Building permits jumped 15.5% in dollar terms in February

Week in review

Canada – Employment surged 41K in March according to the Labour Force Survey, much better than the 10K expected by consensus. The job gains and an unchanged participation rate (65.9%) allowed the jobless rate to fall two ticks to 7.1%. The employment increase was due to the private sector (+65K) which more than offset declines in selfemployment (-22K) and government (-3K). Full-time employment surged 35K while part-time employment rose 5K. Total hours worked remained essentially unchanged. Employment in the goods sector was down sharply (-34K) with losses in construction (-6K), manufacturing (-32K) and resources (-2K) which dwarfed small gains in agriculture (+4K) and utilities (+2K). Services sector employment was up sharply (+75K) with gains in health care, accommodation/food services and professional services, which more than offset small losses in finance, public administration and Information/recreation. Alberta (+19K), Ontario (+14K) and BC (+9K) saw the largest gains.

Housing starts fell almost 7% from an upwardly revised 219K to reach 204K in March. There were declines in both urban (- 7%) and rural areas (-4%). The decline in urban starts was largely due to multis (-10%) but there were also small declines for single family homes (-1%). On a regional basis in urban areas, there were sharp declines in BC (-20%, albeit after a 58% advance the prior month), Quebec (-20%), the Prairies (- 10%), and Atlantic Canada (-54%), all of which more than offset gains in Ontario (+12.5%).

Building permits jumped 15.5% in dollar terms in February. That was largely due to a 33% surge in the value of nonresidential permits, although there was also a healthy 5% increase for residential permits. In real terms, residential permits rose 2.2% due to a 10.5% surge for singles which dwarfed the 2.4% drop for multis. It’s encouraging to see single permit applications rise in BC and Ontario as the extra supply should eventually help ease some of the significant house price inflation seen in that segment of the market in cities such as Vancouver and Toronto.

The merchandise trade deficit rose to C$1.9 bn in February (biggest deficit in four months) as nominal exports fell at a faster pace than imports (-5.4% versus -2.6%). There was a massive slump (-14%) for exporters of energy and consumer goods, but there were also declines for sellers of autos, industrial machinery, forestry products, autos, consumer goods, electronic equipment, and forestry products. Those declines dwarfed gains for exporters of aerospace, agriculture and metals. The energy trade surplus fell to C$3.4 bn, the lowest since 2010. The non-energy trade deficit widened to C$5.3 bn, the largest deficit in three months. The trade surplus with the US fell to just C$2.7 bn, the lowest in months. In real terms, Canada’s exports fell 2% in February, erasing much of the prior month’s gains, while imports increased 0.1%. Regardless, thanks to a strong January, real exports are on track to grow in Q1 at a much faster pace than real imports, meaning that trade is set to contribute to GDP growth in the first quarter.

United States – The non-manufacturing ISM index rose to 54.5 in March from 53.4 in the prior month. New orders and employment sub-indices both rose, the latter rising back above the 50 threshold. The business activity sub-index, also rose to 59.8, the highest in five months.

Factory orders fell 1.7% in February after a downwardly revised -1.2% increase the prior month. Durable goods orders slumped 3% largely due to the transportation component. Excluding transportation, factory orders were down 0.8% as both durables and non-durables fell. Factory shipments were down 0.7%, the eighth consecutive monthly decline.

The trade deficit widened to $47.1 bn in February from the prior month’s deficit of $45.9 bn. The deterioration in the trade balance was due to imports (+1.3%) rising faster than exports (+1.0%). In real terms, exports were up 2.2%, erasing the prior month’s losses, while imports rose 2.3%. The strong imports suggest domestic demand remains on solid footing stateside. The increase in exports, while encouraging, doesn’t make up for prior losses and won’t be enough to prevent trade from being a net drag on the US economy in Q1. Real imports are currently tracking growth of around 4% annualized, in contrast with real exports which are contracting in the quarter.

The Job Openings and Labor Turnover Survey suggests there were 5.45 million job openings in February. The quits rate in the private sector edged up to 2.3%, and is now almost back to pre-recession levels. That, however, hasn’t prevented wage inflation from remaining mild.

The weekly jobless claims report showed initial claims falling 9K to 267K in the week of April 2nd. The more reliable 4-week moving average edged up slightly to 267K. Continuing claims for the prior week rose 19K to 2.19 million.

The Fed meeting minutes again showed the wide range of views among FOMC participants about the state of the economy and the appropriate pace of monetary policy tightening. There were concerns about the negative impact of foreign economic growth on US exports and the likelihood that wider credit spreads would eventually hurt domestic demand. Several participants were concerned that raising the target range as soon as April would signal a sense of urgency they did not think was appropriate. They recommended a “cautious approach to raising rates”. In contrast, some other participants thought a rate increase at April’s meeting might be warranted if economic data remained consistent with their expectations for moderate growth in output, further strengthening of the labour market, and inflation rising to 2% over the medium term. The views of participants were mixed with regards to inflation, with some seeing the recent increase as consistent with a firming trend, while others were not convinced the increase will be sustained.

World – Labour cash earnings rose to 0.9% on a year-onyear basis in Japan in February. In the Eurozone, February data showed retail sales rising 0.2% and the unemployment rate falling one tick to 10.3%. In China, foreign exchange reserves seem to have stabilized, rising slightly in March to US$3.21 trillion.

•  Download Full Weekly Economic Letter