The Moment of Truth

(EDC – Peter G. Hall)
Chaotic movements in world economic output gave way to a new phase at mid-year. Suddenly, it seemed that everything got quiet. Far from an antidote to chaos, this is a disquieting quiet, a mid-rebound slowdown that doesn't normally occur. It’s a shock, and many wonder why it has happened.

But shocks have almost become the norm in recent times. Think of the growth cycle that ended in 2008 – it lasted about 16 years, roughly twice the length of a normal growth cycle. Then the economy took its biggest tumble in 60 years. That was followed by an aggressive, six-month rebound that began in the fall of 2009. Agreed, the magnitudes are shocking, but the movements aren't. For the most part, these are normal phases of the business cycle – this one was just super-sized. Read more or watch the video here.

The Perplexing Path of Prices

(Export Development Canada – Peter G. Hall)

It’s easy to get dizzy tracing the recent path of prices. General price movements have oscillated from inflation to disinflation and back again over the past two years. Earlier this year, strong growth rekindled inflation worries in many economies, prompting much discussion about the unwinding of loose monetary conditions, and resulting in tightening actions by various monetary authorities.

Well, it’s time to buckle up again. Price growth is tumbling in the world’s big industrial markets, and the language in key speeches has shifted from inflation back to disinflation – with occasional reference to the dreaded ‘D’ word. Is price softening here to stay, or is this just a short episode?

One or two months of weakness wouldn’t warrant all the worry. But the fact is, meagre monthly price increases have already persisted longer than common definitions of ‘short’. The U.S. consumer price index (CPI) has averaged 1% annualized growth for the past 10 months, while at the same time core inflation has averaged just 0.7%.

Meanwhile, Germany is averaging 1.1% CPI growth, but core prices have been dead flat. France has been extremely weak for six months, and Japan has seen outright declines in CPI in five of the past eight months. Canada is no exception, as both headline and core CPI have been very weak for six months. Among large nations, UK prices are the sole anomaly.

Read more or watch the video here.

Canada Exports to U.S. Grow, Shrink Trade Deficit

(Reuters – Louise Egan and Howaida Sorour)

Canada increased its exports to the United States in August after two months of declines, helping shrink the country's trade deficit more than expected in a welcome sign for third-quarter economic growth.

A 2.7% jump in shipments to the flagging U.S. market, which bought 74% of total Canadian exports, boosted Canada's trade surplus with its neighbor for the first time in eight months, Statistics Canada said on Thursday. Passenger car sales led the rise in exports to the U.S.

The export rebound narrowed the overall trade deficit to C$1.35 billion ($1.35 billion) from a revised C$2.55 billion in July, compared with the market forecast of a C$2.40 billion shortfall. Read more here.

Summary statistics and links to the data files are on the Statistics Canada website here. Export and import price indexes can be found here.

Fewer SMEs Exporting Than in 2000: CIBC

(The Toronto Sun – QMI Agency)

The number of small businesses in the export business is falling, and the low level of internationalization carries a significant cost to the wider economy, including lost jobs, CIBC World Markets said in a report Tuesday.

Only 9% of Canadian small- and medium-sized enterprises are in the export business today, down from 10.7% in 2000, a troubling trend given the importance of emerging markets to the global economic recovery.

CIBC estimates the moderate decline in SME trade activity over the last decade impacted no less than 300,000 jobs in terms of actual job loss and foregone opportunities. Read more here.

Railway Carloadings Up in July

(Statistics Canada)

The volume of cargo carried by Canadian railways rose in July, as both commodity loadings in Canada and traffic received from the United States increased.

Total freight traffic originating in Canada and received from the United States rose to 24.7 million metric tonnes, up 19.6% from July 2009. Compared with July 2009, freight loaded in Canada increased 17.4% to 22.3 million metric tonnes in July. The Canadian railway industry’s core transportation systems, non-intermodal and intermodal, both contributed to the rise in cargo loaded.

Non-intermodal freight loadings, which are typically carried in bulk or loaded in box cars, rose 18.5% to 19.9 million metric tonnes. The commodity groups with the largest increases in tonnage were iron ores and concentrates, potash and iron and steel (primary or semi-finished). In contrast, several commodity groups registered declines. Loadings of lumber led the way, followed by wood pulp and other cereal grains.

Intermodal freight loadings, transported through containers and trailers loaded onto flat cars, increased 8.3% to 2.3 million metric tonnes in July, compared with the same month the previous year.

Rail freight traffic coming from the United States rose to about 2.5 million metric tonnes in July, up 44.3% from July 2009. Non-intermodal freight transported from the United States contributed to the increase.

