Economic Indicators Review: April 29, 2013

Canada - February's retail sales topped consensus expectations by rising 0.8%, though the prior month’s growth was revised down from 1% to 0.9%. Sales were up in 7 of the 11 subsectors. Auto sales jumped another 1% on the heels of a strong showing the month before. Sales excluding autos were healthy as well, overshooting expectations with a 0.7% advance, although January’s performance was revised down to +0.4%. Exauto sales were supported by higher trade in gasoline (+1.9%), general merchandise (+2.8%), electronics (+1.3%), sporting goods (+0.5%), food/beverages (+0.1%) and building materials (+0.1%). These gains more than offset declines in clothing and furniture sales. In real terms, overall sales were flat after an upwardly revised 1.1% increase the previous month (initially reported as flat). The upwardly revised January volumes change the picture for 2013Q1 consumption spending completely.

Based on two months of data, retail volume growth is tracking at +1.1% annualized, up from the lowly pace of 0.8% recorded in 2012Q4. It would seem, then, that consumption spending held firm in Q1. If so, GDP growth for the quarter likely accelerated to about 2% annualized. Still in February, average weekly earnings for non-farm payroll employees increased 3.1% y/y to $909.

United States - According to the BEA's advance estimate, GDP growth for 2013Q1 came in at 2.5% annualized, short of the 3% called for by consensus. Nonetheless, results confirmed a rebound in economic activity after 2012Q4’s weak showing left unrevised at just 0.4%. Positive contributions from consumption spending, business investment, and housing helped support domestic demand in Q1. This more than offset the drag from government spending. The resilience of consumption and domestic demand was good to see, particularly in light of the tax hikes that kicked in at the start of the year.

In net terms, however, trade detracted from growth. This limited final sales to a mere 1.5% increase, their poorest showing since 2011Q4. As expected, there was inventory accumulation in the quarter, which added 1% to overall expansion. This swell in inventories, though, will be a negative for production in the coming quarters. Hence, whereas the U.S. economy did pick up in 2013Q1, there are concerns whether this momentum can be maintained. In Q2, aside from government spending cuts deriving from the sequester, the economy will face other challenges. The private sector already seems to be cutting back on inventories, as hinted at in the April Philly Fed indices, and it may also curb production and investment spending in response to a drop in unfilled orders. We continue to expect GDP growth to slow to about 1% annualized in Q2.

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