U.S. labour disappoints, while Canada’s economy expands

Author: Portfolio Specialist Group

August 7, 2018

AGF Weekly Perspectives

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

U.S. employment misses expectations

  • The U.S. economy added 157,000 jobs in July, missing expectations for around 190,000 new positions. The miss was concentrated in the services sector with nearly 65,000 less positions added than the prior month, whereas goods sector hiring was fairly strong.
  • Despite the disappointing print, the U.S. unemployment rate fell to 3.9% with improving participation from core age workers (those between 25-54).
  • Average hourly earnings rose 0.3% in the month to maintain a 2.7% annualized pace.

Canada’s economy expands

  • The Canadian economy expanded by 0.5% in May, exceeding consensus expectations after picking up from weather-related softness in the prior month.
  • GDP growth was broad-based with 19 of 20 industries advancing (utilities was the lone outlier). Goods-producing industries led with 0.6% growth. The oil and gas sector was particularly strong with 2.5% growth in the month. Service sectors were also strong, rising 0.5% and recording the largest monthly advance in nearly eight years.
  • The strong GDP print in May puts second-quarter projections on pace for roughly 3.0% annualized growth and well ahead of recent quarters.

Eurozone data reported

  • Eurozone economies expanded at a slower pace with GDP growth of 0.3% in the second quarter. Trade uncertainty appeared to weigh on activity, with year-over-year GDP growth decelerating to 2.1%.
  • Also reported, inflation rose 2.1% annualized in July, marking the eurozone’s first result above 2.0% in over five years. Higher energy prices accounted for much of the gain, up 9.4% from a year ago. Still, core inflation, which removes the effects of energy and other volatile items, rose to 1.1% from 0.9% annualized.
  • Retail sales increased by 0.3% in June with strong food sales, though annualized sales eased to 1.2%, from 1.6%.

Other economic news

  • The Bank of England raised interest rates by 25 basis points as widely expected, though surprisingly in a unanimous 9-0 vote. The central bank delivered a hawkish tone, citing record employment and higher inflation projections, and promised “ongoing tightening” if conditions progress as expected.
  • Speculation leading up to the Bank of Japan’s policy meeting warned of less accommodative conditions, however the central bank was firmly dovish last week suggesting they will “continue with powerful monetary easing” and maintain low rates for an “extended period”.

What’s to come

Canada’s labour market update

  • Canada’s employment data for July highlight a lighter week for economic data. The U.S. will report latest inflation, while Japan and the U.K. are set to report second quarter GDP growth.

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