Economic Indicators Review

In August, the consumer price index rose 0.2%. In seasonally adjusted terms, it was up 0.4%, with six of the eight broad categories seeing increases. Higher prices for shelter (+0.2%), food (+0.4%), transportation (the +1.3% print boosted by gasoline), health/personal care (+0.5%), recreation/education (+0.3%), and
alcohol/beverages (+0.2%) more than offset cheaper clothing/footwear (-0.4%) and household operations (-0.2%). The year-on-year inflation rate slipped a notch to 1.2%, just shy of the 1.3% expected by consensus. The Bank of Canada’s core CPI sprang 0.3% in both seasonally and non-seasonally adjusted terms. That caused the year-on-year core inflation rate to drop a tick to 1.6%, just one above the consensus estimate. On a three-month annualized basis (s.a.), which is perhaps a better indicator of recent trends, headline CPI was up just 0.7%; however excluding food and energy, consumers’ prices were down 0.7% on the 3-month annualized basis (s.a.). In July, Canadian wholesale trade fell 0.6% against consensus expectations for a 0.2% decrease. The prior month was revised down from -0.1% to -0.3%. Five of the seven subsectors registered declines, led by machinery and equipment (-0.9%) and motor vehicles and parts (-0.8%). These more than offset a 1% increase in the volatile "farm product" category. In real terms, wholesale trade retreated 0.3%.

Less Than Bullish
These two key statistics provide some indication of how Q3 is shaping up and the overall message is not a bullish one for the Canadian economy. The weak wholesale volumes coupled with the July slump in real factory sales reported last week suggest a rather slow start to Q3 (GDP might have contracted for the first time in five months in July). This, combined with inflation currently running below the Bank of Canada's Q3 estimate, suggests that the BoC’s rate target is unlikely to be adjusted upward this year despite the bank's tightening bias.

United States
In August, new housing construction rebounded 2.3% after falling 2.8% in July. Construction of single-family houses rose 5.5% to a 535,000-unit pace, its fastest since April 2010. Single-family starts have progressed in five of the past six months. However, multifamily starts slumped 4.9% to a 215,000-unit pace in the month. Still, confidence among U.S. homebuilders climbed three points to 40 in September. The National Association of Home Builders confidence index is now at its highest level since June 2006. Building permits pulled back 1.0% to an 803,000-unit pace, though the decline was smaller than the 1.9% drop expected. Existing-home sales were surprisingly strong, rolling ahead 7.8% in August. Sales advanced in all four regions. The Northeast posted the biggest gain (+8.6%) and the South, the smallest (+7.3%).

In September, manufacturing in the New York region weakened on the back of a sharp drop in orders. The Federal Reserve Bank of New York’s manufacturing index slid to -10.41 from -5.85 in August. The new-orders component sank to -14.03 from -5.5 the month before. In the Philadelphia area, the news was somewhat better as the manufacturing index improved to minus -1.9 from -7.1 in August. Still, according to the index, manufacturing activity has shrunk for five months in a row.

Euro zone
According to Eurostat, seasonally adjusted production in the construction sector receded 0.3% in the euro area in July. In June, production had decreased 0.6%.

According to a Markit survey conducted between September 12 and 19, eurozone business activity contracted yet again. The Purchasing Managers’ Index sagged to 45.9 from 46.3. The service index, currently at 46, has been below 50 since February 2012. The manufacturing index, for its part, has held below the 50 mark since August 2011.

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