Recent weeks have offered a large amount of economic news to digest from the Bank of Canada and more. Here are a few recent economic events:
A disappointing surprise in Canada’s low monthly employment figures yet overall holding at 3.6% annual rate
A hold in the Central bank rate at a remarkably low 1.75%
Outlook for slow and steady growth prospects for 2020 at 2% GDP
Inflation that appears to be under control in Canada (2.6%) and the U.S. (2.9%)
Pending approval of USMCA (NAFTA 2.0)
Lets be frank. If any economist proposed these figures five to ten years ago, they would be outliers. The overall economic picture that Bank of Canada (BoC) Governor Poloz describes in the recent report from our Partners at National Bank Financial Economics is optimistic and balanced. Poloz believes the economy remains resilient despite the recent unemployment monthly spike, stating “we (BoC) felt the employment situation in the country remained favourable, with participation rates and wages showing upward momentum.”
Don’t forget to review your investment portfolio as we near the end of the year with your Hampton Securities Investment Advisor. Financial markets have been strong and many indices have reached record highs. Each portfolio has its own target, risk and return objectives. Matching capital gains and losses can be very beneficial from a tax perspective. December 27th, 2019 is the last day to successfully sell for tax loss purposes.
The third quarter GDP reports an economy with stronger growth than expected. Out partners at National Bank Financial Economics offers a thorough analysis that reveals many aspects of our economy remain robust, including: domestic demand fired on all cylinders, consumer demands remains strong, household savings rates increase and inventories continue to be drawn down. Job growth has even outpaced economic growth to this point. These indicators paint a positive picture for 2020 with modest growth projected but recent November 2019 jobs numbers propose a ‘significant fly in the ointment’.
November 2019 Canadian Job Numbers Tumble
Just when it appeared we expected to enter 2020 on a modestly positive keel, the winds of change appear in the November jobs report. The chart below offers a longer term perspective on the recent increase in unemployment. Coupled with the Bank of Canada leaving overnight rates unchanged at 1.75%, the Bank of Canada focused on the resilience of the Canadian economy in their most recent statement.
Our partners at National Bank Financial offer a 2019 fourth quarter perspective on changing global economic trends and what to expect for the balance of the year. What they are watching for:
September’s (Canadian) labour force survey will draw the most attention. No less than 304,000 jobs were added in the country in the first eight months of the year, the best tally since 2002
NBF Economics October 4, 2019
The Canadian economy saw a weaker GDP growth rate in July and coupled with a broader economic easing, along side the tumult in the U.S. on both a political and economic level, the fourth quarter will be choppy for investors, as often is the case.
Trade Wars may be a negotiating strategy but if sustained they will become a global ‘wet blanket’ that no economy will escape. As our partners at NBF Economics, point out in their recent economic outlook, China’s slowdown is significant. This is the ‘Yin”. A significant Chinese economic slowdown could hit Canada hard and cause a decline in the U.S.
“In China, GDP expanded just 6.2% in Q2 from a year earlier (+1.6% q/q non-annualized). Its slowest pace since data collection began in 1992. Although in line with expectations, this result confirmed that the world’s second largest economy is slowing amid persistent U.S. trade tensions. The deceleration could have been worse had other indicators not surprised on the upside in June.”
NBF Economics July 2019
“Global trade contracted 2.3% between October and April, according to the Netherlands Bureau of Economic Analysis. The World Bank expects the global economy to grow by just 2.6% this year—the weakest pace since the financial crisis.”
As the NAFTA 2.0 trade deal (USMCA) is finalized and the trade uncertainty is resides, it still appears that successive increases in interest rates are already having an impact in key sectors such as housing and autos. Many investors are asking — where are we as it relates to the next steps of economic growth and market expectations?
Inflation is the thermometer of economic activity in Canada, which is heating up. Our partners at NBF Economics point out that inflation is rising in Canada led by food prices. These particularly impacts retirees and working families the hardest as they have rising expenses and/or fixed income lags the increases in inflation. May’s 2018 Canadian economic growth measured by Gross Domestic Product (GDP) results were better than expected, with solid headline growth and broad based gains. The dispersion of output gains, meaning the broad participation across the economy was actually the best since 2004 (See chart). The only sector seeing a decline was utilities, although a giveback was always in the cards there after colder-than-normal temperatures had boosted the prior month’s output.
Enjoy the detailed discussion and analysis from our team at NBF Economics
A little inflation measured by the Consumer Price Index (CPI) is not a bad thing. The North American central banks being the Bank of Canada (BoC) and the U.S. Federal Reserve (The Fed) manage monetary policy and set interest rates. Both are targeting to manage inflation. The good news is that the U.S. and Canadian monetary policies are aligned and not competing against each other.
How does the Inflation outlook impact interest rates?
The Canadian April employment numbers that were announced last week saw a “Cooling of employment” literally as a colder-than-usual April may have temporarily hurt hiring in some sectors. But the soft headline number doesn’t necessarily mean Canada’s labour market is struggling. Looking longer-term, the April jobs report does nothing to change our view that the labour market remains tight and will continue to fuel inflation pressures this year. As such National Bank Financial Economics Partners continue to call for a July interest rate hike from the Bank of Canada.
Canada’s GDP (Gross Domestic Product) has rebounded in February 2018 with the largest surge since May 2017 due primarily to a recovery in energy prices complemented by a broad sectorial surge. Canada’s economy beat estimates by growing 0.4 percent. The breadth of increases is encouraging, particularly the observed bounces in the agricultural, mining, oil and gas, retail, arts/recreation, professional and information services industries. Of the twenty industrial sectors, fifteen registered increases in output during February. As a result, industrial production jumped 1.4%, the biggest increase since May last year. Q1 growth may well end up topping the Bank of Canada’s estimate of 1.3%.
Our partners at National Bank Financial Economics has reflected on the year that was in 2017 from a global perspective as economists are want to do in order to set the stage for the balance of 2018. The economic vital signs of 2017 are robust and record setting. It’s becoming clearer why world GDP (Gross Domestic Product) growth accelerated sharply last year. Latest data from the CPB showed trade volumes not only reaching a new record but also growing in 2017 at 4.5%, the fastest pace since 2011.
What are Canada’s Economic Vital Signs for 2018?
National Bank Financial Economics offers a cautiously optimistic outlook for Canada as a result of U.S. policies and global growth. Barring the implementation of protectionist policies stateside, Canadian exporters should enjoy positive spillovers from the recently announced ramp up in U.S. fiscal stimulus. Domestic demand will also find support as business investment continues to recover, consumers enjoy higher incomes courtesy of housing wealth effects and a strong labour market,
Private sector investment spending is actually projected to rise 2% this year, the largest increase since 2014. Higher investment is planned in manufacturing, retailing, and real estate among others.
National Bank Financial Economics explores the economic vital signs for Canada in 2018.
Canada took a breather in August after a strong first half of 2017. August saw the first monthly drop of output this year. This is not a reason for concern, while the majority of broad industries saw gains in August (12 out of 20), the few that experienced declines were significant enough as to lead to an overall drop. This pullback was against the backdrop of a very strong recovery through the first part of 2017 as Canada lead its trading partners in GDP growth.