Section 1: Current economic conditions

View the most recent version.

Overview ¹ 

Output in February continued to recover rapidly for a sixth straight month. After several months of slow growth, employment responded with a near-record gain in April.

Retail sales picked-up in February, despite the expiry of the tax credit for renovation at the end of January. Spending on big-ticket items, notably autos, also fell as the Olympics began. Instead, spending shifted to semi- and non-durable goods.

It is noteworthy that manufacturing led GDP growth in February, while services overall slowed despite the boost to some from the Olympics. The overall impact of the Vancouver Olympics on demand in February was unclear. Specific industries such as spectator sports and accommodation saw large increases. Overall, there was no spike in travel to Canada (the number of visitors rose only 5%, despite a 24% increase in visits to BC, mostly travellers from the US). Meanwhile, retail and house sales in BC lagged the national average, as sales of big-ticket items may have been postponed during the Games.

The US economy continued to recover, with a third straight increase in quarterly GDP. While housing slowed after the expiry of a tax credit, consumer spending accelerated and exports and business spending continued to gather strength. Job growth accelerated in April for the fourth straight month. These gains were reflected in a slow but steady recovery of Canadian exports, which rose in February for the fifth time in six months.

Labour markets

After several months of slow growth, employment jumped 0.6% in April, their largest advance since August 2002. The increase was slightly more evident in part-time than full-time positions, and was widely-diffused across industries and provinces. With a 0.6% increase, adult employment surpassed its pre-recession high, while youths remained 7.5% below their peak. With the labour force also growing rapidly, the unemployment rate fell only 0.1 points to 8.1%.

Private sector payrolls accounted for all of the increase in employment. Services led the gain in jobs, notably retail and wholesale trade and business services, which lagged growth in the first three months of the year. Goods-producing industries were led by construction, where an early spring was reflected in gains in every province. Manufacturing was the major exception to growth.

Employment rose in every province. Central Canada posted the largest increase, despite losses in its manufacturing base. Quebec’s 0.9% gain was dispersed widely among services, while Ontario relied on construction as well as services. Unemployment was little changed in both provinces, as they accounted for most to the overall growth in the labour force. BC continued to show no signs of a post-Olympic slowdown, as manufacturing and business services picked up. The prairie provinces saw widespread gains.

Leading indicators

The composite leading index rose 1.0% in March, matching its average monthly increase since July 2009. However, the sources of growth continued to shift away from housing to other sectors of consumer demand and manufacturing.

The housing index rose by 0.2%, its smallest increase since its current upturn began in the spring of 2009. At its peak last summer, the housing index was rising over 5% a month. The recent slowdown originated in a retreat of existing home sales from their record high posted late in 2009. Housing starts continued to increase.

Elsewhere, consumer spending was mixed. Furniture and appliance sales rose 1.3%, their largest advance since June 2006. Spending on other durable goods dipped 0.5% after eight months of strong growth. Services employment increased 0.6% with strength evident in both the personal and business sectors.

Manufacturing demand continued to recover. New orders rose 3.2%, their third increase in four months. The increased ratio of shipments to inventories was driven mostly by higher sales. Export industries have led the rebound in sales. Factories remain restrained in hiring, and the average workweek fell again. The outlook for export demand was buoyed by further gains in the leading indicator for the United States.

Output

Real GDP grew by 0.3% in February, its sixth straight gain of at least 0.3% that has raised output by a total of 2.8% over this period. Manufacturing continued to lead the recovery of goods-producing industries. Services slowed, despite the boost to some industries from the Olympics.

Manufacturers raised output by 1.2%, their fourth straight solid advance. While the recovery in the auto industry has stalled in the first two months of the year, capital goods industries have accelerated. Non-metallic minerals led the way in February, notably for cement and concrete. Machinery, computers and electronics and iron and steel also posted solid gains. Resource-based manufacturers were mixed, as steady gains for wood and paper were offset by declines for refiners of petroleum and metals.

Construction edged up for its eighth straight increase, driven by home construction. Renovation activity slowed after the expiry of the tax credit. Primary industries expanded across the board. Mining was buoyed by both metal and non-metal mines, while exploration rose for the seventh straight month. Forestry continued a gradual recovery, with its fourth increase in six months.

Demand for services edged up 0.1%. The Vancouver Olympics led to large gains in sporting attendances, communications and accommodation and food. Altogether, these industries accounted for all of the growth in services. Finance and real estate edged down, while business services remained anaemic.

