After last week's surprisingly strong January GDP report prompted economists to hike their growth forecasts for the Canadian economy, this week brings a fresh batch of data culminating with Friday's widely watched employment report.
Combined with a rebounding loonie and a Canadian stock market that has just finished its best month since 2011, the jump in GDP has contributed to an increasingly positive tone around the Great White North, raising expectations that economic data in the weeks ahead will confirm the improving trend.
"Ironically, just as U.S. forecasts are being scaled back, Canada's growth outlook is suddenly getting notched up," Bank of Montreal chief economist Douglas Porter said in a note.
Including the "whopping" 0.6-per-cent surge in January gross domestic product that was driven by gains in exports and manufacturing, Canada's economy expanded at a 5-per-cent annual pace in the three months through Jan. 31. While such a scorching growth rate is unlikely to continue, Mr. Porter boosted his full-year GDP growth outlook by half a percentage point to 1.8 per cent – not far behind BMO's forecast of 2.1 per cent for the U.S. economy.
This week's economic calendar in Canada includes reports on the February merchandise trade balance on Tuesday and February building permits on Thursday. Friday features housing starts and employment, both for March.
In light of Canada's solid GDP performance in January, some economists expect to see a rebound in the sluggish jobs market this week. Royal Bank of Canada, for instance, forecasts that the Canadian economy added 18,000 jobs in March – led by broad-based gains in the service sector. That would more than offset the cumulative decline of about 8,000 jobs in the previous two months. Royal Bank also sees the unemployment rate falling to 7.2 per cent in March from 7.3 per cent in February. But with job losses in the resource sector still weighing on employment, other economists aren't so optimistic. "Better economic growth in [the first quarter] and mild weather would be consistent with a net gain in March employment, but we're calling for a muted number given the layoffs still under way in the oil patch," Avery Shenfeld, chief economist with CIBC World Markets, said in a note.
CIBC sees a net gain of just 5,000 jobs in March and expects the unemployment rate to hold steady at 7.3 per cent. Looking further out, it predicts that weakness in the energy sector will continue to hamper jobs growth until at least midyear, when the unemployment rate could be a "few ticks higher" than its current level.
Canada will be flying solo on the jobs data because the United States already released its March employment report last Friday (showing a gain of 215,000 jobs). With little in the way of potentially market-moving economic data on tap south of the border this week, investors will shift their attention to the looming first-quarter earnings season.
Although earnings season doesn't officially start until April 11, when Alcoa Inc. is scheduled to release its first-quarter numbers, a few companies will open their books this week. They include Darden Restaurants Inc. on Tuesday, followed by Bed Bath & Beyond Inc., Constellation Brands Inc. and Monsanto Co. on Wednesday. In Canada, Hudson's Bay Co. is scheduled to report on Tuesday and Richelieu Hardware Ltd. on Thursday.
Analysts are already predicting a gloomy U.S. earnings season.
Based on analyst estimates compiled by FactSet Research, S&P 500 companies are expected to post an aggregate decline of 8.5 per cent in earnings for the first quarter. If earnings fall, it will mark the first time the S&P 500 has seen four consecutive quarters of year-over-year earnings declines since the financial crisis – specifically the fourth quarter of 2008 through the third quarter of 2009, FactSet said.
In recent months, earnings expectations have been falling steadily. At the end of 2015, the estimated S&P 500 earnings growth rate for the first quarter of 2016 was 0.8 per cent, but analysts have since reduced estimates for all 10 sectors, led by energy. It is normal for earnings estimates to come down as earnings season approaches and companies rein in their rosy expectations, but the first quarter of 2016 has seen the biggest drop in projected earnings in seven years, FactSet said.
That may not bode well for U.S. stocks, but in Canada, at least, there appear to be growing reasons for optimism.