Friday December 07 2018
Canada Jobless Rate Lowest Since 1974
Statistics Canada | Agna Gabriel |

The unemployment rate in Canada decreased to 5.6 percent in November of 2018 from 5.8 percent in the previous month while markets had expected it to remain steady at 5.8 percent. It is the lowest jobless rate since comparable data became available in 1976. The economy added 94.1 thousand jobs in November, after creating 11.2 thousand in October and compared with market consensus of 11 thousand. Full-time hiring grew (+89.9 thousand) and part-time jobs increased (+4.1 thousand).

Employment increased in six provinces, led by Quebec (+26,000) and Alberta (+24,000), while there was little changed in the four Atlantic provinces.

More people worked in professional, scientific and technical services (+26,000); health care and social assistance (+19,000); construction (+15,000); business, building and other support services (+15,000); transportation and warehousing (+9,000); and agriculture (+7,100). At the same time, fewer people worked in information, culture and recreation (-10,000).

Employment increased for private sector employees (+79,000), while it was little changed for public sector employees. The number of self-employed was also little changed.

In November, employment rose for core-aged group (25 to 54) by 49,000. Employment gains were recorded among both core-aged women (+32,000) and men (+17,000). Meanwhile, employment for workers aged 55 and over grew by 39,000, driven by increases among men while for youth ages 15 to 24 was almost unchanged.

The labour force participation rate increased slightly to 65.4 percent from 65.2 percent in October.

Thursday December 06 2018
Canada Trade Gap Larger than Expected
Statistics Canada | Agna Gabriel |

Canada trade deficit widened to CAD 1.17 billion in October 2018 from an upwardly revised CAD 0.89 billion trade gap in the previous month. It compares with market expectations of a CAD 0.7 billion shortfall. Exports fell 1.2 percent, the third consecutive monthly decline, principally on lower exports of crude oil. Meanwhile imports were down 0.6 percent, mainly due to fewer imports of passenger cars and light trucks.

Exports from Canada fell 1.2 percent month-over-month to CAD 49.32 billion in October 2018, despite increases in 7 of 11 sections. It was the third consecutive month decline in Canadian exports, as sales of energy products slumped 12.4 percent to CAD 8.8 billion, mainly crude oil (-16.2 percent). Crude oil export prices were down 15.4 percent, the most since February 2016, as discounts for Canadian produced crude oil deepened. On the other hand, exports of motor vehicles and parts were up 4.4 percent to CAD 7.8 billion, driven by higher sales of passenger cars and light trucks (+6.6 percent); and exports of farm, fishing and intermediate food products increased 4.8 percent to CAD 3.4 billion, mainly canola. 

Exports to the United States went down 2.3 percent to CAD 36.5 billion and exports to other than the US increased 2.3 percent to CAD 12.9 billion, particularly to Hong Kong and Japan; while those to the UK decreased. 

Imports to Canada went down 0.6 percent from the previous month to CAD 50.49 billion, the fourth decrease in the past in the past five months. Declines were observed in 7 of 11 sections. Purchases of motor vehicles and parts declined 3.5 percent to CAD 9.1 billion, namely passenger cars and light trucks (-5.8% to CAD 3.9 billion) and electric cars. Additionally, basic and industrial chemical, plastic and rubber products declined 4.5 percent to CAD 4 billion, as lubricants and other petroleum refinery products decreased 13.6 percent, on the back of lower imports of crude oil diluents from the United States. Contrarily, imports of aircraft and other transportation equipment and parts rose 11.3 percent to CAD 1.7 billion. 

Imports from the United States rose 1.3 percent to CAD 33.4 billion; from other countries than the US, purchases fell 4.1 percent to CAD 17.1 billion, namely China, Japan, the UK and Saudi Arabia.

Wednesday December 05 2018
Canada Leaves Monetary Policy Unchanged
BoC | Stefanie Moya |

The Bank of Canada left its benchmark interest rate unchanged at 1.75 percent of December 5th 2018, after hiking 25 bps on the previous meeting, as widely expected. It remained the highest rate since December 2008. Policymakers said more interest rate hikes will be need to keep inflation into a neutral range of 2 percent target and that will depend on factors, which include consumption and housing, global trade policy developments, oil price shock, the evolution of business investment, and the Bank’s assessment of the economy’s capacity. The Bank Rate and deposit rate were also left unchanged at 2.0 percent and 1.50 percent, respectively.

Statement by the Bank of Canada:

The global economic expansion is moderating largely as expected, but signs are emerging that trade conflicts are weighing more heavily on global demand. Recent encouraging developments at the G20 meetings are a reminder that there are upside as well as downside risks around trade policy. Growth in major advanced economies has slowed, although activity in the United States remains above potential. 

