GDP For 2012Q:4 - Canada Underperforms The United States

In 2012 Q4, Canada’s GDP expanded a mere 0.6% annualized, after growing an upwardly revised 0.7% the prior quarter. For all of 2012, GDP growth was just 1.8%, its worst showing since the 2009 recession. For the first time in six years, Canada underperformed the United States (2.2%) in this regard. In Q4, the economy was held back by a massive drag from inventories, which chopped 2.6% from growth. However, domestic demand fared better than expected with surprising contributions from government, business investment and even residential construction.Though consumption did better than the monthly retail reports had announced, it did so on the back of the savings rate, which slipped four ticks to 3.8%. The need to tap savings arose in part from a moderation in real disposable income growth (only 0.7% annualized after registering 1.4% in Q3). This last bit of news certainly raises doubts about the Labour Force Survey's boom-like employment figures for 2012H2. Trade was a surprising contributor to growth, as exports exceeded what the monthly reports had suggested. The Q4 GDP report was better than expected given the healthy domestic demand. However, this does not change the fact that Canada has now gone through its worst two-quarter stretch since the 2009 recession.

Canada’s current account, its broadest measure of trade, showed a C$17.3-billion deficit in 2012Q4, down C$0.7 billion from Q3’s revised deficit of C$18 billion (previously C$18.9). The improvement was largely due to a shrinking merchandise trade deficit. The current account deficit was financed primarily by short-term capital net inflows (e.g., currency and deposits). For 2012 as a whole, the current account deficit reached a record C$66.9 billion as new highs were hit by the goods and services deficit (C$11.9 billion and C$24.6 billion, respectively).

United States – Fourth-quarter GDP growth, initially estimated by the BEA at -0.1% annualized, was revised up to +0.1%. However, this was still below the +0.5% print expected by consensus. Initially tagged as a drag, trade proved a net contributor to GDP in the end. This partly offset downward revisions to consumption, government, and inventories.

In January, consumer spending rose 0.2% after swelling 0.1% the prior month. Incomes fell 3.6%, their sharpest monthly decline since January 1993. They had grown 2.6% the month before, boosted by large dividends and earlier-than-usual bonus payments. The savings rate fell to 2.4%, its lowest level since November 2007. The PCE price index, excluding food and energy, increased 1.2% from 12 months earlier.

Again in January, durable goods orders slumped 5.2%. The previous month’s figure was revised down to +3.7% from +4.6%. The damage in January was caused by defence, which saw orders decline 69.5%, reversing much of the prior month's gains. Orders for civilian aircraft sank 34%. Excluding transportation, orders were up 1.9%. Nondefence capital goods orders excluding aircraft sprang 6.3%, their largest monthly advance in two years. Total shipments of durable goods sagged 1.2% with nondefence capital goods ex-aircraft pulling back 1%.

In February, the ISM Manufacturing Index climbed 1.1 points to 54.2, its highest level since June 2011. The new orders sub-index gained 4.5 points to 57.8, its best showing since April 2011.

Still in February, consumer confidence jumped to a three month high of 69.6 (from a downwardly revised 58.4 in January), according to the Conference Board Index.

In January, new home sales soared 15.6% to 437K. The months’ supply of homes at the current sales rate fell to 4.1, its lowest mark in several months.

In December, the U.S. Case-Shiller Home Price Index rose 0.9% on a seasonally adjusted basis for an eleventh consecutive monthly increase. On a year-on-year basis, home prices were up 6.8%, their steepest increase since July 2006.

To Read the Entire Report Please Click on the pdf File Below.