Review Of Canadian Economic Indicators

Canada – In August, retail sales rose 0.3%, in line with consensus expectations. Sales were up in five of the 11 subsectors. Auto dealership revenues fell 0.2% after strong gains the prior month. Excluding autos, sales swelled 0.4%. This, too, met consensus, although the previous month’s number was revised up a tick to +0.5. Ex-auto sales were driven by advances in food/beverage, gasoline, electronics, sporting goods and general merchandise. These more than offset lower sales in building materials, furniture/home furnishings, health/personal care, and clothing. The overall gains were due entirely to higher prices as sales actually declined 0.3% in real terms. Still, based on two months of data, real retail sales were tracking roughly at +2.6% annualized in 2012Q3, thanks to strong July sales volumes, after contracting in Q2. This is welcome news as it suggests that consumers provided some offset to weakness elsewhere in the Canadian economy in the quarter.

According to Canada's Survey of Employment, Payrolls and Hours (SEPH), average weekly earnings rose 0.4% in August, taking year-on-year gains to 3.6%. Average weekly hours worked increased 0.3% to 33.1 from 33 in July, which largely explains the higher weekly earnings in August. Canadian wages continued to grow at a healthy pace in Q3 according to the survey, accounting in part for the apparent rebound in retail spending in the quarter.

In September, the Teranet–National Bank National Composite House Price Index™ rose 3.6% year over year. Price changes varied widely across the 11 metropolitan areas covered. Gains were most notable in Halifax (+8.0%) and Toronto (+7.8%). Prices were down in Vancouver (-0.8%), Victoria (-1.0%) and Ottawa-Gatineau. Seasonally adjusted, the index increased at an annualized rate of 0.6% from June to September, its smallest 3-month variation since 2010.

According to the Institut de la statistique du Québec, real GDP at basic prices grew 0.3% in the province in July (vs. +0.2% in Canada). This was the strongest monthly gain since December. The July showing was due in large part to a 2.1% jump in manufacturing output. Moreover, Q1 and Q2 data were revised showing a slightly less anemic growth path than previously estimated: for Q1, 0.5% was bumped up to 0.7% annualized, and for Q2, 0.8% was hoisted to 1.0%. The July report put Quebec GDP on track for expansion of 1.4% annualized in Q3.

The BoC caused a surprise by emphasizing a tightening bias that explicitly linked monetary policy to household sector imbalances. However, in a press conference following the publication of the October MPR, Governor Carney clarified the Bank’s interest-rate guidance. According to Carney, the case for an interest-rate adjustment had become less imminent but, over time, rates were more likely to go up than not. As far as household imbalances were concerned, he pointed out that regulatory efforts were bearing fruit and that the use of the monetary tool to address them would be a last resort. The BoC lowered its growth projection for Canada for 2012Q3 to 1.0% from 2.0% previously while raising the projection for Q4 marginally to 2.5% from 2.3%. Though this was a worse second half than estimated back in July's MPR, it still left the 2012 projection up one tick to 2.2% on account of historical revisions. The BoC also raised the growth outlook for the first half of 2013, while leaving the second half and 2014 little changed. In the end, GDP was projected to grow 2.3% in 2013 and 2.5% in 2014. As in its July forecasts, core inflation was expected to reach 2% by mid-2013.

United States – The first estimate of Q3 U.S. GDP growth came in at +2.0% (annualized), two ticks above the 1.8% expected by consensus. In the third quarter domestic demand was much improved thanks to consumption spending, residential investment and government spending, with this last component contributing to growth for the first time in nine quarters.

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