Oil prices have fallen sharply since the October Monetary Policy Report (MPR), reflecting a combination of geopolitical developments, uncertainty about global growth prospects, and expansion of U.S. shale oil production. Benchmarks for western Canadian oil – both heavy and, more recently, light – have been pulled down even further by transportation constraints and a buildup of inventories. In light of these developments and associated cutbacks in production, activity in Canada’s energy sector will likely be materially weaker than expected.

The Canadian economy as a whole grew in line with the Bank’s projection in the third quarter, although data suggest less momentum going into the fourth quarter. Business investment fell in the third quarter, in large part due to heightened trade uncertainty during the summer. Business investment outside the energy sector is expected to strengthen with the signing of the USMCA, new federal government tax measures, and ongoing capacity constraints. Along with strong foreign demand, this increase in productive capacity should support continued growth in exports.

Household credit and regional housing markets appear to be stabilizing following a significant slowdown in recent quarters. The Bank continues to monitor the impact on both builders and buyers of tighter mortgage rules, regional housing policy changes, and higher interest rates.

Inflation has been evolving as expected and the Bank’s core measures are all tracking 2 per cent, consistent with an economy that has been operating close to its capacity. CPI inflation, at 2.4 per cent in October, is just above target but is expected to ease in coming months by more than the Bank had previously forecast, due to lower gasoline prices. Downward historical revisions by Statistics Canada to GDP, together with recent macroeconomic developments, indicate there may be additional room for non-inflationary growth. The Bank will reassess all of these factors in its new projection for the January MPR.

Weighing all of these developments, Governing Council continues to judge that the policy interest rate will need to rise into a neutral range to achieve the inflation target. The appropriate pace of rate increases will depend on a number of factors. These include the effect of higher interest rates on consumption and housing, and global trade policy developments. The persistence of the oil price shock, the evolution of business investment, and the Bank’s assessment of the economy’s capacity will also factor importantly into our decisions about the future stance of monetary policy. 

Friday November 30 2018
Canada GDP Growth Slows to 0.5% in Q3
Statistics Canada | Stefanie Moya |

The Canadian economy grew 0.5 percent quarter-on-quarter in the third quarter of 2018, following a 0.7 percent expansion in the previous period. The slowdown was mainly due to lower household spending. Expressed as an annualized rate, the GDP advanced 2.0 percent, easing from a 2.9 percent growth in the second quarter and in line with market expectations.

Household expenditure rose 0.3 percent, slowing from a 0.6 percent expansion in the previous period, attributable to outlays for durable goods (-0.7 percent), as motor vehicles purchases (-1.6 percent) fell for the third straight quarter. On the other hand, a 1.4 percent rise in outlays for semi-durable goods pushed overall goods spending to 0.2 percent. Household spending on services slowed to 0.3 percent, after expanding 0.8 percent in the second quarter.

Investment in housing dropped 1.5 percent, as investment in new residential construction fell 4.7 percent, the largest decline since the second quarter of 2009. Also, renovation outlays went down (-2.0 percent). Meanwhile, ownership transfer costs rebounded (7.1 percent), after decreasing for two quarters.

Business gross fixed capital formation fell 1.3 percent, following six consecutive quarterly increases, mainly due to a decrease in investment in engineering structures (-2.3 percent), which was partly offset by investment in non-residential buildings (1.3 percent). Additionally, engineering structures dropped due to a deceleration of investment in the oil and gas sector.

Machinery and equipment investment by businesses decreased 2.5 percent, the sharpest drop since the third quarter of 2016. Main contributions to the decline were: aircraft and other transportation equipment (-51.0 percent); industrial machinery and equipment (-2.1 percent); and furniture, fixtures, and prefabricated structures (-2.3 percent).

Business inventory accumulation eased to CAD 6.9 billion from CAD 13.2 billion in the prior period. Retailers reduced inventories, with motor vehicle inventories falling by CAD 4.1 billion in the third quarter.

Manufacturers' inventory increased for both durable and non-durable goods, while wholesalers continued to build up stocks, but at a slower pace. The economy-wide stock-to-sale ratio increased to 0.82.

Imports went down 2.0 percent, with imports of refined petroleum products falling 27.2 percent. The drop in petroleum imports coincided with increased domestic production following the completion of maintenance work at certain Canadian refineries that had reduced output in the second quarter. In addition, purchases of aircraft and other transportation equipment and parts decreased 22.0 percent. Imports of service fell 2.5 percent, mainly on lower demand for commercial (-3.1 percent) and travel (-2.7 percent) services.

