Canadian employment rose 15,000 in February 2018 according to the Labour Force survey, not far from consensus expectations. With the participation rate unchanged at 65.5%. The February 2018 employment report was a mix of good and less good news. While the overall job gains are welcome, the tilt towards part-timers and the public sector wasn’t particularly encouraging.
The outlook for employment remains positive with corporations reporting strong profits and labour shortages, although the pace of job growth is likely to be restrained until at least a revamped NAFTA is signed by policymakers.
Welcome to the newest year of disruption – its challenges, risks, rewards and investment opportunities! But how different this time compared with a year ago when hopes for the U.S. and its freshly-triggered animal spirits were heavily outweighed by generally sobering forecasts.
The graphic from the Globe and Mail succinctly illustrates the ‘Animal Spirits’ in the 2017 North American stock markets. Enjoy the detailed discussion by Dr. Michael Graham, Ph.D. 2018 Challenge, Disruption, Opportunity.
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In Canada, a lot of attention will be on October’s inflation numbers. Given the record low unemployment rate in service-producing industries (hence rising wage pressure), we expect a reversal of the downward trend in service CPI inflation. As a result, headline price could have increased 0.1% m/m (not seasonally adjusted) but, due to the base effect, that may still translate into a small drop in the annual inflation rate to 1.4%. Meanwhile, CPI-common may have gained one tick to 1.6%, in line with recent economic momentum.
For a detailed perspective on current inflation expectations enjoy the detailed perspective from National Bank Financial Group Economics https://www.nbc.ca/content/dam/bnc/en/rates-and-analysis/economic-analysis/weekly-economic-watch.pdf
U.S. Stock Market Indices move to new highs in part driven by earnings and the anticipation of U.S. tax reform or at least tax cuts against modest inflation increases. This optimism is due in part to the underlying economic conditions in Canada and the U.S. economic remain positive. The focus is and will be on inflation trends. Both the American and Canadian consumer price indexes (CPI) ticked upwards due in a large part to energy prices recovering.
North American Inflation Trends
In Canada, all eyes will be on September’s Gasoline prices rose 4.4% in the month, way above historical norms. The headline CPI expects to increase 0.3% and push the annual inflation rate up three ticks to 1.7%. The backdrop of this modest inflationary pressure is against the very strong first six months of GDP growth in the Canadian economy.
The U.S. September CPI increased 0.5%, following a 0.4% advance the prior month. The headline figure was lifted by a 6.1% spike in the price of energy, the steepest monthly increase for that category since June 2006.
In light of the converging Canadian and U.S. long weekends due to national birthday parties, we have summarized a strong economic start to the summer below.
Internationally, despite the negative headlines overall growth is solid:
The global economy is picking up steam buoyed by both advanced and emerging economies. We expect global GDP growth to be close to 3.5% both this year and next. That, however, assumes policymakers are able to minimize downside risks such as mounting trade protectionism, elevated debt levels and the impacts of Brexit.
United States economy readies for more potential rate hikes due to strong job growth:
The improving U.S. economy explains the Fed’s decision at its June meeting to upgrade slightly its growth forecasts and tighten monetary policy further. Industrial output and real consumption spending are on track to grow in the second quarter at a much faster pace than in Q1 and the labour market remains rock solid. But while we remain comfortable with our view that U.S. GDP growth will accelerate to more than 2% both this year and next. That’s not to say we share the Fed’s optimism on inflation and hence interest rates for 2018 and 2019.
Canadian economic data has largely surprised on the upside this year:
Growth has been strong and so has the labour market, the latter creating jobs in numbers not seen since 2013. The housing market has surged as a result. So much so that the Bank of Canada signalled an upcoming policy change. Dovish rhetoric has been replaced with an explicit statement that it is now assessing whether the current considerable stimulus is still required. We have brought forward by one quarter to October 2017, the timing for an increase in the overnight rate.
Statistics Canada ends this week by issuing its labour force survey for the month of June. Last month, the agency’s report for May showed a surprisingly strong 54,500 net new jobs — including 77,000 full−time positions.