Real GDP grew a consensus-topping 0.5% in January

WEEK IN REVIEW

Canada – Employment rose a consensus-topping 43K in March according to the Labour Force Survey. That’s the biggest monthly increase in 7 months. Although the participation rate was unchanged at 66.2%, the unemployment rate managed to edge down to 6.9% thanks to the strong job gains. The strength in March employment was due to a rebound in government jobs (+39.3K), although the private sector also scored gains (+4K) after impressive increases in the prior month. Selfemployment was down marginally (-0.5K). All in all, paidemployment (i.e. Total employment excluding selfemployeds) was up 43.5K. The goods sector lost 15.6K jobs as losses in manufacturing and agriculture dwarfed gains in construction, utilities and resources. Services sector employment was up 58.5K (biggest jump in 7 months) with gains in a majority of categories including health, finance/insurance/real estate. Full-time jobs rose 12.8K, while part-time employment rose 30.1K. Given the tilt towards part-timers, hours worked were flat in the month. Hours worked grew 1.3% annualized in Q1, an acceleration from the prior quarter’s pace of just 0.5%. Overall, the Canadian jobs report was much better than expected. True, the bulk of the jobs came from government (after that sector saw massive losses in the prior month), but we’re encouraged to see further private sector and full-time job gains. Given how volatile the LFS has been, a better picture of the labour market is arguably found by looking at the 6-month moving average. On that measure, Canada has created 10K jobs/month (mostly full-time), with about a third of that in the private sector. Looking at provinces, the 15K rebound in Quebec in March was predictable, considering the big losses in the prior month, but that province’s employment still remains below levels of January 2013.

The merchandise trade balance moved into a surplus position for the first time in five months. The surplus in February was C$0.3 bn, up from a deficit of C$0.3 bn in the prior month. The improvement was due to nominal exports (+3.6%) rising faster than nominal imports (+2.1%). With the exception of forestry and agriculture, all of the broad export categories registered gains, including a notable 9.7% jump for autos/parts and a 4.3% increase for energy. Similarly, most of the import categories posted gains. The energy trade surplus reached a new record at C$7.29 bn, while the non-energy trade deficit narrowed to C$7 bn. The trade surplus with the US rose to C$4.3 bn, the highest in 5 months. In real terms, Canada’s exports rose 2.3%, while imports were up just 0.6%.

Real GDP grew a consensus-topping 0.5% in January, making up for the prior month’s 0.5% drop. Goods producing industries saw output grow 1.0% after a drop of the same amplitude in December as gains in mining and oil & gas (+1.2%), manufacturing (+2.0%) and construction (+0,7%) more than offset declines in agriculture (-1.9%) and utilities (-1.1%). The overall gains boosted industrial production by 1.3% after a 1.0% pullback in the prior month. The services sector's output expanded 0.3% with gains in accommodation & food services (+1.7%), retailing (+1.3%), wholesale (+0.7%), among others, which more than offset declines in arts, entertainment & recreation (-2.9%). Overall the GDP report was better than expected and the details were quite strong considering the breadth of the expansion. Still, despite January’s rebound, Q1 GDP seems to be tracking growth of only around 1.5% annualized due to the poor handoff from December last year.

The Survey of Employment, Payrolls and Hours (SEPH) showed a net loss of 7K paid jobs in January. That establishment survey contrasts with the Labour Force Survey, which surveys households, and which showed a 1.1 K net increase in paid employment in the same month. Looking at the more reliable 6-month moving average, both the SEPH (+12K/month) and LFS (+19K/month) show decent gains for paid jobs. According to the SEPH, the year-on-year earnings growth jumped to 3% in January, the highest since September 2012. Annual wage growth topped the national average in sectors like mining/oil & gas, utilities, construction, wholesaling, retailing, real estate, professional services, management. Sectors including health care, accommodation/food services, finance/insurance, education and manufacturing, had annual wage growth below the national average.

United States – Non-farm payrolls increased 192K in March after an upwardly revised gain of 197K the month before (previously reported as +175K). All of the job creation in March was concentrated in the private sector (+192K, best performance in 4 months) with all of the major industries reporting higher headcounts except for manufacturing (-1K) and finance (-8K). Hourly earnings were unchanged after a 0.4% increase in the prior month. Total hours worked were up a robust 0.7% after a 0.1% decline the month before. The household survey showed 476K jobs being created in March. But because the labour force increased at the same pace as job creation, the unemployment rate was unchanged at 6.7%. Full-time employment was up 184K, for a cumulative gain of 725K so far in 2014.