Household demand

Retail sales volume rose 0.6% in February, its third straight advance (monthly sales fell only once in 2009). Demand for housing-related items fell after the expiry of the renovation tax credit at the end of January.

Outlays for durable goods dipped 0.6%, led by housing-related items such as building materials. Auto sales also fell, especially in BC where many local residents left during the Olympics. Instead, visitors to BC, helped buoy demand for semi- and non-durable goods such as clothing and alcohol. A sharp drop in gasoline prices and mild weather also encouraged gas consumption.

Housing starts in March hovered around 200,000 units (at annual rates), after nearly doubling over the previous year. Still, strong sales kept the number of vacant units on a downward trend. Existing home sales edged up 1.4% in March after retreating early in the new year from their record high in December.

Merchandise trade

Exports registered a 2.8% gain in February, extending their string of monthly increases to five in the last six months, a stable January being the odd month out. Industrial goods and autos accounted for 80% of the increase in exports. Most other exports advanced, with consumer goods posting the only decline. Meanwhile, the slower growth in February’s imports helped the monthly trade surplus to nearly double to its highest level since October 2008.

Imports rose 0.9%, with a fall in energy shipments nearly offsetting increases in all other sectors. Excluding energy, import values were up 2.6% and volumes up 1%. Machinery and equipment (+3.3%) and autos (+3.5%) led the way. It was only the fourth increase in imports of machinery and equipment since the end of 2008. Automotive products hit their highest value since September 2008, led by truck imports, which reached pre-recession levels less than one year after their recessionary low. This reflects strong truck sales combined with a shift in domestic production almost exclusively to passenger cars.

February’s export gains were evenly split between volume and price increases. Exports of industrial goods accounted for 60% of the overall increase, led by gains in metal ores, potash and sulphur. Autos chipped in a further 20% with the reversal of January’s drop in passenger cars. Energy exports were stable for the second straight month, partly the result of a refinery fire disrupting shipments. Excluding energy, exports were up 3.4%.

In the last six months, export earnings rose 17%, with almost two-thirds of the growth being driven by volumes. Energy has led export growth since August 2009, accounting for nearly half of total growth as a result of higher prices, while industrial goods accounted for an additional 30%. Autos and agriculture made up the remainder.

In terms of volume growth, automotive products accounted for nearly half of the increase, while energy’s share was less than 10%. Industrial goods accounted for one-third of the gain with agricultural products contributing the rest. Machinery and equipment export values and volumes have edged down during this period.

Prices

Consumer prices dipped 0.1% between February and March, their first decline since July 2009. As a result, the year-over-year rate of inflation slowed to 1.4%, reversing the upward trend that began last July.

Food and energy prices both increased in March. Poor crops in the US pushed up the price of fruit and vegetables. Gasoline prices more than recouped a drop the month before.

The CPI excluding food and energy fell 0.3%, and was 0.9% above its level in March 2009. The monthly drop originated in durable goods and services. Auto prices put the most downward pressure on durables, while low mortgage rates dampened the cost of housing.

Industrial prices fell for exported goods such as autos, machinery, lumber and paper in response to a rising Canadian dollar. These declines were partly offset by rising prices for petroleum and metals.

Commodity prices continued to climb in April. Industrial materials saw further gain for metals such as nickel and gold, as well as increases for forestry products. Lumber hit a 3-year high, after rising by nearly a third so far this year, enough to trigger a drop in the tax on exports to the US (under the softwood lumber agreement signed in 2006). However, copper fell 10% from a 21-month high set early in April. Energy prices were buoyed by crude oil, which rose above $86 (US) a barrel for the first time since October 2008, while natural gas remained at a 7-month low.

Financial markets

The Toronto stock market rose 2.0% in April, its third straight increase after a dip at the start of the year. The increase was broad-based, with sectors such as real estate and consumer stocks outperforming the resource-based companies that led growth earlier in the year.

The Canadian dollar continued to hover around parity with the US greenback. However, both rose against the euro and the yen. Most interest rates were little changed, with the exception of the 5-year mortgage rate which rose a full point to above 6%.

Household borrowing grew at a steady 0.7% in February. Consumer credit took the lead from mortgages, as retail sales accelerated while housing demand slowed. Fund-raising by corporations picked up in March, as an increase in stock and especially bond issues offset the fifteenth consecutive decline in short-term borrowing.

