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Economic Outlook

In the U.S last week, the housing market proved to disappoint already weak expectations. Scotia Economics notes that single family homes retreated only 0.7% month over month from a rate of 457,000 in May to 454,000 in June. Housing starts are now back to the lowest level since last October. However, it was multiple-family units that fell 21.5% month over month, bringing down the headline number. Aside from housing starts, building permits actually rose 2.1% month over month, which was the first increase since March. Jobless numbers were also released last week, with initial jobless claims higher then expected while continuing claims were lower at 4,487,000.

Last week in Canada,the Bank of Canada raised its overnight rate by 25 basis points to 0.75%. Scotia Economics notes that Canada is the first G7 nation to begin a policy tightening cycle, which is reminiscent of the relatively stronger pace of domestic demand. However, the BoC changed its forecast for Canadian GDP growth for this year and next to 3.5% and 2.9% respectively. There is expected to be weaker global growth and more modest consumer spending. In addition to the BoC announcement last week, retail sales data has started to dip after posting some strong gains earlier in the year. Retail sales slipped in May for the second straight month, down 0.2% month over month. Since then, Canadian consumers have started to ebb their expenditures somewhat, as the Bank of Canada has gradually raised rates, housing markets have started to cool down, and in addition there has been increased volatility in financial markets, which have all contributed to the slow down in consumer expenditure growth. Overall retail sales growth is expected to continue, however at a more modest pace. Canada still expects a healthy outlook for retailers as consumer confidence is still up roughly 15% year over year. 

This week in the U.S. New Home Sales will be released on Monday, S&P/Case Shiller Home Price Index, consumer confidence, and the Richmond Fed Index will be released on Tuesday. Durable Goods Orders will come out on Wednesday, while Employment Cost Index, GDP, Chicago PMI, as well as consumer sentiment will all be released on Friday. There will be little data released in Canada this week with IPPI & Raw Materials Price Index coming out on Thursday, while Real GDP will be released on Friday.

Amy Billinghurst – Associate, Portfolio Advisory Group – Fixed Income