Manufacturing decreased 0.7% in July, with 11 of the 21 major groups retreating. Manufacturers of non-durable goods reduced their production by 0.9%, in particular those of pharmaceutical and paper products.

Construction declined 0.5% as residential building construction fell 2.0%. The construction of single dwellings was particularly weak. Non-residential building construction and engineering and repair work were up.

Retail trade fell 0.5% in July, following a 0.7% gain in June. Decreases were recorded in furniture, home furnishings and electronics stores as well as in building and outdoor home supplies stores. Wholesale trade edged down 0.2%. Wholesaling of automotive products, building materials and personal and household goods declined, while wholesaling of food and petroleum products increased.

The mining sector rose 1.1% in July after receding in June. Support activities for mining, oil and gas extraction (+2.7%) were up also.

The finance and insurance sector grew 0.1% in July, a gain attributable to an increase in personal loans, residential mortgages and in mutual funds sales.

For more information, please visit Statistics Canada at:
http://www.statcan.gc.ca/

or  contact the dissemination agent:
toll-free 1-800-887-4623; 613-951-4623; iad-info-dci@statcan.gc.ca.

To enquire about the concepts, methods or data quality of this release, contact Bernard Lefrançois (613-951-3622), Industry Accounts Division.

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The Canadian government was also more disciplined in terms of fiscal stimulus at the bottom of the recession. As a result, the 2010 budget deficit projected by the Economist panel of forecasters is only 4.5 percent of GDP — against 8.9 percent in the United States. Further, Canada has a relatively larger resources sector than the U.S. economy, an advantage when energy and commodity prices are drawn upwards by largely Asian demand.

The Bank of Canada has begun to reverse the stimulative monetary policy it adopted in April 2009, raising its target overnight interest rate twice so far to a current level of 0.75 percent. Even if that’s now held steady, the central bank has more leeway than the Federal Reserve with its near-zero rates. Meanwhile, 10-year Canadian government bonds currently yield 2.77 percent compared with 2.47 percent for U.S. Treasuries, so savers are marginally closer to getting a decent deal. Canada’s savings rate jumped to 5.9 percent in the second quarter, close to the 6.1 percent seen south of the border.

Martin Hutchinson is a Reuters Breakingviews columnist who provides Views on emerging markets and on monetary and macroeconomic issues. He is a former merchant/investment banker with 27 years experience.

Read More:
http://blogs.reuters.com

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Real gross domestic product (GDP) grew by 0.5% in the second quarter, after increasing by 1.4% in the first quarter. Final domestic demand advanced 0.9%, led by business investment in machinery and equipment. Real GDP increased by 0.2% in June.

Consumer expenditures on goods and services, as well as business investment on residential structures, grew at a slower rate than in the first quarter.

Export and import volumes both rose, with growth in imports outpacing growth in exports for a second consecutive quarter.

Expressed at an annualized rate, real GDP grew 2.0% in the second quarter, after expanding by 5.8% in the first quarter. This compared with a 1.6% second quarter rate of increase in the US economy.

The output of the goods-producing industries rose 1.9%, while that of the services industries edged up 0.1%. This marks the third consecutive quarter in which the output of the goods-producing industries has significantly outpaced that of the services industries.

Consumer spending on goods and services advanced 0.7% in the second quarter, slowing from the 1.0% gain recorded in the first quarter. Spending on both durable and semi-durable goods declined.

Expenditures on new and used motor vehicles fell 2.9%. Households spent less on electricity and natural gas for a second consecutive quarter.

Spending on furniture, furnishings, and household equipment and maintenance edged up 0.1%. Consumers had increased their expenditures on this category of goods and services by at least 1.0% in each of the three previous quarters.

Spending on services rose 1.2%, after advancing 0.7% in the first quarter. Growth in spending by Canadians travelling abroad, together with purchased transportation, contributed significantly to the increase in consumer spending on services.

Meanwhile, housing investment grew 0.3% in the second quarter, the slowest quarterly rate of increase since the first quarter of 2009. Renovation activity was down 0.8%, following four consecutive quarters of growth. Expenditure on ownership transfer costs related to housing resale activity declined for a second consecutive quarter, after recording large gains through most of 2009.

