Week of February 23, 2015

FEATURED ARTICLE: NASDAQ nears all-time high MARKET STATISTICS: Weekly Change

ECONOMIC STATISTICS:

WEEKLY ECONOMIC REPORT

FEBRUARY 23, 2015, 5:00AM

Ronald Chow, Chief Economist ! ronaldchow@crescentschool.org

CANADIAN RETAILERS DIDN’T ENJOY WINTER HOLIDAY! Canadian Retail Sales – December Canadian retail sales plunged 2% in December, markedly worse than expected. Weakness was reported across the board, with nearly every major category lower.

Electronics and appliances saw the biggest drop, -9.2%. Clothing also had a rough month, reporting a drop of 5.6%. Autos & parts sales fell 1%, which actually helped the headlines, as sales excluding autos were down 2.3%.

Service station receipts were down 7.4% as well, as the huge drop in gasoline price dragged it downwards. The only sector to see increases in the month were food (+0.1%) and health & personal care (+0.2%). Regionally, all provinces recorded a drop in sales, with Saskatchewan (-3.6%), Manitoba (-2.8%) and Alberta (-2.5%) amongst the biggest losers.

There’s no denying the breadth and depth of the weakness in the December retail figures, but they come with big caveats – Black Friday distortion and a huge drop in gasoline prices. Even with the big drop in retail volumes, real GDP growth for December is poised to come in around 0.3%, thanks to big gains in wholesale and manufacturing activity.

CANADIAN HOUSING MOVES IN A NEGATIVE DIRECTION Canadian Existing Home Sales – January Canadian housing sales fell 3.1% in January, registering the second significant monthly decline in a row and leaving sales down 2.0% from a year-ago levels.

15 of the 26 largest cities posted no growth or sales declines from year-ago levels. Sales are now a bit below a 10-year average, and the sales/new listings ratio has dipped below 50 for the first time in two years. Moreover, the backlog of unsold homes has risen to 6.5 months’ supply, the highest in two years.

The increase in supply is largely an Alberta story, where there is suddenly 5.9 months’ worth of inventory on the market versus 3.3 as last November: in Calgary, new listings popped up 30% in the past year; Edmonton is hinting for softness; Saskatoon has watched sales drop sharply; Regina is already reporting weakness. At the opposite end, both Toronto and Vancouver continue to report solid sales gains and steady prices increases, offsetting widespread weaknesses in the Prairies and Quebec.

Canada’s housing market is cooling notably, largely because of the sudden deep chill in the previously hot cities. However, there is still plenty of regional variation churning below the surface.

WEEKLY ECONOMIC REPORT

FEBRUARY 23, 2015, 5:00AM

Ronald Chow, Chief Economist ! ronaldchow@crescentschool.org

UNITED STATES HOUSING STARTS DOWN U.S. Housing Starts and Building Permits – January Up, Down, Up Down… the pattern starts over the past four months, and continued into January, as starts fell 2.0% at the start of the year to 1,065k annualized. The move itself was fully expected, but the size was a bit more than consensus had expected. Still, that’s five consecutive months above one million units, a stretch not seen since 2008. For the latest month, however, the decline was centered on single-family units while multifamily construction gained more ground. Building permits also unexpectedly fell 0.7% in January, after staying steady in December.

Starts are holding steady, with support factors still in place: strong job growth, strong consumer confidence, still low borrowing costs.

U.S. INDUSTRIAL PRODUCTION STEADY… EXCEPT ENERGY U.S. Industrial Production and Capacity Utilization – January U.S. industrial production rose 0.2% in January, coming in below consensus. The improvement, however, did not erase December’s downwardly revised decline of 0.3%. Mining fell 1%, while support activities for mining plunged 10.3%. Drilling oil & gas wells also took a deep 10% drop. Other than that, mining excluding oil & gas rose for the third straight month, up 0.6%. Alongside, utilities rebounded 2.3% in January, and manufacturing, which accounts for 73% of the total industrial production, edged 0.1% higher.

Looking at the various market groups, production of consumer goods are higher (all nondurable), as it was for business equipment.

FEATURED ARTICLE: NASDAQ NEARS ALL-TIME HIGH Investors are facing a market that barely resembles the go-go era of 15 years ago, as the technology-heavy NASDAQ Composite Index closes in on the all-time high it reached in March 2000. Valuations are an eighth of what they were at the peak of the dot com bubble, and dividend investors now routinely hold large positions in technology – a decision unthinkable in the growth-focused days of 2000. Should the NASDAQ set a new record soon, its catalyst won’t be irrational exuberance, and hence there exists no bubble.

THE WEEK AHEAD United States New Home Sales – January - Wednesday, February 25, 2015 at 10:00am

United States Durable Goods – January - Thursday, February 26, 2015 at 8:30am

Canadian Consumer Price Index – January - Thursday, February 26, 2015 at 8:30am

United States Consumer Price Index – Jan. - Thursday, February 26, 2015 at 8:30am

UPCOMING CSIT MEETINGS Tuesday, February 24, 2015 at 3:30pm - Team-Wide Meeting WEEKLY ECONOMIC REPORT

Thursday, February 26, 2015 at 3:30pm - Team-Wide Meeting FEBRUARY 23, 2015, 5:00AM

Ronald Chow, Chief Economist ! ronaldchow@crescentschool.org