Canadian economy pauses, while U.S. further strengthens

Author: Portfolio Specialist Group

April 2, 2018

AGF Weekly Perspectives

“A recap of last week’s top economic news and what’s to come”

Canadian economy contracts in January

  • The Canadian economy contracted 0.1% in January, though the slow start to 2018 was offset by an equal upward revision to the prior month. Positively, January was only the second month of negative growth in the past 15 months.
  • 10 of 20 industries reported negative growth, with the decline largely pointed to unscheduled maintenance shutdowns at Canadian oil sands, as the mining, oil and gas sector fell 2.7% and shaved 0.2% off the headline number alone. A 0.5% drop in the real estate sector also detracted, though was largely expected with new OSFI regulations taking effect in January.
  • The Bank of Canada’s forecast of 2.5% growth in the first quarter appears challenged, though oil production and real estate activity may rebound in the coming months.

U.S. GDP revised higher

  • U.S. economic growth was revised higher to 2.9% in the third and final estimate of Q4 2017 GDP, improved from the previously reported 2.5%. Better-than-expected consumer spending through the holiday season contributed to the revision, as well as spending on transportation. The upgrade now marks three straight quarters either above or close to President Trump’s 3% growth target.
  • The core personal consumption expenditures (PCE) price index, the central bank’s primary measure of inflation, increased at a 1.9% annualized pace in the fourth quarter, just shy of the Fed’s 2% target rate.
  • Also reported, U.S. consumer confidence faltered in March, falling 2.3 points to 127.7, though remains elevated at the third-highest level in the past 17 years.

Mixed Japanese data

  • Japanese inflation decelerated to 1.0% year over year in March, down from 1.4% in the prior month. Core inflation also moved slightly lower to 0.8% year over year.
  • Also reported, industrial production rebounded 4.1% in February to partly offset a 6.8% decline in January. On an annualized basis, activity has grown 1.4%.
  • Japanese retail sales rebounded in February with 1.6% annualized growth after a steep drop in the prior month. Spending on fuel, food and drinks contributed to increased consumption.

Other economic news

  • The final reading of U.K. GDP was held unchanged from prior estimates, with economic growth of 0.4% in the fourth quarter of 2017. On an annualized basis, U.K. GDP rose 1.8% in 2017, the slowest pace among G7 countries and the only major economy to report a slowdown in the prior year.
  • Germany’s labour market continues to lead the eurozone with a better-than-expected 19,000 citizens finding work in March and bringing the unemployment rate to a reunification low of 5.3%. Also reported, inflation rose 1.5% year over year in March, improving from 1.2% in February on a European-harmonized basis.

What’s to come

Canadian GDP and Japanese data

  • The U.S. and Canada will report an update on their respective labour markets on Friday, with the eurozone also reporting employment data during the week. Manufacturing activity for several countries including China, Japan, the U.S. and Canada will also be released.

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