CANADA: Real GDP surged a consensus-topping 0.6% in January

Week in review

CANADA: Real GDP surged a consensus-topping 0.6% in January. Goods producing industries saw a 1.1% jump in output as gains in manufacturing, construction, mining, oil and gas, more than offset decreases for agriculture and utilities. Industrial production rose 1.5% as a result. The services sector's output was up 0.4% as gains in most categories including wholesaling, retailing, finance/insurance and transportation/warehousing dwarfed small declines in health care and professional services.

It’s fair to say that Canada has adjusted to the oil shock. January’s Canadian GDP growth was twice as big as what was expected by consensus, pushing up the 3-month annualized rate of growth to a stunning 6% (yes six), the best since 2011. The economy continues to find support from resilience in the services sector (17th straight month of expansion), but got an added boost in January from the goods sector. Rising real exports gave a lift to the manufacturing sector, while construction, oil and gas and mining continued to expand at a healthy pace. January’s overall output gains puts the economy in a good position to expand further in Q1 after a strong handoff from last year. Our forecast for Q1 GDP growth is 2.6% annualized (assumes a give back in February after January’s unsustainable gains), not far from the Bank of Canada’s estimate of 2.5% for the quarter.

UNITED STATES: Personal income rose 0.4% in February after increasing a revised 0.5% the previous month. The latest gains reflected better wages and salary (0.5%). Disposable income rose 0.3% in the month. Personal spending nudged up 0.1%, although expectations were for a stronger number (0.2%). The savings rate increased to 5.6%, from 5.4% in January. The PCE deflator posted a 0.1% increase, pulling the year-over-year figure up to 2.1% from 1.9% in January. Core PCE rose 0.2% in the month, after having increased by 0.3% m/m in January. The year-over-year core PCE stood at 1.8% in February.

In March, the Conference Board Consumer Confidence Index jumped to its highest level (125.6) since December 2000. The improvement in consumer sentiment (+9.5 points in the month) followed strong employment reports, 235K in February and 238K in January. Expectations for future economic conditions were also up significantly, gaining 9.9 points in the month to 113.8. It remains to be seen if the failure of Republicans to deliver on their health care promises, leading many to question President Trump’s ability to get a deal on the tax reforms, will weigh on confidence in coming months.

In February, the Pending Home Sales Index shot up 5.5% month-over-month to 112.3 in seasonally adjusted terms. This monthly increase, the largest since July 2010, followed a 2.8% decrease the prior month. Sales were buoyed by an early start to the buying season encouraged by unusually warm weather.

According to the S&P CoreLogic Case-Shiller Indices, national home prices increased 5.9% in the 12 months ending in January. On a month-over-month basis, prices rose 0.6%. While the national index, at 185.51, is now just above its prerecession peak (184.62), the widely followed 20-City index (192.81) is still down 6.6% from its July 2006 high.

In its third estimate, the Bureau of Economic Analysis pegged 2016Q4 U.S. GDP growth at 2.1% annualized, up from its second estimate of 1.9%. Upgrades to consumption (particularly services) more than offset downgrades to trade, which proved more of a drag on the economy than first thought. Overall, Q4 growth in final sales (i.e., GDP excluding inventories) was upgraded two ticks to 1.1%. The upgrades, however, did not affect the growth print of 1.6% for 2016 as a whole.

WORLD: In Japan, CPI excluding fresh food rose 0.2% from a year earlier in February. Statistics on consumer prices for Tokyo, which are available with a one month lead, show inflation in March fell 0.4% y/y.

Also in Japan, retail sales in February rose 0.2% month on month and a mere 0.1% compared with the same month the year before. Both measures were weaker than expected owing to sluggish wage growth in the country. Sales at department stores and supermarkets were particularly dim, registering a seventh consecutive monthly decline and a 2.7% drop year over year.

China official manufacturing PMI increased to 51.8 in March, from 51.6 in the previous month. This was the strongest reading since April 2012. The non-manufacturing index rose to 0.9 points to 55.1, reaching a two-year high.

Eurozone: According to Eurostat’s flash estimate, inflation was lower than expected in March. Over the last 12 months consumer prices rose 1.5%, compared to 2.0% in February.

U.K. Prime Minister Theresa May officially set in motion Britain’s departure from the European Union invoking Article 50. Involved parties have a two years window to complete the process. However, many sees the key phase of negotiations starting only after German election latter this fall.

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