Exports increased 0.2 percent in the third quarter, slowing from a 3.1 percent growht in the second quarter. Total goods exports rose 0.4 percent, boosted by higher sales of shipments of metal ores and non-metallic minerals (27.6 percent), reflecting the resumption of operations at mines affected by work stoppages in the second quarter. Exports of services declined 0.8 percent.

Thursday November 29 2018
Canada Current Account Deficit Smallest Since 2016
Statistics Canada | Stefanie Moya |

Canada's current account deficit narrowed by CAD 6.3 billion in the third quarter to CAD 10.3 billion from an upwardly revised CAD 16.7 billion in the previous period and compared with market consensus of a CAD 11.5 billion shortfall. It was the smallest current account gap since the last quarter of 2016, reflecting lower deficits on goods, services and investment income.

The goods deficit decreased by CAD 4.0 billion to CAD 1.7 billion, following a CAD 5.7 billion gap in the previous quarter. Total exports of goods increased by CAD 3.4 billion to CAD 151.5 billion in the prior quarter. Main contributors were energy products (CAD +1.7 billion) on higher crude petroleum prices and metal ores and non-metallic minerals (CAD +1.2 billion), namely iron ores and concentrates. These increases were partially offset by lower sales of metal and non-metallic mineral products as both volumes and prices declined. Total imports of goods went down by CAD 0.6 billion to CAD 153.2 billion. Imports of aircraft and other transport equipment and parts fell CAD 1.4 billion with the lowest imports of aircraft in six years. Motor vehicles and parts dropped CAD 0.8 billion on lower volumes. Higher imports of electronic and electrical equipment and parts (+$0.8 billion) moderated the overall reduction in the quarter.

On the geographical basis, the goods surplus with the United States increased by CAD 3.9 billion on stronger exports. Meanwhile, the deficit with non-US countries edged down CAD 0.1 billion to CAD 16.2 billion. On a country basis, the largest increases to trade balances were with Belgium, Japan and China, while the most important declines were with Hong Kong and Switzerland.

The services deficit narrowed by CAD 0.7 billion to CAD 6.3 billion in the third quarter of 2018. The surplus on commercial services rose CAD 0.4 billion, mainly due to lower purchases of financial services. The travel deficit decreased by CAD 0.2 billion to CAD 3.6 billion as Canadian travellers reduced their spending in the United States.

The deficit on primary income, which covers investment income on international assets and liabilities and compensation of employees, declined by CAD 1.6 billion to CAD 1.7 billion. Investment income receipts on Canada's international assets went up CAD 2.1 billion to CAD 33.5 billion. Higher receipts on holdings of direct investment assets and deposits abroad by banks were the main contributors. Investment income payments on Canada's international liabilities increased by CAD 0.5 billion to CAD 34.7 billion. Interest paid to non-residents on Canadian private corporate bonds and deposits at Canadian banks were up. Lower profits earned by foreign direct investors in Canada moderated the overall increase.

Friday November 23 2018
Canada Inflation Rate Above Forecasts
Statistics Canada | Joana Ferreira |

Canada's annual inflation rose to 2.4 percent in October from 2.2 percent in the previous month and above market expectations of 2.2 percent. Prices of transportation and shelter led the increase. It was the ninth consecutive month that inflation has exceeded the Bank of Canada's 2 percent target.

Transportation prices rose 4.3 percent in October (vs 3.9 percent in September), driven by a 12 percent increase in gasoline prices, and shelter costs advanced 2.5 percent, the same pace as in September. Also, food inflation picked up to 2 percent in October from 1.8 percent in the previous month, and prices rose faster for household operations, furnishings and equipment (1.4 percent vs 1.3 percent), recreation, education and reading (1.8 percent vs 0.7 percent) and alcoholic beverages and tobacco products (4.5 percent vs 4.4 percent). On the other hand, inflation slowed for both clothing and footwear (1.3 percent vs 1.5 percent) and health and personal care (0.8 percent vs 1.3 percent).

Regarding special aggregates of the CPI, prices for durable goods increased 0.9 percent in October, compared to a 0.2 percent gain in September. With lower rebates and more new model-year vehicles available, the purchase of passenger vehicles index rose 1.7 percent, after increasing 0.6 percent in September. The price of services rose 2.7 percent in October (vs 2.5 percent in September), boosted by a rebound in prices of travel tours (3 percent vs -4.4 percent in September).

