Date: August 20, 2010
Canadian Consumer Price Index, July 2010 Results
Source: Statistics Canada
Link to Release: http://www.statcan.gc.ca/daily-quotidien/100820/dq100820a-eng.htm
Summary: The Consumer Price Index (CPI) increased by 1.8 per cent yearover – year in July – a higher annual rate compared to the one per cent growth reported for June. However, this increase was driven largely by the onset of the harmonized sales tax (HST) in Ontario and British Columbia In addition to the taxation changes, gasoline prices rose 4.8 per cent in July and the broader energy category rose 7.9 per cent. The Bank of Canada core rate, which strips out volatile components including gasoline and sales taxes, rose by 1.6 per cent.
Analysis: Both the “All Items” and “Core” indices increased below the rates forecasted by the Bank of Canada in their most recent Monetary Policy Report. This is reflective, at least in part, of slower than expected economic growth since the end of the first quarter. With this in mind, the Bank arguably has more flexibility than originally anticipated related to the level of its target for the Overnight Lending Rate and the frequency of interest rate hikes moving forward. While the market consensus still supports further 25 basis point hikes in September, October and December, the possibility of the Bank taking a break from raising rates sooner than expected has increased.
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Date: August 16, 2010
United States New Residential Construction, July 2010 Results
Source: Joint Release from the United States Census Bureau and the United States Department of Housing and Urban Development
Link to Release: http://www.census.gov/const/newresconst.pdf
Summary: U.S. Housing starts rose to 546,000 units in July, a 1.7 per cent increase from the downwardly revised annual rate of 537,000 units recorded in June. The increase came entirely from within the volatile multiple family category, which rose 17.3 per cent to an annual rate of 95,000 units. Singlefamily starts, a more reliable indicator of the underlying health of the market, fell 4.2 per cent in July to an annual rate of 432,000 units. The annual rate of building permits, which signal future activity, dropped 3.1 per cent to the lowest level of the year. On an unadjusted basis, total starts were also down almost ten per cent annually.
Analysis: The level of residential home construction has been “flat-lining” since the latter half of 2009, and July building permit data does not point to stronger growth in the fall. A key issue adversely affecting the demand for new homes is the state of the US resale housing market. Because distressed sales account for more than a third of existing home inventory, many home buyers are taking advantage of value that cannot be found at new home sales centres. The value represented by distressed listings coupled with fact that the resale market remains well supplied explains why a small number of households, from a historic perspective, are spilling into the new home market. The US construction sector has strong economic linkages to other sectors of the economy, both in the US and Canada. For Canada in particular, the US construction lull adversely affects the export of raw materials and manufactured goods and the associated creation of well paying jobs.
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Date: August 19, 2010
Canadian Leading Indicators, July 2010 Results
Source: Statistics Canada
Link to Release: http://www.statcan.gc.ca/daily-quotidien/100819/dq100819c-eng.htm
Summary: The Canadian Composite Index of Leading Indicators advanced 0.4 per cent in July. While positive, the monthly growth rate slowed considerably from the 0.7 percent increase recorded in June. Growth in the manufacturing components of the index remained strong as new orders for durables rose 2.2 per cent for the sixth consecutive monthly increase. However, the housing index fell 4.1 per cent on declines of both starts and sales. The decline in home purchases was likely linked to a 0.6 per cent drop in furniture and appliance sales.
Analysis: The Composite Index of Leading Indicators can be used to estimate monthly GDP results several months ahead of their actual release. July’s report suggests that the economy may have grown at a slower pace compared to monthly growth rates experienced earlier in the year, which is in line with the Bank of Canada’s recent downgrade of its expectations for Canadian economic growth. Increased borrowing costs and more stringent lending guidelines for insured mortgages led to a slower pace of sales in the second quarter. While strong home sales and related economic activity played a key role in the initial recovery from recession, the drivers of growth over the longer term will be more diverse with a greater contribution from goods production.
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