga4sale.com
Website: Mississauga4Sale.com
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