On a monthly basis, consumer prices rose 0.3 percent in October, reversing a 0.4 percent fall in September and beating market expectations of a 0.1 percent advance. Prices for airfares, passenger vehicles and travel tours accelerated the most.

Friday November 02 2018
Canada Unexpectedly Posts Trade Deficit
Statistics Canada | Agna Gabriel |

Canada trade deficit narrowed to CAD 0.42 billion in September of 2018 from a revised CAD 0.55 billion trade gap in the previous month and against market expectations of a CAD 0.15 billion surplus. Exports edged down 0.2 percent, due to consumer goods while imports fell at a faster 0.4 percent, dragged down by aircraft and other transportation equipment and parts and energy products.

Exports from Canada edged down 0.2 percent month-over-month to CAD 50.4 billion in September of 2018, despite increases in 6 of 11 product sections. Export volumes fell 1.2 percent, while prices were up 1.1 percent. Sales of consumer goods decreased 3.9 percent to CAD 6 billion, namely other food products (-10.7 percent), as lentils and peas. On the other hand, export of energy products rose 2.3 percent, as refined petroleum products (+10.6 percent), mostly on the strength of heavy fuel oil exports to the United States; and crude oil exports (+1 percent). Higher prices (+5.6 percent) were behind the increase in crude oil exports in September, while volumes decreased 4.3 percent. Exports excluding energy products fell 0.8 percent, a second consecutive monthly decline. Year over year, total exports increased 15.7 percent.

Exports to the United States went up 0.4 percent to CAD 37.8 billion and exports to other than the US declined 1.8 percent to CAD 12.5 billion, particularly to Hong Kong, Italy, India and Spain. These declines were partially offset by a sharp increase in exports to China. 

Imports to Canada fell at a faster 0.4 percent from the previous month to CAD 50.8 billion, despite gains in 6 of 11 product sections. Import volumes decreased 1.5 percent, while prices rose 1.1 percent. Purchases of aircraft and other transportation equipment and parts declined by 28.3 percent, due to a CAD 598 million decrease in imports of ships. Three icebreakers were imported from Sweden at the end of August, followed by none in September. Excluding the imports of these ships in August, total imports would have risen 0.8 percent in September. Additionally, imports of energy products went down 11.5 percent, as crude oil imports drop 13.2 percent, mainly due to lower imports from Saudi Arabia and the United Kingdom; and refined petroleum energy products (-18.9 percent). Year over year, total imports increased 8.5 percent.

Imports from the United States rose 1.2 percent to CAD 33.1 billion, partly on the strength of higher imports of gold. From other countries than the US, purchases fell 3.3 percent to CAD 17.7 billion, namely Sweden, Japan, Switzerland and Mexico, while those from China increased. 

Friday November 02 2018
Canada Jobless Rate Falls to 3-Month Low of 5.8%
Statistics Canada | Luisa Carvalho |

The unemployment rate in Canada decreased to 5.8 percent in October of 2018 from 5.9 percent in the previous month while markets had expected it to remain steady at 5.9 percent. It is the lowest jobless rate since July mainly due to a 18.2 thousand dip in labor force. The economy added only 11.2 thousand jobs in October, after an increase of 63.3 thousand in September and compared with market consensus of 10 thousand. Full-time hiring grew (+33.9 thousand) while part-time jobs fell (-22.6 thousand)

Employment rose slightly in Saskatchewan (+2,500), while there was little change in all other provinces.

More people were employed in business, building and other support services (+22,000); wholesale and retail trade (+19,000); and health care and social assistance (+15,000). In contrast, there were fewer workers in "other services (-17,000);" finance, insurance, real estate, rental and leasing (-15,000); and natural resources (-7,100).

There were fewer public sector employees (-31,000) in October, while there was little change in the number of private sector employees and the self-employed.

Employment among people in the core-aged group (25 to 54) rose by 31,000 in October, led by gains among men (+18,000). Meantime, the number of workers aged 55 and over rose by 19,000, the result of more employed women in this age category.

On the other hand, employment for youths aged 15 to 24 aged 15 to 24 (-39,000), nearly all in part-time work.

Wednesday October 24 2018
Canada Lifts Key Rate to 1.75%
BoC | Luisa Carvalho |

The Bank of Canada raised its benchmark interest rate by 25bps to 1.75 percent on October 24th 2018 from 1.5 percent, as widely expected. It marks the third increase this year and the highest rate since December 2008. Policymakers said that more hikes will be needed to keep inflation close to the target of 2 percent, as economy stays strong and the new US-Mexico-Canada Agreement (USMCA) would reduce economic uncertainty. The bank also mentioned evidence that Canadian households are adjusting well to higher borrowing costs. The Bank Rate is correspondingly 2.0 percent and the deposit rate is 1.50 percent.

