Week of January 19, 2015

FEATURED ARTICLE: Target isn’t the only one retreating MARKET STATISTICS: Weekly Change

ECONOMIC STATISTICS:

WEEKLY ECONOMIC REPORT

JANUARY 19, 2015

Ronald Chow, Chief Economist ! ronaldchow@crescentschool.org

U.S. PRICE PRESSURE EASES U.S. Consumer Price Index – December U.S. consumer prices fell again, with the as-expected 0.4%. This marks the largest decline since December 2008, as well as the second decline in a row. Energy was the biggest loser, down 4.7% in the month, while food prices grew 0.3%. Excluding food and energy, prices were flat for the first time in five years. From year-ago levels, headline prices are up just 0.8%, the slowest increase since October 2009, while core prices fell to a 10-month low of 1.6%.

Low gasoline prices (down 9.4%) means it is a lot cheaper to get around, and resulted in transportation costs declining 4% as well as airline fares falling 5%. Clothing prices were down, again, for the 5th straight month, highlighting the competitive retail environment and suggesting that a large part of the weak December retail sales report was pricerelated. Similarly, cost of new and used cars was down, which is interesting given auto sales are robust and average transaction costs are higher from a year ago. In contract, prescription drug prices jumped 0.9%, while residential rent costs climbed a modest 0.1%.

This report suggests that there is little inflation pressure in the United States of America, or almost anywhere for that matter.

ALBERTA HOUSING MARKET BRACES FOR IMPACT Canadian Existing Home Sales – December Canadian home sales fell 5.8% in December. However, this still left activity up a solid 7.9% in the past year, and almost bang on the 10-year average. Apart from Alberta, the actual level of sales was quite normal for December, but marks a downshift from a very strong Fall selling season, and is likely to be followed by further weakness in the months ahead.

Nationally, new listings rose 1.1% in the month, and outpaced sales over the past year, up 11.5% y/y. Housing, however, is a regional show, and cracks appear to be breaking open in Alberta. Sales in Calgary and Edmonton plunged roughly 25% each from the prior month.

Meanwhile, Regina and Saskatoon are suggesting further price weakness, and stagnation seems to be the forecast for Quebec. On the flip side, Toronto and Vancouver promises sturdy prices; Vancouver home sales have rebounded (+9.2% y/y) above the 10-year average, and Toronto, while sales slipped in December, continues to foster activity around 9.0% y/y.

Canada’s housing market continues to look balanced and rather dull on a national basis, but there is plenty of churning below the surface. The slide in oil prices has begun to weigh in Calgary and Edmonton, but Vancouver and Toronto look very solid.

WEEKLY ECONOMIC REPORT

JANUARY 19, 2015

Ronald Chow, Chief Economist ! ronaldchow@crescentschool.org

U.S. RETAIL SALES DROP U.S. Retail Sales – December U.S. retail sales unexpectedly fell in December, with the 0.9% drop the largest in nearly a year (since January 2014). This flies in the face of a consensus estimate of a meek 0.1% gain.

Excluding autos, sales were also down, with the 1.0% decline the largest in nearly five years (since March 2009). Core retail sales fell 0.4%, the first setback since the start of 2014.

Given the drop in pump prices, it wasn’t a shock to see service station receipts fall 6.5%. But even outside of that, most major areas saw fewer sales after a decent November; auto sales fell 0.7%, and areas such as clothing, sporting goods, electronics/ appliances, general merchandisers, and building/garden equipment were all down.

This report on U.S. consumer spending is clearly disappointing and supports calls for slower economic growth in Q4.

FEATURED ARTICLE: TARGET ISN’T THE ONLY ONE RETREATING Thursday, January 15, 2015 marked the end of Canadian operations for discount retailer Target Corp., which announced it was closing 133 locations in Canada and leaving the country. With nearly 15 million square feet of retail space and five million square feet of office and industrial warehouse space across Canada, the decision comes less than two years after its bold entrance into the country. However, the big U.S. retailer isn’t the only chain to close shop in Canada.

Japanese electronics giant Sony Corp. said it too planned on closing all of their locations in Canada – 14 retail stores from Vancouver to Quebec city. The Dutch-based fashion retailer, Mexx Canada, plans to close all 95 stores by the end of February after filing for bankruptcy protection in Canada. Smart Set, a women’s fashion chain, also announced that they will be closing all 107 locations. Jacob Inc, a Montreal-based women’s clothing retailer, is in the process of closing 92 stores across Canada. Finally, Bombay, Bowring & Co. Inc, and Benix & Co. Inc, all owned by a member of the Isaac Benitah family, will be collectively closing 110 outlets.

THE WEEK AHEAD Canadian Manufacturing Sales & Orders – November U.S. Housing Starts – December - Tuesday, January 20, 2015 at 8:30am - Wednesday, January 21, 2015 at 8:30am U.S. Building Permits – December - Wednesday, January 21, 2015 at 8:30am

Canadian CPI– December - Friday, January 23, 2015 at 8:30am

Canadian Retail Sales – November - Friday, January 23, 2015 at 8:30am

U.S. Existing Home Sales – December - Friday, January 23, 2015 at 10:00am

UPCOMING CSIT MEETINGS Monday, January 19, 2015 at 1:30pm - Sector Meetings WEEKLY ECONOMIC REPORT

Thursday, January 22, 2015 at 3:30pm - Team-Wide Meeting JANUARY 19, 2015

Ronald Chow, Chief Economist ! ronaldchow@crescentschool.org