Investment in new housing construction (+6.9%) continued to advance, the third consecutive quarterly gain of over 6.0%.

Business investment in plant and equipment expanded 3.5%, the largest quarterly gain since 2005. The advance was due mainly to a 6.7% increase in spending on machinery and equipment. Investment in computers and other office equipment (+19.3%) and in industrial machinery (+12.6%) led the second-quarter gain.

Exports of goods and services grew 1.5%, the fourth consecutive quarterly gain. Increases in exports of automotive products (+12.8%) and exports of machinery and equipment (+6.2%) were the main contributors to growth in goods exports. Exports of services, notably commercial services, also continued to advance.

Imports of goods and services were up 3.9%, also the fourth consecutive quarterly increase. Machinery and equipment (+8.7%) and industrial goods and materials (+4.9%) contributed the most to the increase in imported goods, while travel services (+6.8%) led the growth in imported services.

Businesses accumulated $13 billion in inventories in the second quarter, following an accumulation of $6 billion in the first quarter. This was in contrast to the reduction of inventories recorded in each quarter of 2009.

Manufacturers’ inventories increased for the first time since the fourth quarter of 2008. Inventories in both retail and wholesale trade also rose.

Agricultural inventories fell for a second consecutive quarter as exports of grains and cattle remained strong.

The economy-wide ratio of stock to sales remained unchanged from the previous quarter. Businesses held inventories equivalent to 65 days of sales.

The price of goods and services produced in Canada rose 0.2% in the second quarter. Price increases for coal and iron ore were largely offset by price declines for crude petroleum and motor fuels and lubricants.

Overall, the price of final domestic demand was up 0.1%. The price of government current expenditure on goods and services increased in the second quarter, as did the price of both residential and non-residential structures.

The price of consumer goods and services declined 0.1%. This was the first decline in the price of consumer goods and services since the fourth quarter of 2008. A decrease in the price of motor fuels and lubricants was a major contributor to the second quarter decline.

Canada’s real gross domestic income, a measure of purchasing power, grew 0.5% in the second quarter, the fourth consecutive quarter of growth. This gain mirrors the change in GDP, as Canada’s terms of trade (a measure of export prices relative to import prices) were very similar to those of the previous quarter.

Total funds raised by domestic non-financial sectors reached $273 billion in the second quarter, up from $222 billion in the first quarter.

The increase in financing was concentrated in the government sector. Borrowing by all levels of government increased in the second quarter. This was led by bond issuances by federal and provincial governments.

Funds raised by non-financial private corporations advanced to $64 billion. Borrowing through loans increased by $21 billion, the first increase in loans since the fourth quarter of 2008, while bond issuances declined.

Household borrowing eased from $102 billion in the first quarter to $91 billion in the second quarter, in contrast to the upward trend in borrowing seen in previous quarters. Lower consumer credit and mortgage borrowing accounted for most of the decline in the second quarter.

The non-resident sector continued to be a net lender to the domestic economy in the second quarter. This lending reflects Canada’s quarterly current account deficit, which has continued since the fourth quarter of 2008. Most of these funds were provided to the Canadian economy in the form of purchases of government securities and acquisitions of corporate shares.

Additional data tables are available in the Canadian Economic Accounts Quarterly Review.

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Growth of investment in the energy sector combined with positive sales forecasts, stabilized pricing models and seasonal hiring needs will boost employment as the industry prepares for winter oil and gas production.

On June, TD Economics had already forecast that the province’s real gross domestic product growth will be 3.5 per cent in 2011 after a 2.8 per cent hike in 2010. It forecasts real GDP growth of 3.6 per cent this year and 2.5 per cent in 2011 for the entire Canadian economy.

Another report by Scotiabank said that Alberta will experience a sharp economic rebound during 2010 and it will  lead all of the Canadian provinces in terms of GDP growth at 4.1%.

For 2011, Scotiabank is forecasting that Alberta’s economic growth will be 3.4 per cent while Canada as a whole will average 2.7 per cent.

