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Construction activity strong despite weak home sales Home sales fell further below the pre-pandemic norm in July and pre-construction sales seem to have fallen through the floor, but there is no evidence yet that this is weighing on construction. It was …
17th August 2022
Underlying inflationary pressures still very strong The fall in headline inflation to 7.6% in July left it lower than the Bank of Canada’s recent forecast but, amid continued broad upward pressure on core prices, we still judge that the Bank is more …
16th August 2022
Little relief in sight for manufacturers Manufacturing sales volumes only inched up in June and, with the manufacturing surveys on both sides of the border weakening in recent months, the outlook is growing even more challenging. The 0.8% m/m fall in …
15th August 2022
Yield curve inversions have a patchy record of predicting recessions in Canada, but they almost always precede a sharp economic slowdown and the unusually deep nature of the current inversion makes it especially hard to be optimistic this time. Yield …
12th August 2022
The Canadian dollar has held up relatively well against the US dollar so far in 2022, but we think the factors underpinning the loonie’s resilience will fade and push it lower against the greenback over the next couple of years. The loonie has been the …
11th August 2022
The sharp increase in retirements this year presents downside risks to our forecasts for employment and, with GDP growth already faltering, further raises the probability that economic activity will contract. The fall in employment over June and July is …
9th August 2022
The further falls in home sales and employment in July add to the evidence that the economy is losing momentum. With no sign of a material easing of inflationary pressures, however, it is too soon to expect the Bank of Canada to pivot. Home sales down by …
5th August 2022
The Great Retirement? The second consecutive monthly fall in employment will raise a few eyebrows at the Bank of Canada but, as retirements were partly to blame, the unemployment rate remained at a record low and wage growth is strong, we doubt it will …
There is scope for inventory building to boost GDP growth in the near term but, as the US experience has recently demonstrated, this could raise the risk of GDP falling in the following quarters. Inventories are still unusually lean and would need to rise …
4th August 2022
Trade surplus likely to narrow soon Export volumes outpaced import volumes in June but, with the survey-based export indices falling back, the outlook is growing more challenging. Together with the declines in commodity prices since June, it seems likely …
The slump in the CFIB Business Barometer in July – to a post-pandemic low – shows that the jump in borrowing costs is hitting more than just the housing market. With the survey still pointing to elevated price and wage expectations, however, the mounting …
29th July 2022
Economy losing momentum Although activity was stronger than initially estimated in May, the economy still failed to grow and the preliminary estimate suggests that GDP only crept up in June. Together with the weakening of the consumer and business surveys …
Governor Tiff Macklem has voiced concern about the inflationary impact of the loonie, but we doubt that a modest fall would prevent the Bank of Canada from pausing its tightening before the Federal Reserve. At US$0.78, the loonie is far lower than the …
28th July 2022
The extent of the downturn in the housing market and broader residential investment will determine whether the economy enters a recession in the next 12 months (see our Canada Economics Outlook ), and in that respect there has been some good news in the …
26th July 2022
CPI inflation has finally peaked but this will not be enough to prevent further large interest rate hikes from the Bank of Canada, especially as there is little evidence yet that the weakening housing market is weighing on construction. Some positive …
22nd July 2022
Slump in confidence points to sales weakness ahead Retail sales rose by a bit more than we anticipated in May, but the preliminary estimate implies that most of the gain in sales volumes was reversed in June and the slump in consumer confidence suggests …
Overview – The Bank’s aggressive policy tightening will weigh heavily on domestic demand, with consumption growth set to slow sharply while residential investment plunges back to pre-pandemic levels. There is scope for the economy to avoid recession if …
20th July 2022
Some encouraging signs despite further rise Despite the further rise in inflation to a multi-decade high, the June data showed some encouraging signs, with the monthly price gains slowing across almost every category. Inflation will begin to fall in the …
Housing woes not yet weighing on construction The further decline in home sales in June and the record monthly fall in house prices did little to affect construction activity, with housing starts once again outperforming expectations last month. As there …
19th July 2022
The Bank of Canada justified its 100 bp interest rate hike on the basis that front-loading hikes has historically raised the chance of a “soft landing”. With the pace of house price declines already gathering pace ahead of that move, however, we are not …
15th July 2022
Manufacturing continues to struggle Manufacturing sales volumes plunged in May amid renewed semiconductor shortages, but there is scope for a more sustained rebound over the second half of this year, despite the worsening global backdrop. The 2.0% m/m …
14th July 2022
The Bank of Canada’s 100 bp hike today and its accompanying communications have led us to upgrade our forecast for the policy rate to 3.5% by the October policy meeting, from 3.0%. As the commodity price and global supply chain assumptions underpinning …
13th July 2022
The falls in commodity prices this week point to some relief ahead for CPI inflation, but the Bank of Canada will be more focused on the rises in long-run inflation expectations and wage growth in the latest data, prompting a larger 75 bp interest rate …
8th July 2022
Surprise fall in employment a seasonal distortion The surprise fall in employment in June appears to reflect seasonal effects and, with wage growth surging to 5.2% y/y, the Bank of Canada will follow through next week on its hint of a larger 75 bp rate …
Healthy trade surplus to be maintained over second half of 2022 The recent falls in commodity prices mean that, after soaring in May and probably improving again in June, the trade surplus will decline in the coming months. Nonetheless, as we expect …
