Week of November 10, 2014

MARKET STATISTICS:

ECONOMIC STATISTICS:

WEEKLY ECONOMIC REPORT

NOVEMBER 10, 2014

Ronald Chow, Chief Economist ! ronaldchow@crescentschool.org

CANADIAN UNEMPLOYMENT FALLS TO SIX-YEAR LOW Canadian Employment Report – October For the first time this year, the Canadian economy created job in back to back months, with employment rising a solid 43,100 in October following a 74,100 surge. Full time positions were up 26,500 while part time was up 16,500. The private sector was also doing well in hiring (+70,600) while the public sector was down 53,800. Along with a modest rise in the labour force, the jobless rate plunged 3 ticks to 6.5%, the lowest level since November 2008.

On the goods side, manufacturing (+33.2k) accounted for the bulk of the increase. Manufacturing employment is now up 2.2% year over year, the fastest in nearly two years. The natural resource sector, however, was really weak as they shed 22.2k jobs. This sector will certainly be watched more carefully in the coming months given the steep decline in oil prices.

This is a solid report for Canada, as the jobless rate is at a six-year low. However, there is still some caution given the steep declines in commodity prices as of late.

U.S. EMPLOYMENT CONTINUES TO STORM FORWARD U.S. Employment Report – October American companies belted out another payroll increase in excess of 200,000 – the ninth straight payroll increase in excess of 200,000 and the longest streak in two decades. The jobless rate fell to new cycle-lows in October, reflecting an economy that’s performing at its highest level since before the Great Recession.

More than two million jobs have been created this year alone, and nearly all have been full-time positions (where wages are rising fast) and many are in high-paying industries.

The nonfarm payrolls slightly missed market expectations in October, rising 214,000 instead of the expected 235,000. As well, continuing the recent pattern, nearly every industry boosted payrolls, apart from the federal government. As a result, the unemployment rate slipped to 5.8%, the lowest level since mid-2008. The labour market is both making sustained progress and quickly absorbing slack; the unemployment rate is now a tenth below its intended rate (set by the Federal Reserve) and is taking a good run at its 5.4%-to-5.6% range for the end of next year.

This U.S. Jobs Report is full of treats, rather than tricks.

WEEKLY ECONOMIC REPORT

NOVEMBER 10, 2014

Ronald Chow, Chief Economist ! ronaldchow@crescentschool.org

CANADIAN NET TRADE SWINGS UPWARD Canadian Merchandise Trade Balance – September Net trade swung back into a surplus in the latest report, to $710 versus a deficit of $463 million in August.

The results were better than expected, and we powered by improving exports (+1.1%) and receding imports (-1.5%). Coupled with the prices, volumes also reacted similarly as real exports increased by 1.6% and real imports fell by 1.0%. Real net exports has performed well, and the prediction of GDP growth across many institutions has now by revised upwards.

Canada’s net trade in energy products over the past 12 months has totaled $88 billion, a record high and a whopping 4.5% of GDP. Given the deep dive in oil prices in the past two months, it may simply be a matter of time before the groaning surplus begins to fade even when production is marching higher. Fortunately, it looks like the non-energy gap may finally be turning the corner.

Canada’s trade performance is improving amid a firming U.S. economy and a sliding dollar. While the energy surplus looks to take a step back in the following months, this may be countered by better trends in non-energy trade.

U.S. TRADE HINTS… DOWNWARD REVISION OF Q3 GDP U.S. Goods and Services Trade Balance – September The U.S. goods and services trade deficit surprisingly widened in September. The $43 billion shortfall was the largest since May and is the first deterioration since the spring. Exports fell 1.5%, the first drop since April, but does not come as a shock due to the steady weakening in global activity – Japan experienced -14.7% in exports, the European Union observed a -6.5% change in exports. As well, there was a flat reading in imports, which suggested the stronger USD isn’t doing much to spur consumer demand for goods outside of U.S. borders.

This report is not a good view of Q3, as a wider U.S. trade gap points to less support for GDP. As a result, the consensus of Q3 GDP could be trimmed by about half a percentage point.

THE WEEK AHEAD Canadian Housing Starts – October - Monday, November 10, 2014 at 8:15am

United States Wholesale Trade – September - Wednesday, November 12, 2014 at 10:00am

United States Real GDP by Industry – Q2 - Thursday, November 13, 2014 at 8:30am

United States Retail Sales – October - Friday, November 14, 2014 at 8:30am

Canadian Manufacturing Sales & Orders – September - Friday, November 14, 2014 at 8:30am

UPCOMING CSIT MEETINGS Tuesday, November 11, 2014 at 1:30pm - Sector Meetings (all sectors) WEEKLY ECONOMIC REPORT

Thursday, November 13, 2014 at 3:30pm - Team-Wide Meeting NOVEMBER 10, 2014

Ronald Chow, Chief Economist ! ronaldchow@crescentschool.org