Week in review : Canada lost a massive 50K jobs in August

Week in review

Canada – According to the latest release of the Survey of Employment, Payrolls and Hours (SEPH), Canada lost a massive 50K jobs in August. Moreover, only 4K jobs/month were created on average over the first eight months of 2016. This is at odds with the much rosier picture of the labour market painted by the Labour Force Survey (LFS), which reported an average 15K paid jobs created per month over the same period. On the bright side, the SEPH showed year-on-year earnings growth rose to 1.6% in August, its highest level this year. It need be reminded that the SEPH is an establishment survey, while the LFS is a household survey.

In August, wholesale trade jumped a consensus-topping 0.8%, with gains in five of the seven broad subsectors, including autos and machinery/equipment. In real terms, sales were up 0.8% for a fourth increase in the past five months. Wholesale inventories were also up 0.8%.The increases in both sales and inventories suggest the wholesale sector made a decent contribution to economic growth on the month. Coupled with the gains in factory shipments reported earlier, this should more than offset the reported decline in retail volumes and boost August GDP 0.2% or so. Canada remains firmly on track to register growth of about 3.5% annualized in the third quarter.

The Government of Canada and the Bank of Canada renewed their inflation-control target agreement for another five years. Accordingly, the inflation target will continue to be defined in terms of the total CPI and it will continue to be set at the midpoint of the 1 to 3 per cent inflation-control range. The Bank took the opportunity to officially announce it was replacing the measure of inflation it used as an operational guide to policy. From now on, the Bank will use three measures of core inflation instead of the CPIX, which is what it had used for the past 15 years.

United States – Third quarter GDP growth came in at 2.9% annualized, i.e. better than the 2.6% expected by consensus. Trade was a major contributor to growth as exports grew much faster than imports, while domestic demand was supported by consumption and government spending which more than offset drag from residential investment and continued weakness in business investment. Inventories contributed to growth, meaning that final sales, i.e. GDP excluding inventories, grew slower than GDP, i.e. 2.3%. Nominal GDP grew at an annualized pace of 4.4%, on top of the prior quarter's 3.7% increase.

The GDP data was better than expected and will reinforce the position of hawks on the Fed. The contribution from trade was expected, as was the moderation in consumption growth after the prior quarter's surge. The acceleration of nominal GDP growth (+4.1% annualized in the last two quarters) will help government coffers at both the federal and state levels. One of the few blemishes in this report is the persistence of weak investment spending. Soft corporate profits are partly to blame. Looking ahead, there is reason to be optimistic about economic growth. Inventories, which increased in the third quarter, have more room to climb after Q2's massive destocking. While trade may not repeat the feat in light of the dollar's ascent, domestic demand could strengthen further particularly if election results prove decisive enough to boost confidence. Indeed, a low financial obligations ratio means households have plenty of room to borrow and spend if they feel upbeat about their prospects for jobs. Similarly, dissipating uncertainties may encourage businesses to invest more as to rekindle productivity and better compete in world markets. As such, we remain comfortable with our call for momentum to carry over to the fourth quarter and into next year when we expect U.S. GDP growth to accelerate to an above-potential 2% after this year's tepid 1.6% growth.

In the third quarter, the price index for personal-consumption expenditure rose 1.4% q/q (seasonally adjusted annual rate), compared to 2.0% in the second quarter. Excluding food and energy, PCE core increased 1.7% in the quarter.

The Employment Cost Index increased 0.6%, seasonally adjusted, in Q3, the same growth rate as in the previous 2 quarters. Wages and salaries increased 0.5%. They account for about 70% of compensation costs. Benefits increased by 0.7%. For the 12-month period ending in September, compensation cost increased 2.3%. This compares to a 2.0% increase a year ago.

The durables goods report showed new orders dipped 0.1% in September, which was close to consensus expectations for a flat print. However, the prior month's statistic was revised upward from +0.1% to +0.3%. In September, orders in the transportation sector fell 0.8% as declines in the defence category (after the prior month's surge) more than offset gains in civilian aircrafts and autos. Ex-transportation, orders rose a consensus-matching 0.2%. Excluding defence, new orders were up a solid 0.7%, reversing the prior month's decline. Total shipments of non-defence capital goods ex-aircraft, a proxy for business investment spending, rose 0.3%.

In September, new-home sales sprang 3.1% to 593K units (annual pace). However, the previous three months were revised down substantially for a total of 85K fewer units than previously reported.

In August, the S&P CoreLogic Case-Shiller U.S. National Home Price Index rose 0.6% m/m. It was up 5.3% from 12 months earlier.

In October, the Conference Board Consumer Confidence Index fell 4.9 points to 98.6, reversing most of the gains of the previous two months. Both the present situation index and the expectations index declined from September to October. They dropped 7.3 points and 3.3 points, respectively, to 120.6 and 83.9. The differential between consumers stating jobs were plentiful and consumers claiming they were hard to get narrowed to 2.2 from 5.3 in September.

World – In Japan, the national CPI remained in negative territory for a sixth month in a row (-0.5%). Excluding food and energy, the national CPI was unchanged on a y/y basis. Last time core inflation was that low was in September 2013.

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