A strong pickup in investment will fuel growth in the energy and manufacturing sectors,

“Investment has perked up in the oil sands, as easing costs and higher oil prices revived investment intentions in late 2009, with $2.2 billion in outlays scheduled for 2010 alone. Renewed activity in the industry will lead to significant benefits flowing through the economy, with manufacturing and services all heavily tied to conditions in the energy sector. While the bulk of investment will stem from oil sand development and tight oil plays, recent revisions to the province’s royalty framework are a major positive for the natural gas industry.”

The report also showed how the province has also made efforts to diversify its economy with the development of its health sciences industry. Notably, the Alberta Innovates initiative provides funding for a wide variety of domains, including health, energy and the environment.

Alberta’s economy is one of the strongest in Canada, supported by the petroleum industry and, to a lesser extent, agriculture and technology. According to the Fraser Institute, Alberta has very high levels of economic freedom. On its Canadian Provincial Investment Climate Report, Alberta continues to rank top  setting the pace and leading the country in terms of creating and maintaining a positive investment climate. The report also claims that it is “by far the most free economy in Canada, and is rated as the 2nd most free economy of all U.S. states and Canadian provinces.”

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Besides Pamplona, the bulls were out in some force this week on Wall Street, after a lengthy absence. Whether they continue to roam quite so freely will depend in no small part on the upcoming S&P earnings season, which begins Monday.

Market eyes will also be on China. That country, a centre of slowdown fears that have battered commodities, reports Q2 GDP on Thursday, becoming the first major economy to do so.

Investors and companies have had their plates full of market moving developments lately. Eurozone contagion fears dominated the headlines during the spring. More  recently, concerns have shifted to the US economy itself.  Forward-looking data is always more critical in interesting times. Analysts are expecting a year-on-year rise of 23% in earnings for the S&P 500 in the quarter ended. How well firms do against that target will as always be of significance. But even more important, given the fast-changing backdrop, will be the clues provided in the guidance of what to expect down the road.  Announcements from some firms have suggested that meeting last quarter’s targets may not prove so difficult. However, the year-on-year comps will get more challenging from here as the earnings recovery matures. Given that fact, a loss of fiscal support and drag from the higher dollar, investors will be more interested in firms’ views on their ability to validate the 27% and 31% earnings gains pencilled in for Q3 and Q4, based on the Thomson data.

Double-dip recession fears appear to have eased a bit in recent days, contributing to the improved tone. That’s not so surprising. While the housing data has been abysmal, two broader gauges of the US economy’s health are still some way from recessionary territory. The yield curve has only flattened by about a fifth as much as it did before the last two recessions (Chart). The ISM index, while softer, is still 14 points above the level typically associated with a broad economic pullback.

The IMF’s upgrade of its forecast for 2010 global growth also helped to ease gloom on Thursday.  Part of the story there was China. With fiscal retightening set to slow growth in the indebted developed nations to a crawl of 2% or less next year, the global recovery’s prospects will rest even more on the shoulders of emerging market businesses and consumers. China’s GDP report will indicate whether those in one key market are up to the task.

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Economics gets interesting for markets at inflection points, and that’s exactly where the global economy sits as spring turns to summer. But are we seeing a turn for the worse — a period of slower, or slow growth — or a turn for the worst, towards renewed recession?

After their recent pull-back, equities might be able  to muddle through the former, but would have a lot of additional downside if it’s the latter. Two-year Treasuries are back at the lowest levels since the depths of the recession, reflecting the consensus view that whatever fate awaits the US economy, the Fed is a long way away from a tightening. But equities are, of course, still miles from their March 2009 lows, and are counting on earnings gains, not a recessionary dive in profitability.

Trouble is, a turn to a slowdown looks much like a turn towards outright recession in its early stages. That’s particularly the case when the prior period saw very robust growth. China put in 12% growth in the year to Q1 2010. In Canada, we are coming off two quarters averaging 5½% growth. The US wasn’t quite so heated, but averaged better than a 4% pace in the two quarters ending in March.

