U.S. and Canadian Growth and PPI Inflation

February 27, 2009

U.S. fourth-quarter growth was revised to negative 6.2% at an annualized rate from minus 3.8% saar reported last month.  This revision brings the United States into closer alignment with growth last quarter in major economies of Western Europe, where Euroland posted a drop of 5.7% and British GDP fell by 6.0%.  Inventories accounted for almost half of the U.S. revision, and personal consumption and nonresidential investment were each responsible for 22% of the figure’s adjustment.  Non-residential investment was also revised to show a bigger decline.

Canadian GDP will be released on Monday at 13:30 GMT.  A projection of -2.4% at a seasonally adjusted annual rate (saar) made last month by the Bank of Canada looks way too optimistic.  The consensus of analyst looks for a drop of around 3.5%, but a decline of more than 4.0% seems highly probable in light of today’s release current account figures.  The third-quarter surplus was revised downward by 36% to C$ 3.63 billion, and the fourth-quarter deficit of C$ 7.49 billion exceeded 2% of GDP and was roughly 50% greater than assumed.  Such was the first deficit since 2Q99 and was caused by a C$ 10.6 billion plunge in Canada’s merchandise trade surplus to C$ 3.73 billion, its smallest size in 59 quarters.  The Bank of Canada assumes negative growth of around 5% in the present quarter.

Canadian producer prices edged 0.1% lower in January and recorded a 12-month advance of 1.2%.  U.S. producer prices, reported earlier this month, had posted a bigger monthly gain of 0.8% but a much smaller 12-month change of minus 1.0%.  Canada’s higher on-year rate of PPI inflation is explained by weakness in the Canadian dollar, which boosted Canada’s pace of PPI inflation by 6.1 percentage points.  Plunging commodity prices weighed on the Canadian dollar last year.  The Canadian raw materials price index fell by 31.6% in the year to January and even by 12.5% excluding mineral fuels.

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

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