Statement by the Bank of Canada:

The global economic outlook remains solid. The US economy is especially robust and is expected to moderate over the projection horizon, as forecast in the Bank’s July Monetary Policy Report (MPR). The new US-Mexico-Canada Agreement (USMCA) will reduce trade policy uncertainty in North America, which has been an important curb on business confidence and investment. However, trade conflict, particularly between the United States and China, is weighing on global growth and commodity prices. Financial market volatility has resurfaced and some emerging markets are under stress but, overall, global financial conditions remain accommodative.

The Canadian economy continues to operate close to its potential and the composition of growth is more balanced. Despite some quarterly fluctuations, growth is expected to average about 2 per cent over the second half of 2018. Real GDP is projected to grow by 2.1 per cent this year and next before slowing to 1.9 per cent in 2020.

The projections for business investment and exports have been revised up, reflecting the USMCA and the recently-approved liquid natural gas project in British Columbia. Still, investment and exports will be dampened by the recent decline in commodity prices, as well as ongoing competitiveness challenges and limited transportation capacity. The Bank will be monitoring the extent to which the USMCA leads to more confidence and business investment in Canada.

Household spending is expected to continue growing at a healthy pace, underpinned by solid employment income growth. Households are adjusting their spending as expected in response to higher interest rates and housing market policies. In this context, household credit growth continues to moderate and housing activity across Canada is stabilizing. As a result, household vulnerabilities are edging lower in a number of respects, although they remain elevated.  

CPI inflation dropped to 2.2 per cent in September, in large part because the summer spike in airfares was reversed. Other temporary factors pushing up inflation, such as past increases in gasoline prices and minimum wages, should fade in early 2019. Inflation is then expected to remain close to the 2 per cent target through the end of 2020. The Bank’s core measures of inflation all remain around 2 per cent, consistent with an economy that is operating at capacity. Wage growth remains moderate, although it is projected to pick up in the coming quarters, consistent with the Bank’s latest Business Outlook Survey.

Given all of these factors, Governing Council agrees that the policy interest rate will need to rise to a neutral stance to achieve the inflation target. In determining the appropriate pace of rate increases, Governing Council will continue to take into account how the economy is adjusting to higher interest rates, given the elevated level of household debt. In addition, we will pay close attention to global trade policy developments and their implications for the inflation outlook.   

Friday October 19 2018
Canada Inflation Rate Falls to 2.2% in September
Statistics Canada | Stefanie Moya |

The inflation rate in Canada fell to 2.2 percent in September of 2018 from 2.8 percent in August and well below market expectations of 2.7 percent. It was the lowest inflation rate since May, as the transportation index eased, still it remained the largest contributor to the year-over-year increase in consumer prices.

Year-on-year, prices were up in all eight major components, with transportation slowing to 3.9 percent from 7.2 percent in the previous month and making the largest contribution.

Prices for non-durable goods advanced at a softer pace (3.0 percent compared to 3.8 percent in August). Prices of gasoline eased (12.0 percent compared to 19.9 percent), as supply disruptions in the wake of Hurricane Harvey, which drove up prices at the pump in September 2017, no longer affect the 12-month movement. Also, cost of durable goods slowed to 0.2 percent, after increasing 1.1 percent in August, mainly due to the purchase of passenger vehicles (0.6 percent compared to 2.3 percent), which was largely attributable to the lower availability of new model-year vehicles.

Prices of services rose less than in the previous month (2.5 percent compared to 3.1 percent), driven by the cost of travel, which decreased on a month-over-month basis, namely air transportation (-16.6 percent), traveller accommodation (-6.2 percent) and travel tours (-3.4 percent). Additional downward pressure came from recreation, education and reading (0.7 percent compared to 1.9 percent); health and personal care (1.3 percent compared to 1.4 percent); and alcoholic beverages and tobacco products (4.4 percent compared to 4.6 percent).

On the other hand, cost increased further for household operations, furnishings and equipment (1.3 percent compared to 0.8 percent); food (1.8 percent compared to 1.6 percent) and clothing and footwear (1.5 percent compared to 0.5 percent). 

On a seasonally adjusted monthly basis, the CPI declined 0.4 percent, following a 0.1 percent fall in the previous month, as transitory pressures from the gasoline, air transportation and travel tours indexes, which boosted the all-items CPI in July and August, eased.

The BoC's annual core inflation, which excludes volatile items, went down to 1.5 percent from 1.7 percent in August and below market consensus of 1.8 percent.