Bank of Canada Surveys Suggest Recession Lessening

July 13, 2009

The Bank of Canada released encouraging results from two quarterly surveys today.

Businesses were questioned about recent conditions and prospects.  Their sales and employment outlooks have improved substantially.  Credit conditions are still tight on the whole but less so than before.  Producer input and output inflation is expected to decline further but expected inflation at a two-year horizon is overwhelmingly within the central bank’s 1-3% target boundaries.  Planned investment remains low, and only  a gradual recovery of activity is anticipated from the deep recession of the past year. 

A second survey of loan officers found lending conditions to be still tight on balance but less widespread than before.  Signs of tightness can be found in both price and non-price dimensions of lending.

As a backdrop to these releases, data last week showed

  • A rise of two-tenths in joblessness to 8.6% last month.
  • Another 47.5K decline of full-time workers, which has declined 2.9% over the past twelve months.
  • The highest IVEY-PMI reading since September, which at 58.2 compared to quarterly average readings of 53.4 in 2Q09, 41.5 in 1Q, and 63.2 in 2Q08.
  • Upward revisions to projected budget deficits through 2014.
  • An 8.0% increase in housing starts between May and June, and a 14.8% rise in building permits.
  • Sharply lower exports in May, including monthly drops of 10.6% in energy, 12.4% in automotive products, 8.7% in agricultural goods, 4.6% in industrial goods and machinery, 4.0% in machinery and equipment, and 3.4% in forestry products. Export volumes have fallen 23.7% since July 2008, and May’s C$ 1.42 billion trade gap was 3.65 times larger than April’s.  A first-quarter surplus of C$ 845 million had been the smallest merchandise trade surplus since the final quarter of 1978.

Markets today have taken the central bank surveys with a grain of salt.  The TSE stock index shows little change on the day, under-performing U.S. equities.  Canadian stocks have reversed 31% of the early March to June 11th recovery.  Soft commodities are a mounting concern.

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



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