Briefing highlights
- What's going well, what's not
- Economy expands at 3.7-per-cent pace
- National Bank raises dividend
- Markets at a glance
Whither the recovery
To borrow from Charles Dickens (not to mention a Citi economist), it is the best of times, it is the worst of times for Canada’s recovery.
Indeed, as Citigroup’s Dana M. Peterson put it, economic reports this week alone highlight “the best and worst” in still uncertain times after the oil shock that laid the economy so low.
We just got the best this morning as Statistics Canada reported that the economy expanded at a strong annual pace of 3.7 per cent in the first quarter.
The worst comes later, and can take several twists.
Here’s a sampling:
The best
“Several factors should contribute to Canada’s ongoing recovery, including completion of the internal structural adjustment away from commodities; a moderate U.S. expansion; slightly higher oil prices; easy domestic monetary and fiscal policies; and a weak Canadian dollar,” said Ms. Peterson of Citi Research.
GDP: The economy just turned in a spectacular first-quarter showing. Compare that 3.7 per cent to the 1.7 per cent of the United States. Said CIBC World Markets chief economist Avery Shenfeld: “Over all, GDP is up 3.2 per cent in the past year, a big step towards narrowing economic slack, and that’s the most important takeaway for investors.”
Oil: The market is certainly more stable now, supported further by production caps among OPEC and other producers. As the Bank of Canada put it last week, the “economy’s adjustment to lower oil prices is largely complete.”
Jobs: Yes, unemployment at 6.5 per cent is still too high. But that April level was down from 6.7 per cent in March and was the lowest since October, 2008. And we all remember that month of that year.
Manufacturing: A touchy one, this, given the sector's struggles, but it's picking up. Said National Bank of Canada: “Together with inventories, volume factory sales contributed to economic growth in Q1, rising at an annualized rate of 7.9 per cent in the quarter, the best performance since 2014.”
Spending: We seem to be doing a fair bit, as the latest report on retail sales, indicated. We’re buying cars and, in Ontario, at least, places to live. And today’s GDP report showed household consumption up 4.3 per cent. Said Brian Lacerda of Moody’s Analytics: “Firm employment gains over the past six months are also boosting consumer spending.”
Housing: Provincial and federal measures are believed to be working, so that we haven't heard a loud pop in Vancouver and Toronto. Vancouver has eased without crashing, and everyone has their fingers crossed that markets in and around Toronto follow suit.
The worst
“Much still bedevils the economy,” Alvin Tan of Société Générale said in a recent report, noting that, yes, unemployment is easing, but wages are lagging, there are concerns over the housing market despite the government measures, and Canada-U.S. trade relations have hit a “rockier patch” under the Trump administration.
Global trade: This accounts for a lot of the bad stuff. As Statistics Canada reported Tuesday, the country’s current account deficit widened in the first quarter to $14.1-billion. Both goods and services trade were in deficit. And on Friday, some analysts expect the agency to report hat the merchandise trade deficit also widened in April, though others believe there could be a small surplus. Benjamin Reitzes, Canadian rates and macro strategist at BMO Nesbitt Burns, said of the current account deficit: “At around 2.7 per cent of GDP, the shortfall is borderline sustainable, but still points to continued softness in the Canadian dollar.”
NAFTA: Escalating trade tensions with the U.S. are the source of much angst and uncertainty. The U.S. has slapped countervailing duties on softwood lumber, Boeing Co. wants similar levies against Bombardier Inc., and the Trump administration says it wants major changes to the North American free-trade agreement. Said Ethan Harris and Carlos Capistran of Bank of America Merrill Lynch: “Trade agreements impact the economy in several ways. During negotiations they can create high uncertainty about whom the winners and losers will be. Today, this uncertainty is likely already causing some slowing in investment by companies with cross-border supply chains.”
Wages: As The Globe and Mail’s Rachelle Younglai reports, our pay has stalled, with average weekly earnings up by just about 1 per cent in the past year. For those not keeping track, annual inflation stands at 1.6 per cent.
Stocks: If you bought a house in Toronto, Vancouver and many other cities more than a year ago, for sure you’re smiling. But how about other investments? Bank of Montreal chief economist Douglas Porter: “The S&P TSX index had clawed out a trivial gain of just 0.6 per cent this year [by early Friday], at a time when many other markets have posted solid gains, including roughly 8 per cent for the S&P 500, European averages and even the Mexican Bolsa. Why, even China, Brazil and the U.K. markets have managed gains of 5 per cent or more this year, despite dealing with a raft of specific issues.”
Business investment: Okay, it’s expected to perk up having plunged by $43-billion over the last couple of years given the oil shock. And, as today's GDP report showed, it bounced back in the first quarter. But, said the Conference Board of Canada, “non-energy investment will continue to languish, which will constrain the scope for future growth.”
Housing: Yes, this one’s in both categories. Because, as noted, everyone’s keeping their fingers crossed.
National raises dividend
National Bank of Canada added 2 pennies to its dividend as it posted a stronger second-quarter profit.
National, the last of the country’s big banks to report quarterly results, posted a profit of $484-million, or $1.28 a share, up from $210-million or 52 cents a year earlier.
National raised its quarterly dividend to 58 cents.
Markets at a glance
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