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Economic Outlook

In the U.S. last week, retail sales data was generally inline with expectations, however are pointing towards a weaker second quarter for consumer spending. While consumer spending is increasing, it is doing so at a slower pace. Retail sales climbed 1% q/q leading up to June, while discretionary spending saw a 0.4% decline month over month, which was its second straight month of retreat, however at a more modest pace then in May. In addition to retail sales data, Scotia economics notes that, consumer prices fell 0.1% month over month in June mainly due to lower gasoline prices. On a yearly basis, headline CPI is up 1.1% but has declined in each of the last three months,compared to core CPI which has held a steady reading at 0.9% over the same amount of time. 

Canada’s trade activity was the focus last week, as the trade figures for May revealed the largest jump in exports since August of last year. Externally bound shipments increased by 5.2%, while Canadian imports also rose 5.7%. As a result, the trade deficit expanded approximately $500 million. Export growth was mainly due to auto shipments, while an increase in consumer goods, machinery & equipment, and industrial goods made up the majority of import growth. In contrast to the U.S., Canadian consumer demand continues to boost imports, as Canada continues to have healthy employment gains, a pick up in business investment, a continued strength in manufacturing shipments, a strong Canadian dollar, as well as rising corporate profits, which evidently has caused earlier then usual consumer activity during this recovery period, as well as an expansion in imports at an earlier stage. In addition to the trade data, the BoC Business Outlook Survey was also released last week with positive results. On the sales side, the attitude from the respondents was that sales would continue to improve over the next 12 months. They also concluded that approximately 50% of the firms are planning to increase employment over the next year, while 41% plan on no staffing changes, and the remainder plan on decreasing employment. These figures are slightly higher then the last quarter. 

This week in the U.S; housing starts & building permits will be released on Tuesday, while FHFA House Price Index, existing home sales and leading indicators will all be released on Thursday. In Canada, International Securities Transactions will come out on Monday, the BoC Policy announcement will come out on Tuesday, and wholesale trade will be released on Wednesday. Retail sales, and the BoC Monetary Policy Report will come out on Thursday, and CPI will be released on Friday.

Amy Billinghurst – Associate, Portfolio Advisory Group – Fixed Income