Canada – Early in the week, the Business Outlook Survey released by the Bank of Canada brought good news. Canadian businesses are a lot more optimistic this summer than in the past two surveys. A majority of respondents (61%) now anticipate some growth in their sales volume over the next 12 months, while 23% continue to expect a further decline. The balance of opinion has turned around sharply to +39% after sinking to a low of -34% in 2008Q4. Back then, 57% of businesses expected their sales volume to decline and only 23% harboured a positive 12-month outlook. According to the BoC’s Senior Loan Officer Survey, though lending conditions continued to tighten, the trend was less generalized. News regarding the manufacturing sector was not encouraging. After slipping 0.25% in April, sales fell 6% in May, overshooting market expectations of a 2.5% decline for the month. Although shutdowns in the auto industry accounted for a significant share of the drop, the aerospace industry, also, was under pressure. This was reflected on a regional basis, with Quebec (-9.1%) and Ontario (-7.8%) recording the steepest decreases in manufacturing shipments. Excluding transportation, however, manufacturing sales were still down 2.1%, with 17 of 21 industries contracting on the month. According to Statistics Canada, increased truck sales led to a 1.0% rise in the number of new motor vehicles sold in May. However, the gains will be short-lived as preliminary industry data indicate that the number of new motor vehicles sold dipped about 1% in June. Still in June, existing-home sales were up 8.7% over the previous month (seasonally adjusted), a fifth consecutive monthly increase, and 17.9% year over year. Finally, Canada registered its first 12-month decline in headline CPI. It should be point out that the United States has done so for the past four months. Canadian all-items CPI fell 0.3% in June for an obvious reason. Energy prices, down 19.0% over 12 months, were the main driver. Excluding these, CPI rose 2.1% from June 2008 to June 2009. The BoC core CPI was up 1.9% over the same period. Given that the underlying trend was masked by last year’s high energy prices, we prefer to look at how the core rate has evolved over the past three months.
On this basis, inflation is proving rather resilient, with 3- month annualized core inflation running at 2.5% and service prices up 3.7%. If this is symptomatic of what lies ahead, the BoC will need to reconsider its commitment to keep interest rates at their current level through to the summer of 2010.
United States – From May to June, headline CPI spiked 0.7%. As expected, the gain was due mostly to gasoline prices, which surged 17.3% on the month. Given their weight in the CPI, they accounted for 80% of the month-over-month increase. Prices in the other expenditure categories rose only modestly, with the exception of apparel (+0.7%), recreation (+0.5%), new vehicles (+0.7%) and used cars and trucks (+0.9%). Housing prices remained flat. Despite the strong monthly gain registered in June, year-over-year CPI was down 1.4%, as crude oil traded close to its all-time high of a year ago. Excluding food and energy, CPI was up 1.7% in the past 12 months. June retail sales rose 0.6%. Again, higher gasoline prices contributed to the monthly gain. Sales of vehicle and parts, too, were stronger on the month (+2.3%). Though headline sales have increased for two months in a row, the report was disappointing. Core sales (ex auto, gasoline and building materials) fell 0.1% for a fourth straight monthly decline. Industrial production registered its smallest decline in eight months. In June, it decreased 0.4% after slumping 1.2% in May. July regional manufacturing surveys were somewhat mixed. At -0.55, the Empire State Survey exceeded expectations and the orders component jumped to its highest mark since the start of the recession. The New York area looked to be faring better. The Philly Fed index, however, slid from -2.2 to -7.5 in July. However, this comes on the heels of the colossal gain posted a month ago, when it went from -22.6 to -2.2. Business inventories shrank 1.0% from April to May, while the inventory-to-sales ratio remained elevated at 1.42. Housing starts surprised on the upside with a 3.6% increase to 528K. Single-family units registered their fourth consecutive monthly increase. Building permits climbed 8.7% to 563K, the highest level so far this year.
