THE BI-WEEKLY DIGEST The Economics Research Team Crescent School Investment Team
Ronald Chow, Chief Strategy Officer Jake Erdman, Chief Economist Josh Limpert, Deputy Chief Economist
Sunday, February 28, 2016
ECONOMIC STATISTICS
CONSUMER SPENDING – JANUARY WAS A GOOD MONTH! In the month of January, consumer in the US spending rose 0.5%, which is a very strong number. Households generally bought a very mixed variety of goods, however, the return to colder weather raised the spending on heating. The 0.5% percent increase in January was significantly higher than the 0.1% increase in the month of December. Generally, in December due to the holidays, consumer spending is very high, yet January had a better month. To put this statistic into perspective, consumer spending makes up for approximately two-thirds of the economic activity in the United States, thus an increase by 0.5% in one month, is extremely strong. Excluding Food and Energy prices, prices rose by 0.3% (monthly), which was the largest rise since January 2012. - Jake Erdman, Chief Economist
HEAVY WEEKLY LOSES OF THE POUND British voters will decide on June 23 whether to stay or exit the EU. The fear of an exit has hit the pound hard, as it threatens the foreign investment flow the country needs to balance its account deficit. Selling accelerated this past week as companies and investors rushed to protect themselves against the risk. The drop has been so dramatic that it prompted a rare comment from the Foreign Secretary Philip Hammond, who said it foretells the impacts of the exit of Britain. The pound has been undermined by expectations that an exit would push back the horizon for the Bank of England interest rate rise. HSBC, Britain’s biggest bank, said the currency could lose up to 20% of its value next year should Britain leave. - Ronald Chow, Chief Strategy Officer
LOWER OIL PRICES LACK OF BENEFIT ON NON-PETROLEUM STATES! It has been a long standing assumption that the current fall in oil prices is simply due to the flooding of the oil market by OPEC nations, or the long term oversupply by the large scale introduction of fracking. While this may be a large part of the story, there are further factors, which have much larger implications on the economies of the world. It is generally accepted by the economic community that in non-petroleum states, a drop in oil prices will generally benefit the economy, contributing to lower input costs, and larger wealth for consumers. However, recent forecasting numbers released by the IMF showing Europe’s predicted growth to be far bellow the 2% goal set out by the ECB. Additionally, industries that would traditionally be benefited by low oil costs, such as manufacturing, and transportation (including airlines), have been struggling across the board, with the stock prices and earnings of airlines being stagnant and declining over the past year. If the drop in oil prices were purely a matter of over supply, each of these industries would be flourishing, and economies around the world with each be seeing accelerated growth, however, the general trends around the globe seem to be the opposite. It has been widely acknowledged that certain emerging markets are slowing including, China, Brazil, South Africa and others, however, it is the opinion, and observation of this writer that we are experiencing a large scale global economic slowdown. If this is true, this poses a monumental threat, as each country’s central bank is slowly running out of options to help stimulate the economies. The world remains an uncertain place, and as uncertainty and negative attitudes begin to flourish, we will see this trickle into the stock market and our daily lives. - Josh Limpert, Deputy Chief Economist
THE BI-WEEKLY DIGEST
Sunday, February 28, 2016 at 8:00am
US ECONOMY AND GDP GROWTH FORECASTED TO DECLINE IN 2016! The US economy is projected to experience slowing growth due to the strong USD and weak global demand. These factors are dramatically reducing trade. The dollar is close to a 13-year high. Trade deficits have increased, causing lowered GDP growth in 2015 and possibly negatively impacting growth in 2016 as well. The precipitous decline in oil has also affected the U.S. economy due to the decreased investment in mining and energy exploration. Investments plunged $70 billion in 2015. However, the rate of decline appears to be slowing. Finally, eroding investor confidence could reduce growth by 0.5% in 2016. Overall, all of these factors could cause as much as a 1.2% reduction in GDP growth in 2016. On the other hand, there are some mitigating factors that could help support economic growth. Specifically, consumption growth could benefit as consumers continue spending as they benefit from ongoing low interest rates, cheap fuel, and rising housing prices. - Jake Rakusin, Economist Analyst
THE WEAK CANADIAN DOLLAR MAKES AN IMPRINT ON CPI Canadian consumer prices rose 0.2% in January, boosting the yearly rate 4 ticks to 2% y/y. Food prices surged 1.5%; fruits prices jumped 4.8% (now up to 10.8% y/y); veggies increased 7.9% to 14% y/y. Both fruits and veggies are now close to their 6year highs. Core CPI was firmer than expected, ticking up 0.3% and 2.0% y/y. Alcohol and tobacco rose 0.7% and recreation remained the same; this provided a lift to underlying inflation. Energy was weak as well, with gasoline prices down 6%. Gas prices are likely to fall again in February, but not much more and hence headline inflation could be accelerated. Electricity was up 2.6%, seasonally strong due to expiring rebate in Ontario, but shelter was up only 0.1%. Canadian growth remains subdued, and the Bank of Canada will likely view the acceleration in inflation as transitory. - Ronald Chow, Chief Strategy Officer
THE UPCOMING NEWS RELEASES Canadian Industrial Product Price Index - January Monday, February 29, 2016 at 8:30am
Canadian Real GDP – Quarter 4 Tuesday, March 1, 2016 at 8:30am
U.S. ISM Index - February Tuesday, March 1, 2016 at 10:00am
U.S. Employment Report - February Friday, March 4, 2016 at 8:30am
Canadian Labour Productivity – Quarter 4 Friday, March 4, 2016 at 8:30am
U.S. Fed. Reserve Labor Market Index - February Monday, March 7, 2016 at 10:00am
Canadian National Accounts – Quarter 4 Friday, March 11, 2016 at 8:30am
Canadian Employment Report - February Friday, March 11, 2016 at 8:30am
UPCOMING EVENTS – CRESCENT SCHOOL INVESTMENT TEAM Investment Team Meeting Thursday, March 3, 2016 at 3:30pm in Room 303
Investment Team Meeting Thursday, March 31, 2016 at 3:30pm in Room 303
DISCLAIMER This report was prepared by the Economics Research Team, Crescent School Investment Team. It is for informational and educational purposes as of the date of writing. The views and opinions expressed may change at any time based on the market or other conditions. The information contained in this report are not first-hand reports; they have been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. The Crescent School Investment Team, the Economics Research Team and its affiliates and related entities are not liable for any sources of error or omissions contained in this report, or for any loss or damage suffered.
THE BI-WEEKLY DIGEST
Sunday, February 28, 2016 at 8:00am