7th July 2022
Jump in inflation expectations points to larger 75 bp hike Bank to reiterate need for policy rate to move to a restrictive setting We expect rate to peak at 3.0% in October and now anticipate rate cuts in 2023 The recent acceleration in wage growth and …
6th July 2022
Rise in long-run inflation expectations bolsters case for larger 75 bp hike The increase in long-run inflation expectations in the Bank of Canada’s latest business and consumer surveys further raises the probability of the Bank enacting a larger 75 bp …
4th July 2022
While the apparent contraction in GDP in May appears to have been partly due to temporary factors, it also reflects the impact of the surge in interest rates on housing. With the business surveys for June also showing a loss of broader momentum, the …
30th June 2022
Shock contraction in GDP in May partly due to temporary factors The preliminary estimate suggests that the healthy 0.3% m/m rise in GDP in April was followed by a shock 0.2% contraction in May but, as this appears to have been partly due to temporary …
The tight labour market is putting upward pressure on wages, with the Labour Force Survey showing a strong 1.0% m/m rise in average hourly earnings in May. While the annual rate of wage growth, at 3.9% y/y, remained lower than before the pandemic, base …
29th June 2022
The May CPI data showed that inflationary pressures remain acute across the economy, which reinforces our view that despite growing concerns about the housing market, the Bank of Canada will become a member of the “75bp club” in July. Inflation now the …
24th June 2022
Peak in inflation yet to come The jump in CPI inflation to 7.7% in May all but guarantees that the Bank of Canada will raise interest rates by a larger 75 bp next month, particularly with inflation on track to accelerate to over 8% in June. The rise in …
22nd June 2022
Strong April, but tougher times ahead The strong rise in retail sales volumes in April reinforces our view that overall consumption growth will accelerate sharply this quarter but, with consumer confidence plunging in June and the housing market rapidly …
21st June 2022
The new CPI weights outlined this week mean that inflation will peak at more than 8% in June, which is higher than we previously expected. That further raises the chance of the Bank of Canada following the Federal Reserve with a 75 bp interest rate …
17th June 2022
The Bank of Canada’s hawkishness, a widening of mortgage spreads, and news that at least one lender is restricting new loan applications suggest the outlook for house prices is worse than we previously feared. Lenders tripped over themselves to provide …
16th June 2022
Revisions leave manufacturing sector looking better than expected The 0.9% m/m rise in April, combined with a large upward revision to March, means that manufacturing sales volumes have finally risen above their pre-pandemic peak. While the recovery in …
14th June 2022
Governor Tiff Macklem’s hawkish comments this week, even as he presented a report warning of the risks of aggressive policy tightening, leave little doubt that the Bank of Canada is singularly focused on making up for keeping policy too loose for too …
10th June 2022
Rapidly accelerating wage growth makes 75bp hike more likely The 39,800 rise in employment in May drove down the unemployment rate to a multi-decade low and there are now clear signs of the tight labour market pushing up wages. That raises the chance of …
The Bank of Canada’s recent communications suggest that it will be unfazed by the second consecutive double-digit drop in home sales in May. This raises the chance of the Bank enacting a larger interest rate hike at its meeting in July and leaves us …
7th June 2022
Goods trade surplus to widen before long Elevated commodity prices were still doing little to lift the goods trade surplus at the start of the second quarter, but we expect it to widen in the coming months as goods imports from Asia drop back and energy …
Following its second 50 bp policy rate hike, the Bank of Canada hinted that it will consider an even larger move next month. With CPI inflation heading to 7.5% this month due to the surge in gasoline prices, there is a clear chance of a larger move, …
3rd June 2022
The Bank of Canada hiked its policy rate by another 50bp, to 1.5%, today and, after warning that "the risk of elevated inflation becoming entrenched has risen", closed the accompanying statement with an ominous hint that a 75bp hike was now on the table …
1st June 2022
Q1 growth weaker, but strong momentum going into Q2 First-quarter GDP growth slowed to 3.1% annualised, from 6.6%, as the Omicron-related restrictions had more of an impact than previously thought. But the 0.7% m/m increase in monthly GDP in March …
31st May 2022
With core inflation rising well above the ceiling of the 1% to 3% target range and first-quarter GDP growth likely to have been as strong as 5.0% annualised, there is little to stop the Bank of Canada from hiking its policy rate by another 50bp this week, …
27th May 2022
With core CPI inflation still rising, the Bank of Canada has no choice but to continue hiking its policy rate “forcefully’ back toward neutral. All three of the core measures tracked by the Bank are now above the 3% ceiling of the target range. (See Chart …
26th May 2022
Sales hit by supply-related slump in autos Retail sales values were unchanged month-to-month in March, as a further supply-related slump in motor vehicle sales offset a largely price-related surge in gasoline station sales and solid increases in other …
Further upside surprise in core inflation points to another 50bp hike Housing slump begins, but won’t stop march back to neutral We expect slower pace of tightening in H2, with policy rate peaking at 2.5% We expect the Bank of Canada to hike its policy …
25th May 2022
The Bank of Canada will have eyed this week’s data releases and market moves with some trepidation. The further acceleration in core CPI inflation in April means the Bank is all but guaranteed to push ahead with another 50bp interest rate hike at its …
20th May 2022
Inflation edges even higher as food prices surge CPI inflation edged up to a new cyclical high of 6.8% in April, from 6.7%, and, together with the more marked increases in core inflation, that almost guarantees the Bank of Canada will hike its policy rate …
18th May 2022
The 10% fall in house prices that we expect over the next 12 months will also help to pull down CPI inflation, via its impact on shelter costs. Admittedly, shelter inflation is unlikely to decline meaningfully until 2023, because of soaring mortgage …
16th May 2022
