Week in review

Canada – The Survey of Employment, Payrolls and Hours (SEPH), a survey of establishments (unlike the Labour Force Survey which surveys households), showed that Canada lost 12K jobs in June. In the first half this year, the SEPH averaged +12K jobs/month, not far from the +16K for the LFS’s paid component. Weekly earnings rose in June allowing the year-on-year wage growth to bounce back to 1.9%. Annual wage growth topped the national average in management (up more than 11% year-on-year) followed by education services, wholesale trade, administrative and support services, info/culture, and transportation/warehousing. The worst wage performances were not surprisingly in mining/oil/gas (-3.1% year-on-year), although there were also sharp declines in arts/entertainment/recreation and real estate/leasing. Despite gains in June, wage growth decelerated sharply in the second quarter according to the SEPH. That was due in part to cutbacks in the traditionally high-paying energy sector. But that didn’t seem to negatively impact consumption spending based on retail data, the latter suggesting an acceleration of consumption growth in Q2. So, odds are that the savings rate, which soared to 5% in Q1, dropped a bit last quarter.

Corporate operating profits reached $80.9 billion in Q2, up 12.9% compared to the first quarter. Eleven of the 22 industries saw an increase in operating profits in Q2.

United States – The Bureau of Economic Analysis’ second estimate of Q2 GDP growth came in at 3.7% annualized, up sharply from the advance estimate of 2.3%. The upgrade was due to government and investment spending although there were also upgrades to consumption and trade (due to smaller imports than first thought). So much so that final sales, i.e. GDP excluding inventories surged 3.5%, much better than the advance estimate of 2.4%. Inventories, initially reported as a drag on growth, ended up contributing slightly to Q2 GDP.

The Conference Board’s consumer confidence index rose to 101.5 in August, the highest since January. The increase in confidence was due to perceptions about both the present situation (sub-index rising to 115.1, the highest since 2007), and economic prospects (sub-index jumping to 92.5). Consumers were more optimistic than in the prior month about prospects for business conditions and income. They were, however, less enthusiastic than in the prior month about buying homes, autos and major appliances.

Markit’s flash/preliminary estimate of the services purchasing managers index fell to 55.2 in August (from 55.7 in the prior month). A reading above 50 implies expansion in the services sector. New business grew at the weakest pace since January.

Service providers also reported the slowest pace of cost inflation in five months.

Personal income rose 0.4% for a fourth consecutive month in July while personal spending grew 0.3%. With income rising faster than spending, the savings rate rose from 4.7% to 4.9%. In real terms, disposable income was up 0.4% while spending increased 0.2%. The PCE deflator was up 0.1% in July, allowing the year-on-year rate to remain unchanged at 0.3%. The core PCE deflator edged up just 0.1%, causing a one-tick decline in the annual core rate to 1.2%, the lowest since March 2011.

The durable goods report showed new orders jumping a consensus-topping 2% in July. Adding to the good news, the prior month was revised up to +4.1% (from +3.4%). In July, transportation orders jumped 4.7% (on top of the prior month’s 10.7% surge) thanks to sharp gains for autos/parts which more than offset declines for civilian aircrafts. Excluding transportation, orders rose 0.6%. Here too, there was an upward revision to the prior month to +1% (initially reported as +0.8%). Orders of non-defense capital goods excluding aircrafts were up a solid 2.2%. Total shipments of durable goods rose 1%, and those of non-defense capital goods exaircraft, a proxy for business investment spending, were up 0.6%.

New home sales rose 5.4% to 507K in July. The months supply of homes at current sales rate fell to 5.2. The median sale price rose to $285,900, or 2% above year-ago levels.

The Case-Shiller 20-city home price index fell 0.1% on a seasonally-adjusted basis in June. However, the 20-city annual home price inflation rate was unchanged at roughly 5%.

The weekly jobless claims report showed initial claims falling to 271K in the week of August 22nd, not far from consensus. The more reliable 4-week moving average rose slightly to 272.5K. Continuing claims for the prior week rose 13K to 2.269 million.

World – The People’s Bank of China provided another dose of stimulus this week by lowering its target interest rate and the reserve requirement. In Japan, July data showed the year-on-year CPI inflation rate falling to just 0.2%, the jobless rate falling one tick to 3.3%, and retail spending rising 1.2% in the month.

World – The People’s Bank of China provided another dose of stimulus this week by lowering its target interest rate and the reserve requirement. In Japan, July data showed the year-on-year CPI inflation rate falling to just 0.2%, the jobless rate falling one tick to 3.3%, and retail spending rising 1.2% in the month.

This presentation may contain certain forward-looking statements about the 2009 Economic and Financial Outlook. Such statements are subject to risk and uncertainties. Actual results may differ materially due to a variety of factors, including legislative or regulatory developments, competition, technological change and economic conditions in Canada, North America or internationally. These and other factors should be considered carefully and readers should not rely unduly on National Bank of Canada’s forward-looking statements. This presentation may not be reproduced in whole or in part, or further distributed or published or referred to in any manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express consent of National Bank.

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