Economic Indicators Review

– In January, retail sales rose 1%, a hair above consensus expectations for 0.9% growth. However, the prior month’s figure was revised down two ticks to -2.3%. Sales increased in 7 of the 11 subsectors. Auto sales advanced 2.8%, making up part of the previous month’s pullback. Excluding autos, sales were up 0.5%, reversing
about half of the prior month’s drop and exceeding consensus expectations by two ticks. Ex-auto sales were supported by clothing, sporting goods, general merchandise and electronics, which more than offset declines in sales of gasoline, health products, building materials, and food/beverages. In real terms, overall retail sales were flat and not significantly different from 15 months earlier. One reason for this sluggishness is that spending that usually accompanies home buying (e.g., furniture, electronics and building material) has been trending down since December 2011, in line with the slant in resale housing transactions and the sharp deceleration in consumer credit growth.

In February, the Teranet–National Bank National Composite House Price Index™ climbed 2.7% year on year, the same rate as the prior month and its smallest increase since November 2009. Six of the 11 metropolitan areas covered nevertheless surpassed the national average. Month on month, however, the index sank 0.2%. The string of monthly declines (six in a row now) is not surprising given that sales have fallen in 9 of the past 10 months on a seasonally adjusted basis, for a cumulative drop of 13% since last April’s peak.

In January, manufacturing sales sagged 0.2% after slumping 3.3% in December. Sales were down in 7 of the 21 industries, representing 52% of the manufacturing sector. However, new orders sprang 5.1%, driven by aerospace products (+44.5%) and machinery (+19.2%). Unfilled orders jumped 5.8% spurred mainly by aerospace products (+10.0%). Inventories grew 1.7%, fed by aerospace products and primary metals. The inventory-tosales ratio crawled up 0.02 to 1.36, its highest level since June 2011. In real terms, manufacturing sales slipped 0.4% after sliding 3.9% the month before.

Finance Minister Jim Flaherty presented the federal budget. A deficit of $18.7 billion is projected for 2013-14 and of $6.6 billion in 2014-15. A surplus of $0.8 billion is forecast for 2015-16. In our view, cutting the deficit by $12.1 billion from 2013-14 to 2014-15 is an ambitious objective attainable only if nominal growth matches projections and debt financing costs remain low. The budget plan assumes real GDP growth of 1.8% in 2012, 1.6% in 2013, and 2.5% on average from 2014 to 2016. In nominal terms, growth is predicted to be 3.1% in 2012, 3.3% in 2013, and 4.7% in each of the next two years.

United States – In March, the Philadelphia Fed Index of Manufacturing Activity bounced back sharply to +2 from -12.5 in February. This was its first time this year in positive territory. The new-orders sub-index was back in expansion mode with a +0.5 reading.

In February, existing-home sales rose 0.8% to 4.98 million units from an upwardly revised 4.94 million the prior month. The increase was due entirely to higher multifamily sales (+8.8%), which outweighed a 0.2% decrease in the single-family segment. The months supply of homes at the current sales rate edged up to 4.7. Still in February, housing starts progressed 0.8% to a rate of 917,000 units. Single-family starts were running at their fastest pace since June 2008 and even the multi-family segment turned around (+1.4%) after tumbling in January. Building permits (946K) shot up to their highest level since May 2008.

Again in March, the Markit Flash U.S. Manufacturing PMI gained six ticks to 54.9 from 54.3 in February. The output sub-index dropped five ticks to 56.8 while the new-orders sub-index rose five to 56.4 fuelled in part by new export orders, which returned into expansion territory (up from 48.5 to 51.2). The employment sub-index sprang more than a full point from 53.5 to 54.6.

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