Our own long-held view is that the global economy will see much slower growth ahead, with a trough at only 1½% growth in both Canada and the US by Q4. If so, we shouldn’t be shocked, shocked, to see purchasing managers indexes for both the US and China move lower, as they did this month, but to levels still consistent with growth.

Today’s anemic US private sector hiring wasn’t the deeply negative figure associated with recession onsets, but was in line with the deceleration to below trend GDP growth we expect in the quarters ahead. Housing data were boosted by tax incentives, so again, a big drop in the month after their expiry is not a surprise. Our two favourite aggregate US measures, the comprehensive Chicago Fed National Activity Index, and the leaner but more contemporaneous ADS index from the Philadelphia Fed, are still both saying green for growth, if a bit less vociferously in the latter.

Closer to home, Canada’s flat GDP for April, was consistent with a deceleration in growth, rather than a turn to recession, given that it came off of a bloated 0.6% March advance. May GDP looks to be much better, as we already know it was a decent month for hiring. But don’t be surprised to see the week ahead’s Canadian jobs data for June show a deceleration. That’s the stuff that slowdowns are made of.

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At the same time, retail trade fell 1.7% during the same month, following a 1.9% gain in March. Together with smaller declines in manufacturing and utilities were offset by increases in mining, wholesale trade and, to a lesser extent, the public sector and construction.

Nonetheless, it is widely believed that the Bank of Canada will probably raise rates for a second straight time at its July 20 meeting.

Mark Carney had already warned in April that the economy’s rebound from the crisis would slow significantly starting in the second quarter as the housing market was beginning to cool, the dollar was trading near parity with its U.S. counterpart and the impact of government spending was fading.

Those factors, and the arguably more dominant headwinds from Europe and the United States as the these fragile advanced economies walk the tightrope from stimulus spending to deficit-cutting, have kept the central bank insisting that nothing about its path to a more normal monetary policy is “pre-ordained from here forward.”

“The Bank of Canada will take all of this into consideration, including what’s happening in global financial markets, before making its decision,” Krishen Rangasamy, an economist with CIBC World Markets in Toronto, said in an interview. “If you see the stock market plunge 500 points the day before the decision, that may change things. But if we don’t see something like that, if financial markets stabilize, then there’s no reason for the bank to pause in its tightening.”

* The monthly gross domestic product (GDP) by industry data at basic prices are chained volume estimates with 2002 as their reference year. This means that the data for each industry and aggregate are obtained from a chained volume index multiplied by the industry’s value added in 2002. For the 1997 to 2006 period, the monthly data are benchmarked to annually chained Fisher volume indexes of GDP obtained from the constant-price input-output tables.

For the period starting with January 2007, the data are derived by chaining a fixed-weight Laspeyres volume index to the prior period. The fixed weights are the industry output and input prices of 2006. This makes the monthly GDP by industry data more comparable with the expenditure-based GDP data, chained quarterly.

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In general, all provinces have rebounded strongly, and the report forecasts Canadian output growth to average 3.6% this year, the strongest advance in a decade. For 2011, Scotiabank is forecasting that Alberta’s economic growth will be 3.4 per cent while Canada as a whole will average 2.7 per cent.

A strong pickup in investment will fuel growth in the energy and manufacturing sectors,

“Investment has perked up in the oil sands, as easing costs and higher oil prices revived investment intentions in late 2009, with $2.2 billion in outlays scheduled for 2010 alone. Renewed activity in the industry will lead to significant benefits flowing through the economy, with manufacturing and services all heavily tied to conditions in the energy sector. While the bulk of investment will stem from oil sand development and tight oil plays, recent revisions to the province’s royalty framework are a major positive for the natural gas industry.”

The Canadian Association of Drilling Contractors forecasts a significant increase in drilling activity in the third quarter of this year.

Retail sales have also shown strength so far this year, after declines during both 2008 and 2009. With the bulk of job growth still lying further ahead, additional gains are expected. Alberta residents remain the highest per capita spenders in Canada.

The report also points out how the province has also made efforts to diversify its economy with the development of its health sciences industry. Notably, the Alberta Innovates initiative provides funding for a wide variety of domains, including health, energy and the environment.

