Sunday, November 18, 2007

RBC shows that Canada's domestic economy keeps chugging along

Canada's domestic economy keeps chugging along

Canada's job market started the fourth quarter on a robust note with payroll rising 63,000, perpetuating the strong momentum in the labour market. The economy has created 346,000 new jobs so far this year, 76% of which are full-time positions. The pace of wage gains also accelerated strongly from the tepid 2.3% average increase in the first quarter to a 3.8% average rate in the third quarter and an even stronger 4.2% in October. The combination of healthy job gains and escalating wage growth this year is providing strong support for consumer spending, with real retail sales running 5.3% faster, on average, than in the same period last year.

Housing activity has also been solid, with starts hitting the highest level since 1978 in September. In the third quarter, housing starts increased by 7%, pointing to residential activity contributing to growth once again. There has been some deterioration in affordability in recent quarters, consistent with a slowing in the housing market going forward, and we forecast that activity will trend lower in 2008. However, the combination of strong job gains, rising wages and the strong housing market will keep the Bank of Canada worried that household spending will continue at a rapid pace and push the economy further into excess demand.

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A. Mark Argentino
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