From a geographic perspective, 55.3% of the freight traffic originating in Canada was in the Western Division of Canada, with the remainder loaded in the Eastern Division. The Eastern and Western Divisions, for statistical purposes, are separated by an imaginary line running from Thunder Bay to Armstrong, Ontario. Freight loaded at Thunder Bay is included in the Western Division while loadings at Armstrong are reported in the Eastern Division. Read more

Canadian Online Shopping Tops $15B a Year

(CBC News – The Canadian Press)

Canadians ordered $15.1 billion in goods and services on the internet last year, up from $12.8 billion in 2007. Statistics Canada attributed the increase to a rise in the number of online shoppers and a higher volume of orders.

The agency said 39% of Canadians aged 16 and over used the internet to place more than 95 million orders in 2009 – up from 32% and 70 million orders in 2007, when the survey was last conducted. [...]

The top 25% of online shoppers spent an average of $4,210 on internet purchases during 2009, accounting for almost half of total orders and more than three-quarters of their value. The most common types of online orders continued to be travel services; entertainment products such as concert tickets; books and magazines; and clothing, jewelry and accessories.

Read more here. Summary statistics and a link to the data file are on the Statistics Canada website here.

Chinese Imports Didn’t Cause Job Woes: Report

(The Vancouver Sun – Paul Vieira, Postmedia News)

Cheap Chinese imports cannot be singled out as a “culprit” for employment woes in Canadian manufacturing in the last decade, says a report to be released today on the importance of trade to Canada's economy.

Research from a Toronto think-tank said data indicate a “very mild” relationship between growth in Chinese imports in a specific sector to job losses during the 2002-2008 period.

A stronger Canadian currency – which rose after a prolonged period of weakness – was likely a bigger factor in determining employment levels in manufacturing, says the report from the Institute for Competitiveness and Prosperity. Read more here.

New Figures Show Patchy Canadian Economic Recovery

(Reuters – David Ljunggren)

In another signal of a patchy economic recovery in Canada, industrial capacity use rose in the second quarter of 2010 – the fourth consecutive increase – but remained well below recent peaks. Statistics Canada said on Tuesday that industries operated at 76.0% of total capacity, up from the revised 74.4% in the first quarter, and slightly higher than the 75.8% expected by market operators.

The economic recession had helped cut capacity utilization to a record low of 68.1% in the second quarter of 2009. That said, the rate is well below its recent high of 83.1% in the first quarter of 2007.

Read more here.Statistics for industrial capacity utilization rates, and a link to the data file, are on the Statistics Canada website here. Labour productivity statistics, and links to the data files can be found here.

Second-Quarter Shock in America

(Peter G. Hall, EDC)

That famous hole in Wyoming where central bankers and other key economy-watchers convened two weekends ago was a fitting metaphor for the post factum sentiment of delegates. Or at least, the American ones. Sentiments were decidedly gloomy, noteworthy for a group that eschews herd hysterics. The mood was fed by the latest US GDP data, released just a day before the conference.

Monthly indicators had long since fed expectations of slower second-quarter growth. Following gains of 5% and 3.7% in the two preceding quarters, the April-June period was projected to be in the 2.5% range. But late-breaking data felled that forecast, and the final number rang in at a thin 1.6%. While surprises like this have occurred in the past, given the current context, this one was a nasty shock.

Who was the culprit? Consumers didn’t help. Weak employment and ongoing deleveraging kept spending growth to 2% for the quarter, but no one was wildly surprised. In contrast, investment data – hard to anticipate at the best of times – were a surprise, but in the other direction. Businesses ramped up spending on equipment by a stunning 25%, and the gain was matched by a stimulus-related one-off increase in residential investment. Numbers like this would normally yield a better bottom line.

Read more and/or watch the video here.

C$ Hits 3-Week High On Rate Expectations

(Reuters)

The Canadian dollar extended gains against its U.S. counterpart on Thursday to its strongest level in three weeks a day after the Bank of Canada raised interest rates for a third straight time and sounded surprisingly hawkish in its outlook.

The central bank nudged its overnight rate target up 25 basis points to 1 percent and, contrary to most economists’ expectations, did not signal a pause at its next scheduled decision in October. It said rates remained “exceptionally stimulative” but kept all options open due to doubts about the U.S. and global recoveries.

“This is follow through on what’s perceived to be the Bank of Canada leaving the door slightly ajar to more hikes,” said Firas Askari, head of foreign exchange trading at BMO Capital Markets. Read more here.

Trade Deficit Widens In July: Statscan

(The Canadian Press)

Canada’s trade deficit with the world widened to $2.7 billion in July from $1.8 billion in June as exports fell and imports grew. Statistics Canada reports merchandise exports dropped 0.7 per cent in July as volumes declined in most sectors, while imports grew two per cent.

