FEATURED ARTICLE: Bank of Canada stands pat MARKET STATISTICS: Weekly Change
ECONOMIC STATISTICS:
U.S. Employment Report – February Nonfarm payrolls rose 295,000 in February, well above expectations. Job gains were broad based, led by 66,000 new positions in leisure and hospitality. The one sector not helped by cheaper fuel, of course, is the oil drilling industry, which shed 1,100 positions. More layoffs are surely coming, as the energy sector has announced over 36,000 job cuts in the first two months of the year. Household survey jobs rose a light 96,000, but a decline was quite possible after the massive 759,000 gain in the prior month. With the participation rate easing back, the unemployment rate dropped two tenths to a new cycle low of text Yet, despite the tightening labour market, wages remain suppressed. Average hourly earnings rose a 5.5%. minimal 0.1%. Weekly work hours rose 0.2%, pointing to GDP growth of around 2% or better in Q1. Despite horrid weather, West Coast port disruptions, gasoline refinery strikes and energy layoffs, it was another show of strength for the U.S. labour market in February.
Canadian Real GDP – Q4 The Canadian economy grew 2.4% in Q4, beating the consensus call of 2%. Indeed, for all of 2014 GDP was up 2.5%, a tick better than expected. The details of Q4’s figures, however, weren’t quite as solid as the headlines suggested. Inventories contributed only 1.8 ppts following a very soft reading in the prior quarter. However, the level of inventories, at $8 billion, isn’t overly concerning, though they could be a bit of a drag in Q1. Net exports offset much of the inventory move, slicing 1.1 ppts as exports fell and imports rose. Consumption came in a bit soft, up 2%, as goods buying decelerated following a strong run in the middle part of the year. Services spending was firm, up 2.4%. Government spending rose 1.8% in the quarter, marking the fastest pace in nearly three years and adding about 0.5 ppts to GDP. The GDP deflactor was -2.4%, leaving nominal growth flat in Q4. With a further decline likely in Q1, that will be a challenge for governments whose revenues are driven by nominal growth. December’s GDP report at basic prices was solid as well, up 0.3%, a tick above expected. Big gains in manufacturing, wholesale, transportation & warehousing and finance drove the increase. Those sectors, each up over 1%, offset the sizeable declines in retail, utilities and mining. The twin GDP reports are encouraging and highlight that the Canadian economy was doing well even amid the drop in oil prices.
Bank of Canada Policy Announcement The Bank of Canada decided to keep interest rates unchanged, holding its key overnight lending rate steady at 0.75%. After the shocking decision to cut rates at its prior event in January, there were serious doubts on their decision this time. On top of that, the general tone of the statement was less dovish than anticipated, with the Bank noting that overall financial conditions had “ease notably” and the inflation risks were “now more balanced”. On growth outlook: “The oil price shock had a modest early impact on aggregate demand, and a larger effect on income. The Bank continues to expect that most of the negative impact from lower oil prices will appear in the first half of 2015, although it may be even more front-loaded than projected in January”. On inflation outlook: “The risks around the inflation profile are now more balanced and financial stability risks are evolving as expected in January”. The Bank views the recent CPI trend “as expected”. On the Canadian dollar and financial markets: “Financial conditions in Canada have eased materially since January, in response to the Bank’s recent monetary policy action and to global financial developments. This easing is reflected across the yield curve and in a wide range of asset prices, including the Canadian dollar. These conditions will mitigate the negative effects of the oil price, further boosting growth through stronger non-energy exports and investment”. On the bigger picture: “The global economy is evolving broadly in line with the projection in the Bank’s January Monetary Policy Report (MPR). The United States remains the main source of momentum in the global economy, while headwinds to growth linger in many region. In this context, a growing number of central banks have taken actions to ease monetary conditions. Crude oil prices are close to the Bank’s MPR assumptions”.