The ADP employment report, a gauge of the private sector component of the non-farm payrolls (NFP), showed a 191K increase in March. The job gains were mostly in small firms, i.e. those employing less than 50 employees, which added 72K to payrolls. Medium-sized firms added 52K while large firms added 67K net new jobs. There were job gains in both goods (+28K) and services sectors (+164K). Employment increased in professional/business services (+53K), trade/transportation (+36K), construction (+20K), manufacturing (+5K), and financial activities (+5K). Weekly jobless claims data for the week of March 29th showed initial claims rising 16K to 326K. That was worse than consensus which was looking for a reading of 319K. The more reliable 4-week moving average was little changed at 319.5K.

The ISM manufacturing index rose five ticks to a threemonth high of 53.7 in March (from 53.2 in the prior month). That was, however, a bit lower than the 54 print expected by consensus. The production sub-index surged to 55.9, a three-month high, after briefly dipping into contraction territory due to bad weather. The new orders sub-index also rose to a three-month high, reaching 55.1, helped in part by exports. The employment sub-index, however, dropped to 51.1, a 9-month low. Markit’s purchasing managers’ index for the manufacturing sector printed 55.5 in March, i.e. unchanged from the flash estimate. The non-manufacturing ISM index rebounded to 53.1 in March (after falling to a 4-year low in the prior month, probably due to weather impacts). That was, nonetheless, a touch softer than consensus expectations which were at 53.5. A reading above 50 implies the services sector is expanding. The employment sub-index jumped more than six points to 53.6 (from 47.5 in the prior month), while the new orders sub-index rose more than two points to reach 53.4. The business activity index fell roughly one point to 53.4, but remained well in expansion phase. The overall ISM, which takes into account both manufacturing and services, rose more than one point to 53.2 in March.

Factory orders grew a consensus-topping 1.6% in February, after a downwardly revised 1% decline in the prior month. That’s the first increase in three months. In February, transportation orders rose 7%, driven by sharp increases for nondefense aircrafts. Excluding transportation, new factory orders rose a healthy 0.7% more than offsetting small declines in the prior two months. Total factory shipments rose 0.9% in February, helped by non-defense capital goods ex-aircraft (a proxy for investment spending) which were up 0.6%, and by non-durables whose shipments jumped 1%. Still, given the weak January, shipments of non-defense capital goods ex-aircraft are tracking growth of just 0.1% annualized in Q1, a sharp deceleration from the prior quarter’s +7.8% print. That points to a softening of growth in investment spending, and is consistent with a moderation of US GDP growth in Q1. The outlook for subsequent quarters, however, is a bit better if the uptick in orders is any guide. Construction spending rose 0.1% in February, after downwardly revised 0.2% decline in the prior month. The increase in February was entirely due to the nonresidential sector (+0.6%), which offset the 0.7% decline in the residential sector. Overall, construction spending is up 8.7% compared to levels of February 2013 (+13.1% for residential and +6.1% for non-res). The trade deficit widened to $42.3bn in February, from a $ 39.3 bn deficit in the prior month. That’s because exports fell 1.1% while imports were up 0.4% in nominal terms. In real terms, exports were down 1.6%, while real imports fell 0.2%. In other words. the nominal import gains were entirely due to prices.

World – The European Central Bank left policy unchanged at its April meeting. The statement had the usual reassuring words that the ECB will act if needed, but yet again, no concrete measures were implemented to address the problems of fragmentation of the banking sector and the threat of deflation. In the press conference, ECB President Draghi, however, suggested that officials were discussing the implementation of quantitative easing. Still in the eurozone, the first estimate of March annual inflation came in a just 0.5%, the lowest since 2009. The zone’s jobless rate for February was unchanged at 11.9%. The unemployment rate among the youth fell one tick, albeit to a still-elevated 23.5%. Markit released its manufacturing purchasing managers indices for various countries for the month of March. In that regard, China’s factories remain in contraction mode with a reading of 48 (down from 48.5 in February) as both output and new orders contracted at a faster pace than in the prior month. The positive, however, was that new export orders returned to expansion territory. Russia’s factories were also in contraction mode according to headline figure of 48.3. In sharp contrast, factories in other emerging economies remained in expansion mode as evidenced by above-50 readings in India, Brazil, Turkey, Indonesia, Taiwan, Vietnam, and Korea. Markit’s March reading for the eurozone’s manufacturing sector was unchanged from the flash estimate (53). In Japan, Markit’s PMI remained in expansion phase for a thirteenth consecutive month with March’s print of 53.9. But not all is rosy in the land of the rising sun. Indeed, the Tankan survey suggested manufacturers were less optimistic about the outlook, worried perhaps by the impact of the recent sales tax hikes on the economy.