The agency says exports declined from $33 billion in June to $32.8 billion in July, the fourth decrease in six months. Overall, export volumes declined 0.6 per cent, falling in all export sectors with the exception of industrial goods and materials. Export prices edged down 0.2 per cent during the month.

Machinery and equipment, other consumer goods and forestry products led the decrease in the value of exports, while a gain in exports of industrial goods and materials moderated the decline.

Imports grew from $34.9 billion in June to $35.5 billion in July, the highest level since November 2008. Read more here.

Bank of Canada Hikes Interest Rates to 1%

(Paul Vieira — Financial Post)

The Bank of Canada raised its benchmark interest rate Wednesday by 25 basis points to 1%, arguing financial conditions remain “exceptionally stimulative” even in the face of a slowing — but still growing — economy.

Following the announcement, market watchers said traders increased the odds of another rate hike in 2010. However, others suggested a long pause could be in store as they focused on the final line in the statement that said any further reduction in monetary policy stimulus would need to be “carefully considered in light of the unusual uncertainty” over the economic outlook.

“This is key … as it appears to indicate the Bank of Canada’s intention to pause the [rate-hiking] process,” said Michael Woolfolk, senior currency strategist at BNY Mellon in New York, adding the pause could extend beyond the “next meeting or two.” Read more: here.

Odds Rising For Rate Hike Wednesday

(The Financial Post)

What a difference a week makes in gauging the state of the Canadian economy. At the start of last week, few market players believed the Bank of Canada would raise its benchmark rate on Wednesday as concern over its largest trading partner, the United States, mounted. The U.S. economy was believed to be on the verge of flirting with a double-dip recession, given the spate of weak economic data traders had grown accustomed to over the summer.

But two key U.S. pieces of August data released last week — the ISM manufacturing index and non-farm payrolls — were better than expected and suggested the North American economic recovery, while sluggish, marches on and is in no real danger of falling into an abyss. This helped trigger a “vicious” sell-off in bonds, in which investors piled in because of fears of a severe economic slowdown.

The result: The probability that Mark Carney, the Bank of Canada governor, will raise interest rates by 25 basis points, to 1%, increased to slightly more than 60% on Friday from less than 50% as of late August.

The good-looking U.S. data “tipped the scale heavily” toward a rate hike, said Douglas Porter, deputy chief economist at BMO Capital Markets. Read more here.

Related: GDP’s Slow Growth Rate Signal Of Weaknesses (Windsor Star)

Export Slowdown Widens Current Account Gap

(Reuters – Louise Egan)

A slowdown in exports to the United States caused Canada’s current account deficit to widen more than expected in the second quarter to C$11.02 billion ($10.5 billion), Statistics Canada said on Monday. The country’s seventh consecutive current account shortfall was larger than the C$10.7 billion deficit analysts had predicted in a Reuters poll and represented deterioration from the revised first-quarter deficit of C$8.46 billion. Statscan revised its first-quarter figure from an initial estimate of a C$7.82 billion deficit.

Read more here. Summary statistics and links to the data files are on the Statistics Canada website here.

Auto Parts Industry to Return to Profitability in 2011: Conference Board of Canada

(Windsor Star – Dave Hall)

Cost-saving measures undertaken over the past 18 months and a gradual recovery in the U.S. economy will allow Canada’s automotive parts industry to return to profitability next year, according to a report released Tuesday by the Conference Board of Canada.

After losing $674 million in 2009, largely due to a worldwide recession and virtual collapse of the domestic auto industry, the board forecasts the parts sector will turn a profit of $378 million in 2011 with gradual increases over the next three years until profits hit $894 million by 2014. The industry is expected to lose another $41 million this year before the recovery takes hold.

According to the report, U.S. vehicle demand is gradually recovering and cost-cutting measures implemented during the recession are improving the bottom line. Read more here.

Related: Canada’s auto parts industry won’t return to profitability until 2011: study.

Canada’s Trade Deficit Unexpectedly Widens

(John Morrissy — Financial Post)

Canada’s trade deficit with the world rose to $1.1-billion in June from $695-million in May as the country’s exports dropped 2.5% in the month, Statistics Canada reported Wednesday.

Economists polled by Bloomberg had called for the trade deficit to narrow to $300-million.

Declines in exports of industrial goods and materials accounted for two thirds of the decline in the value of overall exports, followed by energy products and automotive products, the federal agency said.

Imports also declined in June, by 1.2%, as a result of lower imports of energy products.

“Overall, this was a very disappointing report as it suggests that the once buoyant trade sector has lost a significant portion of the positive momentum that has contributed in the past few quarters to the strong performance of the Canadian economy,” Millan Mulraine, senior micro strategist at TD Securities said in a morning commentary. Read more: here.

