The Statistics Canada New Housing Price Index rose 3.9% y/y in June

Week in review

CANADA: In July, housing starts rose 4.4% to 222K (from 213K in June), their highest mark in four months. Urban starts rose 5.5% as higher multis (+10.4%) more than offset a drop in the single-family segment (-3.9%). The increase in urban residential construction activity was largely driven by British Columbia and Alberta, with starts in Ontario and Quebec remaining roughly unchanged. Though starts were essentially flat for Ontario as a whole, Toronto registered a 23% jump even after recording massive gains the prior month.

In June, building permits were about 23% above their level the year before. The value of non-residential permits was up 28.1% year on year, while that of residential permits increased 19.4%. In real terms, residential permits were up 7.2% from the prior month and a massive 24.7% from 12 months earlier as a 42.8% surge for multis dwarfed a 6.2% decline for singles.

Rising interest rates and tighter home-buying regulations do not seem to be deterring Canadian builders. Housing starts exceeded 200K in 7 of the last 8 months, which is well above the level required to meet demographic needs (estimated at about 180K). Toronto starts continue to impress, all the more so in light of the ongoing moderation in that city’s resale market. Moreover, based on the persistently strong numbers for building permit applications, the pace of new residential construction (particularly multis) is unlikely to ease anytime soon, especially if the labour market remains resilient and the Bank of Canada delays further interest rate hikes.

The Statistics Canada New Housing Price Index rose 3.9% y/y in June. The sharpest price gain was recorded in Toronto (+8.5%). St. John`s registered the steepest decline (-0.9%) among the five metropolitan areas that saw prices retreat.

UNITED STATES: The consumer price index rose just 0.1% m/m in July, half of what consensus expected. A 0.1% drop in energy prices was offset by a 0.2% increase in food prices. Excluding food and energy, prices rose 0.1% m/m, for a fourth time in a row. Both new and used vehicle prices fell again in July (-0.5%). Prices at hotels and motels shrank 4.2% in the month, after declining 1.9% in June. Telephone services fell again (-0.1%), but at a much slower pace than in previous months. Household furnishings and operations prices dropped 0.5%, after recording a 0.2% decline in June. All of this is challenging the Fed arguments that earlier inflation softness was transitory. However, air fare prices jumped 0.7%, partially offsetting their June decline (-2.7%). Other categories showing increases included housing (owners’ equivalent rent in particular), apparel, medical care, and recreation. On a year-on-year basis, both the headline and core inflation rates were 1.7% in July. U.S. core inflation remains very mild whether you’re looking at the CPI or the Fed’s preferred measure (PCE deflator). As such, the Fed will keep a close eye on inflation developments in the coming months in order to judge if a December hike will be warranted.

The Producer Price Index for final demand was weaker than expected in July, dipping a seasonally adjusted 0.1% after inching up 0.1% m/m in June and holding steady in May. Services, which fell 0.2% in the month, accounted for over 80% of the headline decline. Excluding food, energy and trade services, the index stayed level m/m but rose 1.9% y/y.

Nonfarm business productivity grew an annualized 0.9% in Q2 after swelling a revised 0.1% in Q1. Relative to 2016Q2, productivity expanded 1.2%. The Bureau of Labor Statistics released revisions going back to 2013Q1. Productivity shrank a revised 0.1% in 2016, the first annual decrease since 1982 (- 1.0%). From 2012 to 2016, average productivity growth was 0.6% per year.

Unit labour costs climbed 0.6% in Q2 as hourly compensation increased 1.6%. The Q1 gain was revised from 2.2% to 5.4%.

This reflected a steep upward revision to hourly compensation (3.3%). Yet, relative to 2016Q2, unit labour costs sagged 0.2%.

The Index of Small Business Optimism climbed 1.6 points in July to 105.2, just 0.7 point shy of its post-recession peak of 105.9 reached earlier this January. The percentage of firms reporting job openings they could not fill in the current period jumped 5 points to 35, a new high since the historical peak struck in 2001Q4. Labour shortages were particularly severe in the construction and manufacturing sectors.

According to the Job Openings and Labor Turnover Survey, job openings rose 461K to a record high 6.16 million in June. With openings at an all-time peak, the ratio of unemployed workers to job openings slid even further below its prerecession level.

In June, consumer credit increased US$12.4 billion to US$3,855.8 billion. Revolving credit rose to US$1,021.7 billion, finally topping its pre-recession high from ten years earlier. Non-revolving credit grew an annualized 3.5% to US$2834.1 billion.

WORLD: In July, China posted a trade surplus of US$46.7 billion. Though this exceeded expectations, both exports and imports were weaker than anticipated. In the 12 months to July, exports and imports grew 7.2% and 11%, respectively. China’s foreign reserve rose to a nine-month high of US$3.08 trillion. Finally, consumer inflation in China slipped to 1.4% y/y in July from 1.5% y/y in June. Non-food inflation fell to 2.0% y/y from 2.2% y/y.

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