GDP Unchanged in October
The Canadian economy was unchanged in October after growing 0.2% in September, according to Statistics Canada. Economists had been expecting another 0.2% gain. Service-producing industries rose 0.2%, mainly from growth in wholesale trade, retail trade and real estate. Meanwhile, goods-producing industries contracted 0.4%, largely due to the mining, quarrying and oil and gas extraction sector. The wholesale trade sector grew for the 9th time in 11 months in October, with a 1.4% rise more than offsetting September's decline of 0.9%. Six of nine subsectors expanded, led by wholesalers of machinery, equipment and supplies (+3.4%), personal and household goods (+3.2%) and petroleum products (+3.1%). The wholesaling of motor vehicles and parts declined 1.7% as automotive imports decreased. The retail sector expanded 1.1% in October, almost offsetting three consecutive months of declines. Gains were posted in 7 of 12 subsectors, led by a 2.3% increase at motor vehicle and parts dealers as activity at new and used car dealers was up. General merchandise stores gained 2.4%, more than offsetting three months of declines. Food and beverage stores were up 1.0% while building material and garden equipment and supplies continued to grow, rising 2.0%. The construction sector edged down 0.1% in October following four consecutive monthly increases. Repair construction fell 0.3% after rising 1.6% in September. Non-residential construction contracted 0.3%, as a decline in commercial construction more than offset growth in industrial and public construction. Residential construction fell 0.1% as declines in single-family dwellings and home alterations and improvements more than offset growth in doubles, rows and apartment dwelling units. Engineering and other construction activities edged up 0.1%. On an annualized basis, GDP improved 1.7% in the third quarter, exceeding forecasts for an increase of 1.6%. The second quarter estimate was revised down to 4.3% from the previously reported 4.5% increase.
Bank of Canada Holds Rates at 1%
The Bank of Canada held its target interest rate steady at 1% at its meeting in early December. Analysts say it may be March or April before the bank raises rates again. Notes issued by BOC show that although they believe that higher rates will eventually be required, they think the current policy is appropriate for the economy at this time. They foresee a gradual increase in inflation, which has consistently been running below the target of 2.0%, which is the same as the US target.
Unemployment Falls to 5.7%
Unemployment fell to a four-decade low of 5.7% in December from 5.9% in November and Canada’s Labor Force Survey showed that the economy added 78,600 jobs; analysts had been expecting a decline of 12,500 jobs. The extent of the boom in Canadian jobs this year has largely caught policy makers and economists by surprise, given most have been anticipating an aging workforce to eventually become a drag on employment. While most of the new jobs in December were part-time, the bulk of new hires in 2017 were full-time. The nation added 394,200 full-time jobs last year, the biggest gain since 1999. The gains last year were led by services with 290,300 new positions. Goods-producers added 132,100 jobs, with an 85,700 increase in manufacturing that was the strongest since 2002. Actual hours worked in December were 3.1% above year-ago figures, the fastest rate of increase since 2010. The strong jobs report increases the odds that the Bank of Canada will raise interest rates at its meeting in January.
Consumer Confidence Rises to 62.67
Consumer Confidence in Canada increased to 62.67 in December after rising to 55.37 in November, according to the Conference Board of Canada. Surprise employment and wage gains to end the year have bolstered consumer confidence heading into 2018 and helped to make 2017 a standout year for the index. Consumer confidence in Canada averaged 53.21 from 2010 until 2017, reaching an all-time high of 56.40 in August of 2014 and a record low of 46.80 in February of 2016. National confidence remains significantly above the level at the beginning of 2017. The monthly Index of Consumer Confidence is constructed from responses to four attitudinal questions posed to a random sample of Canadian households.