Related Stories

• US Trade Deficit Unexpectedly Widens to $49.9 Billion in June‎ (Bloomberg)
• China July Trade Surplus Widens On Import Slowdown‎ (Wall Street Journal)
• China Trade Surplus Soars as Domestic Demand Flags‎ (ABC News)

Exporters Between a Rock and a Hard Place

(Troy Media – Todd Hirsch)

As a resource-producing region, Canada has become extraordinarily wealthy on the back of international trade.

Just prior to the Great Recession of 2008-09, Canada sold a record $483.6 billion worth of goods to international buyers. (In 2009, that number had tumbled to $360 billion). According to the Export Development Corporation, Canada’s exports are forecast to rise by 13% this year, and an additional seven per cent in 2011. But even with that growth, total forecasts will remain below the level reached prior to the 2008 downturn.

Why are exports stalling? And what, if anything, can Canadian companies do about it?

The main reason why exports will not be the roaring engine of growth going forward is that our main customer – the United States – is in no mood to shop. Despite having climbed out of recession last year, the recovery south of the boarder is looking very shaky. The housing market is still D.O.A., and the unemployment rate is still hovering around 10%. Adding to that is a huge swath of under-employed Americans – those who are technically working, but in jobs that are lower-paying than their skills would warrant, or working part-time. All together, about 1 in 6 American households are not in a position to be spending much on discretionary items. Read more here.

Vancouver Port Vows to Unplug Bottleneck

(Globe and Mail – David Ebner)

Canada’s busiest port keen to cut ‘dwell time’ of containers as they move from ship to rail

On the Burrard Inlet in Vancouver, tall cranes hoist containers off ships onto the docks of Canada’s busiest port.

And there the containers sit.

North American ports try to get boxes from ships to railcars within three days, but at Port Metro Vancouver, which handles more containers than all other Canadian ports combined, only about half the containers make it out in that time. This year, almost a quarter sat for six days or more.

The port’s problems are typical of the productivity issues confronting Canada. Facing fierce competition from the United States, Port Metro Vancouver is in the early stages of a makeover aimed at radically increasing its efficiency and opening up an important but little-noticed bottleneck in the Canadian economy. Despite sometimes tense labour relations at the port, it’s an initiative that both management and unions say is vital.

“You can’t have a container sitting on the dock for a week if Americans can get it off in a day or two,” said Mark Keserich, president of International Longshore and Warehouse Union Local 500. “We’re in different times. Containers can go through any port. Nobody wants to see the work go to an American terminal.”

Last year, $75-billion worth of goods crawled through the port. Moving those goods more quickly would benefit companies across the country, speeding the delivery of merchandise ranging from electronics to running shoes, and ensuring that money isn’t tied up in unsold goods in transit. Read more here.

‘Everything in Our Industry is Driven By China’

(Evan Duggan — Embassy)

The economic recession means Canadian sectors are increasingly turning to the Middle Kingdom.

Paul Stothart is excited.

Last year, iron ore and coal alone accounted for nearly $1.6 billion in Canadian exports to China. This represented $1 billion more than in 2008, continuing a trend that has become a major boon for Canada’s mining sector.

“Everything in our industry is driven by China,” said Mr. Stothart, vice-president of economic affairs at the Mining Association of Canada, explaining that world mineral prices for copper, nickel, zinc and uranium are largely set by—increasing—Chinese demand for raw minerals.

The Middle Kingdom looms just as large for Andrew Casey, vice-president of foreign affairs and international trade at the Forestry Producers Association of Canada.

“It’s been a brutal couple of years,” he said, adding that the ongoing downturn in the US housing industry has had a dramatic impact on Canada’s forestry industry. He predicts that long-term economic sustainability for the sector will ultimately arrive only from diversification. A comprehensive approach to selling Canadian forest products, he said, includes Asia.

“Success in Asia is almost critical for the industry’s future, and that’s why we’re very encouraged by what we’re seeing,” said Mr. Casey. Read more here.

U.S. Double Dip Recession Would Have Negative Impact on Canada

(Journal of Commerce – John Clinkard, CanaData)

A number of recent developments in the U.S. and globally have raised the spectre that after expanding for three consecutive quarters, the American economy may have a relapse and experience a second period of economic contraction. If the U.S. were to experience a double-dip recession, it would doubtless have a significant, negative impact on Canada, given the strong trade links between the two countries.

Recent indicators of consumer spending in the U.S., including employment and retail sales, have been disappointing, as have mortgage applications for new homes, which have dropped by 40% since the end of April.

From an international perspective, the Baltic Dry Index – which measures the global demand for global shipping capacity versus the supply of dry bulk shipping – exhibited a significant decline late in May, suggesting that the global recovery may be losing steam. Read more here.