A fortnight ago GDP Q2 numbers emerged and were troubling, while the first quarter GDP was up 4%, second quarter is looking flat overall (April was up a bit and May was down). Now more data is emerging (its not only the German's that are seeing slowdown after all) which shows that manufacturing for June 2011 was down 1.5% (which is rather a lot -- BTW should't "a lot" be one word...) looking at the trend below it is worrying.
(Source: StatsCan)
No wonder the market is pricing a solid 25bps fall in CAD interest rates.
At the same time sale of durable goods was down 1.9% -- granted much of that drop is due to the oil sector (Don't ask its complicated... but its true) because not only did volume collapse in June (so did prices). On the bright side inventories are flat -- so it would appear that Canadian companies have been good at tracking the drop in sales without the build up in inventory (although with interest rates as low as they are its hardly expensive in terms of working capital -- nevertheless). However, inventories are flat in dollar terms, they are rising in terms of sales...
(Source: StatsCan-- both graph)
Surprisingly enough manufacturing backlog is rising again, my guess is that this measure is a poor indicator as some sectors have great buildup and others do not. Dispersion in order backlog is probably large (Don't have access to that data), but it seems that Aerospace is the big winner here.
Overall this is presenting a troubling picture of the Canadian economy. Aerospace in Canada is less affected than most by the strength of the CAD, but it appears that other manufacturing companies are finding the going difficult. This has to be a warning shot across the bow of the Bank of Canada (with regards to interest rate policy). The primary reason the BoC didn't raise interest in the spring appears to be currency related. The spring's strong CAD showing acted as a break on Canada's economy -- which is apparent today (3 months later). Now Carney and friends have to decide what is the proper stance they should take. The CAD remains above parity against the USD; inflation pressures seem to be abating -- Core CPI is down to 1.3% and CPI is "down" to 3.1% (from 3.3% earlier this year).
My guess (and I've often been wrong) the BoC will stay put on interest rate on September 6th, for although Canada's economy is slowing, recession doesn't appear to be on the cards (yet). An open economy is always at the mercy of its clients -- America and Europe are definitively slowing (Germany GDP growth has stalled), China may be slowing (we will never know since the economic data is massaged to match policy).
At the same time, Canada's federal government has expressed a desire to implement serious budget cuts so that the budget deficit disappear prior to 2015 (a worthy goal in my opinion), that too will color the BoC's interest rate decisions.
(Source: StatsCan)
No wonder the market is pricing a solid 25bps fall in CAD interest rates.
At the same time sale of durable goods was down 1.9% -- granted much of that drop is due to the oil sector (Don't ask its complicated... but its true) because not only did volume collapse in June (so did prices). On the bright side inventories are flat -- so it would appear that Canadian companies have been good at tracking the drop in sales without the build up in inventory (although with interest rates as low as they are its hardly expensive in terms of working capital -- nevertheless). However, inventories are flat in dollar terms, they are rising in terms of sales...
(Source: StatsCan-- both graph)
Surprisingly enough manufacturing backlog is rising again, my guess is that this measure is a poor indicator as some sectors have great buildup and others do not. Dispersion in order backlog is probably large (Don't have access to that data), but it seems that Aerospace is the big winner here.
Overall this is presenting a troubling picture of the Canadian economy. Aerospace in Canada is less affected than most by the strength of the CAD, but it appears that other manufacturing companies are finding the going difficult. This has to be a warning shot across the bow of the Bank of Canada (with regards to interest rate policy). The primary reason the BoC didn't raise interest in the spring appears to be currency related. The spring's strong CAD showing acted as a break on Canada's economy -- which is apparent today (3 months later). Now Carney and friends have to decide what is the proper stance they should take. The CAD remains above parity against the USD; inflation pressures seem to be abating -- Core CPI is down to 1.3% and CPI is "down" to 3.1% (from 3.3% earlier this year).
My guess (and I've often been wrong) the BoC will stay put on interest rate on September 6th, for although Canada's economy is slowing, recession doesn't appear to be on the cards (yet). An open economy is always at the mercy of its clients -- America and Europe are definitively slowing (Germany GDP growth has stalled), China may be slowing (we will never know since the economic data is massaged to match policy).
At the same time, Canada's federal government has expressed a desire to implement serious budget cuts so that the budget deficit disappear prior to 2015 (a worthy goal in my opinion), that too will color the BoC's interest rate decisions.