Friday, January 18, 2008

RBC reporting Canadian Economy still expanding, but the pace likely to slow

RBC is reporting that the Canadian Economy still expanding, but the pace likely to slow

The economy grew at a 0.2% pace in October and at a 1.4% annualized pace compared to the 2.9% average of the third quarter, setting up for a more moderate quarter for growth following nine months of robust expansion.

Despite the slowdown in job growth in December, Canada's job market pumped out 370,000 new jobs in 2007 and the unemployment rate finished the year near its lowest level in 33 years. The 2007 job increase pushed the number of job created since 2002 above two-million and 82% of those jobs were full-time positions.

Retail activity started the fourth quarter on a firm note, rising 0.1% in October, stronger than market forecasts for a 0.4% decline. The strong labour market and firm wage growth will likely support retail activity as the fourth quarter progresses.

Housing starts slowed to a 187,500 seasonally adjusted annual rate in December from an upwardly revised 233,300 pace in November. Starts were 229,600 in 2007, a 1% gain over 2006. The housing market may cool a bit in 2008 we forecast starts of 210,000 units in the year.

The merchandise trade surplus was larger than expected in November, rising to $3.7 billion. But, with a strong Canadian dollar boosting imports and a sharply slower U.S. economy dampening demand for Canadian exports, we expect the drag coming from the trade sector to be even greater in 2008 than in 2007 and that the economy will grow at a more modest 2.1%.

Canada's core inflation rate moved to its lowest level since April 2006 in November, and held below the 2% target for the second month running. The all-items inflation rate will likely remain above the Bank of Canada's 2% target in the near-term, but continued discounting by Canadian retailers will keep the core rate below the 2% target.

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