Industrial production rose 0.6%

Week in review

Canada – Manufacturing shipments rose 1.2% in June, after an upwardly revised 0.2% increase in the prior month. Sales rose in 18 of the 21 broad industries, including a 2.5% jump for the transportation sector thanks to gains for both autos and aerospace. In real terms, factory sales rose 0.5%. Overall, factory sales were not as good as expected ─ consensus had expected a bigger surge based on solid exports in the month. Part of the higher sales were taken from inventories (second monthly decline in a row in real terms), meaning that actual output didn’t grow as much. So, the factory boost to June GDP may not be as significant as some had expected. For Q2 as a whole, real factory shipments fell 1.3% annualized, the third decline in a row, something that hasn’t been seen since the 2008/09 global recession.

Housing starts fell 4.6% from 202K in the prior month to 193K in July. The decrease in starts was due to urban areas (-5.9%) which more than offset the 13% jump in rural areas. The decline in urban starts was largely due to multis (-8.2%) although there was also a 0.8% drop for single family homes. On a regional basis in urban areas, there were declines in Atlantic Canada (-13.8%), Ontario (-13.7%), the Prairies (-4.9%), Quebec (-3.2%), all of which dwarfed increases in BC (+4.7%). Residential construction doesn’t seem to have been significantly hampered by the oil shock ─ the average for the first seven months of 2015 is roughly 185K, marginally lower than the same period last year.

The Teranet–National Bank House Price Index rose 1.2% in July, a seventh increase in a row thanks to gains in six of the 11 metropolitan regions covered. On a year-on-year basis, home prices were up 5.1% nationally with above average increases in Vancouver (9.9%), Toronto (8.4%), Hamilton (6.7%), and below average increases in Victoria (3.9%), Edmonton (1.9%), Winnipeg (0.9%), Quebec City (0.6%), and Ottawa-Gatineau (0.5%). Three cities were in deflation mode on a year-on-year basis, namely Montreal (-0.6%), Halifax (- 0.6%), and Calgary (-2.3%).

United States – Retail sales rose 0.6% in July after a flat print in the prior month (revised from -0.3%). July sales got a lift from motor vehicles/parts which were up a solid 1.4%. Excluding autos, sales rose 0.4%. But here too there was a sharp upward revision to the prior month to +0.4%, from -0.1%. July ex-auto sales got a boost from gasoline which rose 0.4%. There were also gains for furniture, non-store retailers, building materials, clothing, health products, and sporting goods which offset decreases for electronics and general merchandise. Discretionary spending, i.e. spending excluding gasoline, groceries and health care items, managed to grow again (+0.7% in July). And it wasn’t all about autos because even excluding that category, discretionary spending was up a healthy 0.4% (fifth increase in a row).

Industrial production rose 0.6% in July, double consensus expectations. The prior month, however, was revised down to 0.1% (from 0.3%). In July, output gains in mining (+0.2%) and manufacturing (+0.8%) drove the gains and offset declines in utilities (-1%). Boosting manufacturing was autos whose output soared 10.6%. The capacity utilization rate rose to 78.0% from a downwardly revised 77.7%. Assuming no change in August and September (and no revisions to prior months), industrial output will grow at a pace of around 2% annualized in the third quarter after two consecutive contractions. That bodes well for Q3 prospects.

The producer price index for July showed a 0.2% increase for the headline PPI although base effects meant that the yearon- year print fell further into negative territory to -0.8%. Food (- 0.1%) and energy (-0.6%) prices were both down. Excluding food and energy, producer prices rose 0.3% with gains entirely in core services (+0.4%). Here too, because of base effects, the year-on-year core PPI fell two ticks to 0.6%.

The preliminary estimate for August’s Michigan consumer sentiment index came in at 92.9, down from 93.1 in the prior month. Consumers felt less confident about both current conditions (sub-index falling to 107.1), and the economic outlook (sub-index dropping to 83.8).

Weekly jobless claims showed initial claims rising slightly to 274K in the week of August 8th. The more reliable 4-week moving average fell again to reach 266K, the lowest since April 2000. Continuing claims for the prior week rose 15K to 2.27 million.

Business non-farm labor productivity rose just 1.3% annualized in the second quarter of 2015. However, the prior quarter was revised up significantly from -3.1% to -1.1%. The increase in Q2 productivity was a result of output (+2.8%) growing faster than hours worked (+1.5%). Unit labour costs rose just 0.5% in the second quarter. Productivity in the manufacturing sector jumped 2.5% annualized.

World – The People’s Bank of China unexpectedly devalued the yuan this week. The central bank explained that was necessary to “improve quotation” of yuan against the US dollar as to allow for a more market-driven determination of the currency. Still in China, July data was released for a string of important macro-economic variables. The annual inflation rate was 1.6% based on consumer prices but -5.4% for producer prices. Retail spending and industrial production were up 10.5% and 6% respectively on a year-on-year basis. Social financing, the aggregate measure of credit, was 719 bn yuans in July with bank loans making up the bulk of the amount.

The eurozone’s GDP grew just 1.3% annualized in the second quarter of 2015, or +0.3% unannualized. Of the fifteen countries that reported quarterly growth rates (out of 19 eurozone members), thirteen showed expanding output namely Germany (+0.4%), Italy (+0.2%), Spain (+1.0%), Portugal (+0.4%), the Netherlands (+0.1%), Belgium (+0.4%), Austria (+0.1%), Latvia (+1.2%), Cyprus (+0.5%), Slovakia (+0.8%), Greece (+0.8%), Estonia (+0.8%) and Lithuania (+0.6%), all in unannualized terms. Output was flat in France and fell 0.4% in Finland. The eurozone’s GDP is still 1.2% below its pre-recession peak, or 3.4% below peak excluding Germany. The handoff to Q3 was very poor as evidenced by the 0.4% drop for industrial production in June due to declines in Germany, France and Italy among others.