October 4, 2012

Encouraging news from some of the latest economic reports north and south of the border


Chief Economist, CanaData

Two key reports on the Canadian economy were recently released, with both offering mildly encouraging news.

Retail sales in July rose 0.7% after declining 0.3% in June. The total current-dollar (i.e., unadjusted for inflation) volume of retail sales in Canada has been essentially flat since December of last year.

One month the figure is up, the next it’s down. Hopefully July will be the start of a new trend that consistently climbs higher.

Motor vehicle sales, on the other hand, continue to be more buoyant. In the latest month, they were +1.7% month to month and +7.7% year over year.

This sector can also derive satisfaction from an apparent resolution of its labour negotiations with the autoworkers union. Employees at Ford have ratified their new agreement. General Motors will vote next.

The negotiations with Chrysler have proven a little stickier with that company wishing to stagger the $3,000 per worker signing bonus the other two firms have agreed to.

In a separate Statistics Canada report, August’s year-over-year change in the all-items Consumer Price Index (CPI) was recorded as only +1.2%. That was a decline from July’s +1.3%.

The “core” inflation rate also pulled back, from +1.7% the month before to +1.6% in the latest period. The “core” series omits eight volatile sub-components, mainly in the food and energy categories.

The year-over-year change in the energy price sub-index was minimal at +0.8% and the price of gasoline was relatively restrained at +2.2%. (As recently as mid-2011, we were seeing the charge at the pump up nearly 30% year <0x000A>over year.)

The fact that our inflation rate is so low is taking away any justification for raising interest rates that the Bank of Canada might still be harboring. That’s okay, because the Federal Reserve in the U.S. has already announced that its key interest rate will be kept near 0.00% until mid-2015.

Just the same, the expectation that Canada might move earlier on interest rates than the U.S. is putting some upward pressure on the value of the Canadian dollar.

Foreign capital flowing into Canada isn’t a bad thing. If nothing else, it means our governments can finance their deficits with some of the lowest yields anywhere in the world.

Nor are we ever likely to see a credit crisis similar to what the southern periphery nations have been experiencing in the Euro zone.

Let me qualify that statement. If Premier Pauline Marois gets her fondest wish to “distance” Quebec from the rest of the country, the consequences might be unpleasant to say the least. The reaction of international financial markets would probably range from unpredictable to punitive.

With a minority government in the province, and public opinion opposed to the idea, there’s no need to fret for now.

South of the border, there have also been two recent reports conveying good impressions of the economy.

The consumer confidence of Americans took a big step forward in August, according to the Conference Board. The index figure jumped ahead 9.0 points from 61.3 to 70.3.

The latest figure was a return close to its high for the year so far of 71.6 in February.

Early in the recession, the confidence measure fell as low as 25.3. The present measure for the index, while obviously on the right track, is still underwhelming.

The index generally moves up and down around 100.0. 1985 was chosen as the base year.

Both the “present situation” index and the “expectations” index rose as well in the latest survey, from 46.5 to 50.2 for the former and from 71.1 to 83.7 for the latter.

The improvement in consumer confidence falls in line with what has been happening with resale home prices.

It’s difficult for homeowners to feel optimistic when the value of their primary asset — the family residence — keeps dropping.

It’s a pleasure to report a turnaround on that score. The Standard & Poor’s Case-Shiller >home price index continued its upward march in July.

The month-to-month change for the 10-city composite index was +1.5% and for the 20-city composite, +1.6%.

Those were the third straight month-to-month gains for both indices.

The year-over-year figures weren’t quite as strong, but they were in the right direction nonetheless. The 10-city composite was +0.6% in July of this year versus July of last year. The 20-city composite was +1.2%.

Among the major cities monitored, the top five year-over-year percentage increases in July were recorded in Phoenix (+16.6%), Minneapolis (+6.4%), Detroit (+6.2%), Denver (+5.4%) and Miami (+5.3%).

Atlanta’s performance was the worst among the 20 cities, but it should be noted that its percent change in July at -9.9% year over year was less negative than in June.

Until the latest month, Atlanta suffered through nine straight months of double-digit percentage declines year over year.

For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog. His lifestyle blog is at www.alexcarrick.com

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