Key Economic Indicators

• Nominal retail sales rose 0.1% in July and sales growth in June was revised up to 0.6% from a previously estimated 0.5%. In contrast to past months, rising prices played a negligible role in the overall gain with the volume of retail sales unchanged compared to a decline of 0.3% in June.
• A 0.9% drop in new car sales in July was partly to blame for limiting the rise in overall retail sales to only 0.1%. Excluding autos, retail sales rose a stronger 0.4%. None of this strength was the result of rising gasoline prices boosting service station sales — this component rose only 0.1% compared to monthly gains of 4% and 2.6% in June and May, respectively.
• The July gain in the ex auto component reflected strength in a number of components, including sales at furniture and electronic stores (+1.8%), building and outdoor home supplies stores (+1.2%) and pharmacies (+1%). The main offset occurred in a 0.4% decline in sales at clothing stores.
• The fact that the volume of retail sales was unchanged is somewhat disappointing, but is an improvement from the 0.3% decline recorded in June. With the earlier-reported 2% surge in real manufacturing shipments for July following a 0.4% rise in June, this recent retail sales result augurs well for overall GDP growth to strengthen in July.

Housing starts...
Housing starts hold steady,
Latest month available: September

• Housing starts held steady at a 217,600 annualized pace in September, little changed from August's 217,400 unit pace. Economists had been expecting a pullback from August’s surge and were looking for a moderation to 203,000 units.
• Multi-unit starts rose more than expected and increased at a 5.5% pace to an annualized 122,500 units, building on the 25.2% rise recorded in August. Urban single-starts gave up ground in September and fell 8.1% to an annualized 70,000 units. All provinces but Ontario saw starts hold steady or increase. Ontario starts slipped by 6.6%, a partial reversal of August's surge.
• Starts averaged 207,200 in the third quarter, a healthy pace but still about 6% slower than the second-quarter average rate and 14.9% slower than in the third quarter of 2007. The data support our view that activity in Canada's housing market is slowing, although the level of activity remains strong by historical standards.
  

Merchandise trade...
Merchandise trade surplus rises
Latest month available: August

• The merchandise trade surplus rose to C$5.8 billion in August. Imports dropped 5.8% compared to a 1.6% decline in exports. The decrease in imports was led by a 24.9% drop in the energy component and a 14.2% fall in the the automotive component due to weakening sales.
• The decline in exports was also mainly due to weakness in the energy component, which fell 9.7% and reflected the combination of declining volumes (-3.2%) and prices (-6.6%). The automotive component, although by a relatively modest 2.6%. Increases were recorded in other consumer goods (up 4.9%), industrial goods (up 2.8%) and machinery and equipment (up 1.7%).
• On a constant dollar basis, imports dropped 9.3% reflecting the weakness in the energy component. Exports were down as well, but by a more modest 0.8%. As a result, the net export deficit on a volumes basis in August improved to $4.1 billion from a sizeable $7.8 billion in July.
• The average net export deficit so far in the third quarter remains considerably higher than the average deficit in the second. This implies that net exports remained a significant drag on growth in the third quarter because of the impact of a high Canadian dollar and weakening U.S. growth. These factors are expected to continue to weigh on growth given expected declining U.S. growth.
• However, we are assuming that the domestic economy will continue to benefit from historically high commodity prices boosting income, which is expected to be sufficiently strong to keep overall GDP growth in the positive column.
  

back to top 

Consumer price index...
Inflation rises at fastest pace since 2003
Latest month available: August

• The headline inflation rate, at 3.5%, was the highest in August since March 2003 and stood above the Bank of Canada's 3% target for the third month running. The core measure held below the mid-point of the Bank of Canada's target band, but it rose more than expected in the 12 months to August and is up from March's low of 1.3%. We expect the CPIX measure will continue to snake its way higher in the months ahead as the impact of the sharp price declines for items like motor vehicles continues to wane.
• The biggest contributor to August’s 3.5% rise was gasoline prices, which stood 26.3% higher than in August 2007, slower than July's rate but still formidable. Prices of other fuels also firmed, with the energy complex posting a 20.2% increase in the 12 months to August. Mortgage interest costs also contributed to the rise and were up 8.1%. This component continues to show smaller year-over-year increases in line with the slowing pace of house price gains. Food prices were up 4.5%.
• Mitigating some of the impact of the price increases were lower prices for the purchase and lease of passenger vehicles (-7.3%) with computer equipment prices posting an 11.6% decline and women's clothing prices off 3.4%.

back to top 

Economy at a glance

% change from
		Lastest month	Previous month	Year ago		3-month trend
Real GDP		July	0.7	1.2		Down
Industrial production		July	2.2	-2.1		Down
Employment		Sept.	0.6	1.6		Down
Unemployment rate (%)*		Sept.	6.1	6.1		Flat
Manufacturing
Production		July	1.3	-2.9		Up
Employment		Sept.	1.0	2.1		Up
Shipments		July	2.7	6.0		Up
New orders		July	0.0	1.3		Up
Inventories		July	0.2	1.7		Up
Retail sales		July	0.1	4.9		Up
Car sales		Apr.	-1.0	-0.4		Down
Housing starts (000s)*		Sept.	217.6	277.3		Down
Exports		Aug.	-1.6	12.5		Up
Imports		Aug.	-5.8	8.5		Up
Trade balance ($billlions)*		Aug.	5.8	3.9		Up
Consumer prices		Aug.	-0.2	3.5		Up
* Levels are shown for the latest period and the same period a year earlier.

back to top