Alberta’s economy is one of the strongest in Canada, supported by the petroleum industry and, to a lesser extent, agriculture and technology. According to the Fraser Institute, Alberta has very high levels of economic freedom. On its Canadian Provincial Investment Climate Report, it shows how Alberta continues to set the pace and leads the country in terms of creating and maintaining a positive investment climate. It also claims that it is “by far the most free economy in Canada, and is rated as the 2nd most free economy of U.S. states and Canadian provinces.”

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Production grew faster in the first quarter of 2010 than in the fourth quarter of 2009, and inventory levels rose after being drawn down in all four quarters of 2009.

Residential investment increased for a fourth consecutive quarter, as did consumer spending on goods and services. Export and import volumes both rose for a third consecutive quarter, with growth in imports outpacing growth in exports in the first quarter.

Expressed at an annualized rate, real GDP grew 6.1% in the first quarter after advancing 4.9% in the fourth quarter of 2009. These numbers compare very favourably to the 3.0% first quarter rate of increase in the US economy.

The output of the goods-producing industries (+2.7%) increased for a second consecutive quarter, mainly on the strength of manufacturing and, to a lesser extent, construction and mining. In manufacturing, the gains were widespread, with durable and non-durable goods advancing 5.9% and 2.1% respectively. Services-producing industries (+1.1%) continued to rise, with wholesale and retail trade leading the way.

Consumers increased their spending on goods and services by 1.1% in the first quarter of 2010, following a 1.0% gain in the fourth quarter. Household spending on semi-durable goods advanced, particularly for clothing, footwear, and accessories. Expenditure on new motor vehicles grew, but at a much slower pace than in the previous three quarters. Spending on services was up 0.7%, after advancing 1.0% in the fourth quarter.

Investment in residential structures increased 5.4%, the fourth consecutive quarterly gain in this activity. New housing construction (+11%) pushed investment higher, while renovation activity was up 6.3%. February 1 was the deadline for expenditures to quality for the federal government’s Home Renovation Tax Credit.

Ownership transfer costs related to housing resale activity declined for the first time since the fourth quarter of 2008. Transfer costs grew 57% over the last three quarters of 2009.

Nominal mortgage borrowing by households was up sharply in the first quarter, recording its fourth consecutive quarterly advance.

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We have reached a point in the recovery process that headline economic numbers can be very misleading. Before acting on any specific number, one should dig a bit deeper to get a better sense of the underlying trends.

A few recent examples:

• On the surface Canadian inflation is heating up again. The headline core CPI rose by 2.1% on a year- over-year basis—a bit above the Bank of Canada’s target. However, a closer look reveals that like the deflation hype during the recession, inflation fears during the recovery might just be a little overblown. Note that the month of February saw almost 20% increase in traveler accommodation prices, most likely linked to the Olympics. In fact,  five of the eight broad CPI categories were either down or flat in February.
• Retail sales in Canada rose by a strong 0.7% in January, but that reflected price hikes rather than volumes, as sales were up only 0.1% in retail terms. The price gains captured reduced discounts at car dealers and higher gasoline prices. There was also a spike in nominal sales at building supply stores as buyers rushed to beat the deadline for the home reno tax credit.

While Real GDP in Canada is likely to rise by close to 5% in the first quarter, one has to remember that a significant portion of this growth is temporary (government spending and inventory cycle). The underlying trends in the fundamentals (including inflation) suggest that the Bank of Canada will not hike rates before June or July.

In the US, the problem in the commercial real estate sector are becoming more and more evident in the number of small regional banks in the US that are at risk. More than 10% of the 700 banks that got federal bailouts and are still holding the money, failed to pay the government a quarterly dividend in February. The list of 82 delinquent banks is larger than the 55 banks that failed to make payments in November.  Still on that front, The NY Fed purchased an additional net $10 billion in MBS for the week ending March 17th. This puts the total purchases at $1.24 trillion or 99.2% complete. The ending of Fed purchasing of MBS might lead to a modest (20-30 basis points) increase in long-term mortgage rates.

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