AGF Weekly Perspectives – February 5th Update
Author: Portfolio Specialist Group
February 5, 2018
“A recap of last week’s top economic news and what’s to come”
Weekly Market Review
U.S. employment strengthens
- The U.S. economy added 200,000 jobs in January with reported strength in construction, food services and healthcare. The result beat consensus expectations and was above last year’s average monthly pace of 181,000 jobs.
- The U.S. unemployment rate held at 4.1% for the fourth straight month as the labour force increased.
- Perhaps most notable in January’s report, average hourly earnings reached an eight-year high after increasing 0.3% to an annualized rate of 2.9%. These higher wages may spark inflationary pressure, which has remained at stubbornly low levels.
Eurozone economies advance
- The eurozone recorded fourth quarter GDP growth of 0.6%, concluding the strongest year of economic activity in a decade. Total GDP growth of 2.5% in 2017 was much improved from 1.8% in the prior year.
- The eurozone’s jobless rate held at nine-year lows of 8.7% in December, led by Germany’s unemployment rate falling to a record low of 5.4%, as the region’s largest economy continues to drive growth.
- Also reported, eurozone inflation decelerated slightly to 1.3% year over year in January. Core inflation picked up to 1.0%, from 0.9%, though remains well below the central bank’s target.
Canada reports economic growth
- The Canadian economy grew 0.4% in November, the strongest advance in six months and in line with expectations.
- Growth was broad-based, with 17 of 20 sectors advancing, notably manufacturing. Despite the strong month, October’s flat reading will drag on fourth quarter GDP, tracking towards 2.0% and below the Bank of Canada’s projected growth of 2.5% annualized for the period.
- As a whole, the Canadian economy remains strong, with an additional rate hike fully priced in by May.
Other economic news
- U.S. interest rates were left unchanged in Janet Yellen’s final meeting as Chair of the U.S. Federal Reserve (Fed). The central bank’s economic assessment was generally upbeat, noting “solid gains” in employment, household spending and business fixed investment. Inflation levels are also “expected to move up” this year. Market participants are now anticipating the first of three 2018 rate hikes to occur at Jerome Powell’s first meeting as Fed Chair in March.
- The U.S. Manufacturing ISM slipped 0.2 points to 59.1 in January, though remains close to 13-year highs. 14 of 18 industries reported expansion, reflecting broad-based growth. The eurozone continues to lead global activity, with the Manufacturing PMI measuring 59.6. In China, the Caixin Manufacturing PMI was unchanged at 51.1 while activity in Japan rose 0.4 points to 54.8.
What’s to come
Canadian employment and housing
- Canada’s labour force survey for the month of January will be released on Friday, where employment is expected to ease after a strong report in December. Canadian housing starts and building permits will also be reported during the week.