Consumer Prices Rise 2.1%
The consumer price index (CPI) rose 2.1% in November on a year-over-year basis after rising 1.4% in October. Seasonally adjusted consumer prices rose 0.5% in November after rising 0.2% in October, according to Statistics Canada. It was the largest increase since January. Seven major components of the consumer price index (CPI) increased, while the health and personal care segment dropped. In annual terms, consumer prices rose by 2.1%, up from 1.4% inflation the previous month. Prices increased in seven of the eight major components of the index. Transportation prices provided the biggest upward pressure, up 5.9% year over year from a 3.0% gain in October. Prices for passenger vehicles accelerated 3.6% while food prices rose at an annual rate of 1.6%.
Canada U.S. Trade Updates
More than a quarter of Canadian firms could move part of their operations to the United States amid uncertainty over the future of the NAFTA trade pact, according to the nation's export credit agency. The semi-annual forecast by Export Development Canada underlines the challenges posed by what the Canadian media refers to as the more isolationist approach to trade of US President Donald Trump's administration.
In a 4-0 vote in early December, the US International Trade Commission ruled that the US lumber industry was injured by Canadian lumber imports. That ruling will finalize the countervailing and anti-dumping duties currently being assessed on Canadian lumber shipments to the US. In November, the US Department of Commerce levied total CVD/AD duties of 20.83% on Canadian lumber imports. Canada has already announced that it plans to appeal the CVD/AD duties before NAFTA and World Trade Organization panels.
Housing and Construction News
Housing starts rose to 226,270 units in November from 216,642 units in October, according to Canada Mortgage and Housing Corporation (CMHC). This trend measure is a six-month moving average of the monthly seasonally adjusted annual rates (SAAR) of housing starts. It was the highest level for housing starts in almost 10 years, and was largely due to the second consecutive increase in multifamily starts. Much of the increase in multifamily starts was in Toronto, where there has not been much overbuilding, inventory is low and demand is strong, according to CMHC. The shift from single-detached to multiple housing starts has been driven by millennials and first-time buyers looking for lower priced alternatives in an uncertain economic environment. Total year-to-date housing starts are trending 12% lower than in 2016.
The value of building permits rose 3.5% to $8.2 billion in October. All building components increased with the exception of the institutional component, which declined 14.3%, offsetting much of the gain from the previous month. It was the second consecutive month building permits rose. The value of permits for non-residential buildings increased $171.7 million to $3.3 billion in October, the second consecutive monthly gain. The commercial component, which refers to buildings used in the trade or distribution of goods and services, was the main contributor to the 5.5% increase in the non-residential sector. Permits in Quebec for warehouses, as well as permits in Ontario for office buildings, warehouses, and recreation buildings, contributed to the rise in the value of commercial building permits in October. Nationally, the value of permits for the industrial component passed the $700 million-mark for the first time in five years. The gain stemmed primarily from higher construction intentions for factories and plants in Alberta. Nationally, the
year-to-date value of permits for the industrial component totaled $5.3 billion, $1.0 billion higher than the same period in 2016.
Mortgage rates on a fixed 5-year closed mortgage remained at an average of 3.39% at the end of December.
Retail Sales Grow 1.5%
Retail sales grew 1.5% in October to $49.9 billion after edging up a marginal 0.1% in September. Sales were driven by a 3.3% increase in sales by new car dealers. Excluding sales at motor vehicle and parts dealers, retail sales rose 0.8%. Sales rose in seven of the 11 subsectors, representing 79% of the country's retail trade industry. Food and beverage stores recorded sales growth of 1.1% while sales at general merchandise stores went up 1.8%, the first increase in three months. Sales at electronics and appliance stores recovered in October, rising 1.4%. Retail sales in volume terms climbed by 1.4%. In Canada, retail sales account for about half of all consumer spending, and are considered a proxy for overall consumer spending.
Canada Retail Notes
Amazon shipped more than two million items in Canada with same-day/one-day delivery over the holiday season. The TP-Link Smart Plug was the best-selling smart home product in Canada. Prime membership continued to grow, and Amazon Devices like Echo Dot and Fire TV Stick with Alexa were very popular. Amazon’s peak day for customer fulfillment was December 19.
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