THE BI-WEEKLY DIGEST The Economics Research Team Crescent School Investment Team Jake Erdman, Chief Economist Josh Limpert, Deputy Chief Economist Ronald Chow, Chief Strategy Officer
Sunday, December 6th, 2015
ECONOMIC STATISTICS
CANADA’S TRADE GAP FALLS!
HIGH OIL PRICES? HOW ABOUT LOW OIL PRICES? WHAT, NEITHER WORKS?!?!
This past month, Canada’s trade deficit dropped to 2.76 billion dollars. This is due to exports to the U.S dropping by the most in the past two and a half years. This drop in exports is directly correlated to the drop in oil prices. OPEC is continuing to produce oil at a rapid rate, which is having a negative effect on the Canadian economy. A very prevalent example of this, is seen in the trade deficit. Ten out of the eleven main exporting and importing groups had negative growth this past month. The most dramatic drop in the trade group was the farm, fishing, and intermediate food products. This drop has been the biggest drop since May 2013.
A little more than a year ago, Saudi Arabia – the effective leader of the 13-country cartel OPEC – changed their plan. They went on the offensive after they lost market share of oil – thanks to the American shale-oil miracle. They raised production of oil, but obliterated the value of oil. And now, there is a split in OPEC: some of the weakest countries are begging the Saudis to endorse a 5% drop in production to prop up prices; other countries such as Russia continue to produce in large quantities – now up to 31.5 million barrels a day, pushing down prices by 3%.
- Jake Erdman, Chief Economist
- Ronald Chow, Chief Strategy Officer
There’s only one problem though: the whole point of the low-price plan was to drive out American shale-oil. The U.S. production is proving to be remarkable resilient, by cutting costs to stay in the game – they’re still producing 9.4 million barrels a day, only down 260,000 barrels from its peak in April. Their only threat is financing; it is currently plentiful but if it dries up, then the production could start crashing as drilling rigs enter cold storage. But, let’s say that OPEC returns to what was status-quo and stem production to raise the price; or even better, production falls for US shale-oil companies as the run out of money. Regardless, the price would increase, and the shale wells will roar back to life. At this point, it seems like it could take many years for the Saudis to even inflict damage on the U.S. shale companies. Good luck with a new strategy!
CANADA’S MANUFACTURING OUTPUT DECLINES In the first half of this year Canada was in a technical recession, largely due to the drop in oil prices. Since then, Canada’s PMI (RBC Purchasing Manager’s Index) has contracted four months in a row. The PMI measures conditions in manufacturing businesses through changes in output, new orders, employment, inventories, prices and supplier delivery times. Index readings above 50 represent an expansion from the previous month, while readings below 50 designates a contraction. The only positive changes (above 50) were export orders, which is because of the weak Canadian dollar. Other changes such as new orders and employment have continued to contract. However, according to Craig Wright, chief economist at RBC, the economic growth in the US should benefit Canadian exports. It is evident that the drop in oil prices has had a negative impact on the Canadian economy on the whole, and as the oil prices go up the PMI should go up as well. - Cole Walderman, Economic Analyst
THE BI-WEEKLY DIGEST
Sunday, December 6th, 2015
The DESTRUCTION OF THE ELECTION – THE FALL OF EMPLOYMENT Canada Employment Report – November Canadian employment fell 35,700, nearly reversing the election-fueled 44,400 jump in the prior month. The details, fortunately, were not as weak as the headline suggested. Almost all the job loss was due to a drop in public administration (-32,500) – good job PM Trudeau? The unemployment rate nudged back up a tick to 7.1%, reversing the one-month drop in October and leaving it higher 0.4ppts than a year ago. Total work hours fell 0.3%, once again flipping October’s gain. In addition to the big drop in public admin, there were also double-digit declines in retail & wholesale trade, finance & real estate and culture & recreation. 8 of the 10 provinces reported job losses last month – congratulations to Newfoundland and Saskatchewan for defying the trend! Alberta experienced a heavy 14,900 job loss, spiking its unemployment up 4 ticks to 7.0%. Our oil-savy friends are now up 2.6 percentage points from a year ago, and above Ontario (6.9%) for the first time since 1990s! - Josh Limpert, Deputy Chief Economist and Ronald Chow, Chief Strategy Officer
US BOOSTS EMPLOYMENT! US Employment Report – November
In this past month, the US boosted employment by the rising 211,000 payrolls, which surpassed the market’s expectations. The employment rate in November has hit just about the average for 2015. This is with the exception of the mining/energy extraction and manufacturing industries. However, the gains of many diverse industries were evident. The period of time that the population is unemployed has also decreased which indicates a positive outlook for job prospects. However, due to the US’ weak trade deficits, it will decrease GDP growth. Their deficit increased from $1.4-$43.9 billion last month. Primarily due to strong job growth, the inflation rate may increase to 2%, which is the target rate of the Federal Reserve Bank. As a result, it is expected that the Federal Reserve Bank will raise interest rates on December 16th, and perhaps other increased rates in the coming months, as they are waiting for more positive growth in the economy. - Jake Rakusin, Economic Analyst
THE UPCOMING NEWS RELEASES U.S. Federal Reserve Labor Market Conditions Index Monday, December 7 at 10:00 am
Canadian Capacity Utilization – Q3 Thursday, December 10 at 8:30 am
Canadian Housing Starts - Nov Tuesday, December 8 at 8:15 am
U.S. Quarterly Services Survey – Q3 Thursday, December 10 at 10:00 am
Canadian Building Permits - Oct Tuesday December 8 at 8:30 am
U.S. Retail Sales - Nov Friday, December 11 at 8:30 am
U.S. Job Openings and Labor Turnover Survey - Oct Tuesday December 8 at 10:00 am
U.S. Producer Price Index - Nov Friday, December 11 at 8:30 am
UPCOMING EVENTS – CRESCENT SCHOOL INVESTMENT TEAM Team Meeting Thursday, December 10, 2015 at 3:30pm, Room 305
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 has 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, December 6th, 2015