Economic Data Review: Canada

Wondering if the Loonie can go for more gains? Let’s take a closer look at the latest economic figures from Canada to find out!

Trade

As a commodity-dependent economy, Canada relies heavily on the trade industry’s contribution to overall growth. Fortunately, the latest trade balance release showed that exports jumped to a record high in May, enough to reduce the deficit from 1 billion CAD to 0.2 billion CAD.

Components of the report revealed that the gain in exports was led by rising purchases of automobile parts and engines, along with a pickup in sales of consumer goods. Meanwhile, imports fell by 0.3% in May, hinting at a rebound in demand for locally-produced products. Bear in mind that 65% of Canada’s exports are sold to the U.S., which means that this trade recovery could be sustained if Uncle Sam continues to do well.

Manufacturing

Contrary to the strong trade data, manufacturing figures from Canada have painted a less optimistic picture. Earlier this week, the Ivey PMI showed a decline from 48.2 to 46.9, reflecting a deeper contraction in the industry. Analysts were expecting to see a strong improvement to 51.3, yet the report chalked up its fourth consecutive monthly disappointment.

The employment, inventories, and supplier delivery components all posted lower readings compared to the previous month’s figures. The prices index, on the other hand, printed a higher reading and hinted at better inflation prospects.

Inflation

CPI readings did reflect a rise in price levels for May, as the headline and core CPI both printed a 0.5% gain. This is stronger than the estimated 0.2% increase in core price levels and the projected 0.3% climb for the headlinen CPI.

Leading indicators for inflation, however, are hinting at a possible slowdown. The raw materials price index (RMPI) for June came in weaker than expected at a 0.4% decline instead of the estimated 1.3% increase. The industrial product price index (IPPI) also showed a dismal 0.5% decline instead of the projected 0.4% uptick. Take note that changes in producer input prices are typically passed on to consumers so Canada might be in for weaker CPI figures in the coming months.

Spending

Last but definitely not least is Canada’s spending data, which had promising results for April. Headline retail sales jumped by 1.1%, outpacing expectations of a 0.4% gain, while core retail sales chalked up a 0.7% increase, higher than the estimated 0.4% rise. To top it off, the previous month’s figures enjoyed decent upgrades to show a 0.1% pickup in core consumer spending and a 0.2% increase in headline retail sales.

Wholesale sales, which is considered a leading indicator of consumer spending, also posted impressive figures. Retailers increased wholesale purchases by 1.2% in April, a significant rebound from the previous 0.3% decline and the projected 0.3% rebound. Of course potential gains in spending also depend on the jobs situation, and Canada should provide a clearer picture of this when the employment report is released on Friday.

Until then, it appears that Canadian data has mostly been strong, with the expected increase in price levels keeping domestic spending supported for now. Do you think the Loonie can keep up its rallies?