Regional economies

On the prairies, demand improved across the board. Retail sales rose 0.9% in February, the most in Canada. Housing starts increased 7% in March after an 11% hike in February. Manufacturing sales continued to recover steadily with a fourth straight increase, led by higher petroleum prices.

BC also benefited from stronger demand for resources. Manufacturing sales rose 1.1% in February, as increases for paper and lumber were supplemented by food and beverages. Retail sales edged up 0.1% in the month, but their 9.1% gain in the past year was the most outside of the Atlantic provinces. Housing starts dipped in March, after three straight increases.

In Quebec, household demand continued to strengthen. Housing starts in March returned to January’s high, and have risen in four of the last five months. Retail sales increased 0.4%, their fourth consecutive advance. Manufacturing sales fell 1%, as declines in aerospace were not offset by petroleum or metal refining.

Conversely, manufacturing expanded in Ontario while household demand stalled. Manufacturing sales grew 0.7%, their third straight increase driven by petroleum and chemicals. Housing starts fell 15%, ceding half of the ground gained in February. Retail sales were flat, after a 0.9% increase to start the year.

International economies

In the United States, first-quarter GDP rose 0.8% in volume, its third straight gain. Consumer spending led the increase, although housing fell slightly after two quarters of increases (partly due to the end of the first homebuyer tax credit). Businesses spent more, with inventories rising for the first time since early 2008 while fixed investment picked up to 1% growth. Trade flows continued to recover, with the volume of both exports and imports up nearly 12% from their low in mid-2009.

The impending end of the second homebuyer tax credit at the end of April gave a boost to house sales in March. New home sales jumped 27%, while existing home sales rose 7%. Housing starts stayed above 0.6 million units (at annual rates) throughout the first quarter, a slight improvement from the second half of 2009.

But households did not only buy more homes in March. Retail sales rose 1.6%, led by a 7% rebound in auto sales. Non-automotive spending rose 0.6% led by clothing and building materials. Consumer confidence firmed as employment turned up, with the Conference Board index fully recouping its weather-related drop in February. Payrolls grew by 290,000 in April, after upward-revised gains in the first three months of the year.

Manufacturing activity continued to recover, up 0.9% in March. Autos and capital goods led the increase as firms continued to re-build inventories. Overall industrial production was slowed by lower utility output, as weather returned to its seasonal norm. New orders for capital goods accelerated in March. The recovery of business investment was reflected in further gains in both exports and imports in February.

Industrial production in the euro-zone rose for the seventh straight month in February, led by a rebound in capital and intermediate goods. New orders recovered their January dip, with demand up across-the-board. Construction retreated again, curtailed by severe weather and credit restrictions. Exports improved, aided by the falling value of the euro against other major currencies. Consumers were hesitant to spend in the wake of high unemployment and rising inflation, which spiked to its highest level in 15 months in March.

Output in Germany retrenched in February as winter storms dampened demand. New orders were tepid after a strong gain to start the year. Trade remained brisk, however, with Germany continuing to post the largest external surplus in the euro-zone. Consumers reined in spending for the second month in a row as inflation continued to mount, while the unemployment rate eased to 7.3% in March.

Industrial production in France was flat in February following a solid gain in January. New orders held on to their 17% surge at year end. Imports once again outpaced exports, further widening the external trade deficit. Consumer spending picked up in February with the unemployment rate steady at 10.1% in March.

The UK economy grew 0.2% in the first quarter of 2010. Industrial production was upbeat and new orders continued to advance early in the new year. Construction eked out a small gain, buoyed by record low interest rates and easing credit. Consumers resumed spending despite inflation rising to an annual rate of 3.4% in March, boosted by an increase in the value-added tax from 15% to 17.5%.

Exports continued to power the Japanese economy, rising in March for the fourth straight month and up 44% from a year earlier. Shipments to Asia jumped 53%, led by China. Industrial production rose for the eleventh month in a row, strengthening both consumer and business confidence. The consumer spending spree continued into its sixth month, fuelled by government incentives for eco-friendly autos, while the unemployment rate fell to a 10-month low of 4.9%.

China’s economy grew 11.9% in the first quarter, after a 10.7% gain in the final quarter of 2009, buoyed by strong industrial production and business investment. Imports outpaced exports in March, resulting in the first monthly trade deficit in six years. Rising house prices boosted inflation to a 16-month high in February, prompting the government to raise bank reserve requirements to tighten credit and slow investment for the second time.

Real GDP in Singapore grew 32% year-over-year in the first quarter, its fastest pace on record dating back to 1975.

Next