Canada In the Grip of a Triple Whammy

February 23, 2009

After an unexpected 1.3% annualized rise of real GDP in 3Q08, the Canadian economy fell into a severe recession and likely contracted by more than the Bank of Canada’s assumption of 2.3% in the fourth quarter of 2008.  The central bank also penciled in negative growth rates of 4.8% this quarter and 1.0% in 2Q09.  Canada has been hit by slumping prices for energy and other export commodities, much weaker demand for Canadian exports from the United States and other markets, and a tightening in both the pricing and availability of domestic credit.  Below is a roll call of recent weak data.

  • Jobs fell by 129K last month and 78K per month in November-January.  Normalized to the bigger U.S. labor market, that decline was akin to a 618K drop in U.S. employment.  U.S. jobs fell in the same period at a rate of 591K per month.
  • The unemployment rate rose to 7.2% in January from 6.2% in October and 5.8% a year earlier.
  • The index of Canadian leading economic indicators has posted drops in the last five reported months, falling at a 6.2% annualized pace.
  • Exports plunged 9.7% between November and December, most in 314 months.  Non-energy exports decreased 7.1% in December.
  • Canada’s trade balance was in deficit for the first time since March 1976.
  • Personal bankruptcies are up more than 50% from a year ago.
  • Wholesale sales plummeted 3.4% in December and at a 24.4% annualized rate between September and December.
  • Retail sales fell even more rapidly, 5.4% in December alone and by 30.6% annualized between end-3Q08 and end-4Q08.
  • Housing starts in January were 10.9% lower than in December, 18% less than the 4Q08 average, and 26% below the 3Q08 level.
  • The IVEY-PMI index, comprising both manufacturing and other sectors, had a 36.1 reading in January, down from quarterly averages of 43.6 in 4Q08 and 59.3 in 3Q08 and below the January 2008 score of 56.2.
  • Between October and December, manufacturing sales and orders slumped by 13.7% and 12.9% not annualized, while the inventories-to-sales ratio leaped to 1.50 from 1.33.
  • Canadian investors participated in the risk aversion frenzy, unloading a net C$ 7.1 billion per month of foreign securities during the fourth quarter of last year.

The Toronto TSE-300 share price index has declined 21.6% since November 4th and 42.0% since last July 21st.  The Canadian dollar is 14.2% and 14.7% weaker than its calendar year averages against the U.S. dollar in 2007 and 2008, but the rate of depreciation has flattened out, with drops of 3.2%, 2.1%, and 0.6% from its period averages in 4Q08, last month and so far in February.  Consumer prices in Canada fell at 3.8% seasonally adjusted annual rate over the four months to January.  The latest total CPI index shows an on-year rise of only 1.1%, marginally under the Bank of Canada’s assumed 1.2% gain in the year to 1Q09.  Officials expect this comparison to swing into the red in the spring.  Core inflation of 1.9% from January 2008 has also fallen below the 2.1% forecast of officials for this quarter, and they expect such to flatten out just above 1.0% in the second half of 2009.  Officials target a 2.0% medium-term rate of core CPI inflation and do not expect to see a return to 2% in either core or total inflation until sometime in the first half of 2011. The overnight interest rate was lowered last month to 1.0% from 1.5% and is likely to get lower closer to zero in coming months.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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