SEPH's year-on-year earnings growth fell to 2.8% in October

Week in review

Canada – Real GDP grew a consensus-topping 0.3% in October, after rising an unrevised 0.4% in the prior month. Goods producing industries saw a 0.4% increase in output, due to gains in mining (+1.5%), oil & gas (+1.5%), manufacturing (+0.7%) and construction (+0.3%), which more than offset declines in agriculture (-1.4%) and utilities (-1.8%). Industrial production rose 0.6% as a result. The services sector's output expanded 0.3% driven by gains in finance/insurance, real estate, education, and health care among others. The breadth of the gains in most of the sectors is encouraging. Thanks to October’s results, Canada is on track to achieve above-potential growth rates of roughly 2.5% annualized in Q4, and 2.4% for 2014 as a whole.

The Survey of Employment, Payrolls and Hours (SEPH), a survey of establishments (unlike the Labour Force Survey which surveys households), showed that Canada gained 15K jobs in October. For the first 10 months of 2014, the SEPH suggests firms created an average of 15.6K jobs/month, slightly higher the Labour Force Survey’s 14K for paid employment over the same period. The manufacturing sector added less than 500 jobs, but employment is down 6K since the beginning of the year. So much so, that manufacturing’s share of total employment is now just 9.4%, the lowest on records. The SEPH’s year-on-year earnings growth fell to 2.8% in October, the lowest in 5 months. Annual wage growth topped the national average in sectors such as utilities, mining/oil/gas, manufacturing, transportation/warehousing, information/culture, real estate, management, health care, and accommodation/food services. Sectors including construction, arts/entertainment, public admin, finance/insurance, and education had annual wage growth below the national average in October.

United States – The Bureau of Economic Analysis’ third estimate of Q3 GDP growth came in at +5.0% annualized, the best quarterly performance since 2003. There was a sharp upgrade to domestic demand, mostly via consumption spending. Inventories were also upgraded a bit, but they were neither a contributor nor a drag on growth. In other words, the growth in final sales (i.e. GDP excluding inventories) matched that of GDP.

Weekly jobless claims data for the week of December 27th showed initial claims rising to 298K (from an upwardly revised 281K in the prior week). The more reliable 4-week moving average was little changed at 291K. Continuing claims for the prior week fell 53K to 2.35 million.

The ISM manufacturing index fell more than three points to 55.5 in December (from 58.7 in the prior month). That was the lowest factory ISM since June. The production and new orders indices fell sharply, but the employment sub-index rose a bit.

More importantly, all of the major sub-indices were comfortably above 50, i.e. in expansion territory.

The Conference Board’s consumer confidence index rose to 92.6 in December from an upwardly revised print of 91 in the prior month. December’s increase in confidence was due to perceptions about the present situation (sub-index rising to 98.6, a multi-year high), while confidence about economic prospects fell a bit (sub-index dropped to 88.5, a three-month low). Consumers were a bit less optimistic than in the prior month about prospects for employment, income and business conditions. They were less enthusiastic than in the prior month about buying autos and homes, but more upbeat about investing in major appliances.

Personal income rose 0.4% while personal spending jumped 0.6% in November. With spending rising faster than income, the savings rate fell to 4.4%, the lowest since 2013. In real terms, disposable income jumped 0.5% while spending was up 0.7%. The PCE deflator fell 0.2% in November, allowing the year-on-year rate to fall to just 1.2%. The core PCE deflator was flat, pushing the annual core rate down one tick to 1.4% (from a downwardly revised 1.5%).

The durables goods report showed new orders falling 0.7% in November, much weaker than consensus which was expecting a 3% gain. The big disappointment was defense transportation equipment which slumped badly. That cause the transportation component of durable goods to drop 1.2% despite gains for civilian aircrafts (+0.6%) and autos/parts (+0.2%). Excluding transportation, orders fell 0.4%, also disappointing consensus which was looking for a 1% increase. Total shipments of durable goods fell 0.4%, but those of non-defense capital goods ex-aircraft, a proxy for business investment spending, rose 0.2%.

Construction spending fell 0.3% in November as declines in the non-residential sector (-1.0%) more than offset gains in the residential sector (+0.9%).

Existing home sales fell 6.1% to 4.93 million units in November, the lowest since May. Consensus was expecting only a small decrease to 5.20 million. November sales were hurt by both single family units (-6.3%) and multis (-4.8%). The months supply of homes at current sales rate was unchanged at 5.1. The median resale price fell to $205,300 but is still 5% higher than year-ago levels. A quarter of November sales were made to cash buyers, while the share of distressed sales in total sales was unchanged at 9%.

New home sales fell 1.6% to just 438K in November, from a downwardly revised 445K in the prior month. The months supply of homes at current sales rate rose to 5.8, the highest since June. The median sale price fell to $280,900, and is now just 1.4% above year-ago levels.

October data showed the 20-city Case-Shiller home price index rising 0.8% on a seasonally-adjusted basis, the second increase in a row (after four straight declines). That, however, was not enough to prevent the annual home price inflation rate from dropping to a two-year low of 4.5%. On a 3-month annualized basis, the 20-city index is up 3.8% but with varying fortunes across the country. Atlanta leads the 20-city list with a 3-month annualized print of 13.3%, followed Dallas at 11.5%, Miami at 10.6% and Tampa at 10.3%. At the other end of the 20-city list are Chicago, Detroit and New York which all remain in deflation mode on a three-month annualized basis.

World – In Japan, November data showed retail sales falling 0.3%, industrial production slumping 0.6%, and the unemployment rate remaining unchanged at 3.5%. The annual inflation rate fell to just 2.4% in November, while core inflation was just 0.7% after stripping out the effects of April’s sales tax hike. Wage inflation remained mild as evidenced by labour cash earnings which were down 1.5% year-on-year in November. In real terms, cash earnings were down 4.3% yearon- year, the steepest dive in five years.