Section 1: Current economic conditions

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Overview ¹ 

The economy contracted in February with real GDP declining 0.2%, following a 0.1% rise in January. Factories posted their first decline in six months, mining was affected by reduced demand for potash and nickel mine shutdowns, and unseasonably warm weather dampened demand for electricity and natural gas. Employment posted a notable gain for the second month in a row in April, after four months of little change.

Retail trade volumes fell for the first time in seven months in February, led by a drop in demand for new autos, while the annual rate of inflation in March rose at its slowest pace in fourteen months. April housing starts, supported by ground-breaking on multi-family units, returned to levels last reached in September 2007. The volumes of exports and imports both increased in March, while prices retreated.

The United States economy grew 0.6% in the first quarter of the year, following a 0.8% increase in the fourth quarter of 2011. This marked the eleventh consecutive quarter of expansion in real GDP.

Labour markets

Employment increased 0.3% in April, following a 0.5% increase in March. Most of the gains in April were in full-time positions, similar to March. With the labour force expanding at a slightly faster pace than employment, the unemployment rate edged up from 7.2% to 7.3%.

Nearly all of the job growth in April was in the goods sector, in contrast to March, when gains had been concentrated in services. The increase in goods employment was widespread, with large advances in construction and manufacturing accompanied by gains in natural resources and agriculture.

Manufacturing employment gains in April were a continuation of the upward trend that started in December 2011. These recent gains offset declines in earlier months, leaving employment in manufacturing little changed from 12 months earlier.

In the services sector, education was the only industry that expanded in April. The gains were offset by declines in public administration.

There were gains across most of the country. Quebec saw the largest increase in jobs, up 0.6%, all in the goods sector. British Columbia, Alberta, Saskatchewan, New Brunswick, Newfoundland and Labrador, and Prince Edward Island also posted gains. Employment in Ontario was little changed, after posting strong gains in March.

Leading indicators

The composite leading index rose 0.4% in March, following a 0.7% rise in February, marking the ninth consecutive monthly increase. Eight of the ten components advanced in the month.

The financial components remained positive in March, with both the TSX and the money supply expanding. The average workweek increased for the sixth straight month, while services employment resumed a year-long upward trend after stalling in February. The housing index recovered as both existing home sales and starts rose. The United States leading indicator increased for the second month in a row, supported by its employment and financial components.

Manufacturing was mixed, with a gain in the ratio of shipments to inventories offset by a decline in new orders. Furniture and appliance sales posted a seventh consecutive monthly decline.

Output

Real gross domestic product declined 0.2% in February, after a 0.1% rise in January. Industrial production fell 1.4% with broad declines observed in manufacturing, mining and utilities. Construction edged up in the month, as did some service-producing industries such as wholesale trade, finance and insurance.

Manufacturing fell 1.2% in February, following five consecutive monthly increases. Both durable and non-durable goods sectors retreated, as demand for autos, primary metals and food products slowed. Mining was dampened by reduced output of nickel and potash, while unseasonably warm weather lowered demand for electricity and natural gas.

Professional and administrative services were flat in the month, as was public administration, while a rise in health services was offset by a decline in education. Retail trade fell for the second straight month, but remained above year earlier levels.

Household demand

The volume of retail trade fell 0.6% in February, the first monthly decline in seven months, as consumers scaled backed purchases of autos. Sales of durable goods retreated in the month, while the volume of durable goods excluding autos rose 2.3%, following two consecutive declines. Sales of semi-durable and non-durable goods both advanced. Warmer-than-expected weather this spring led to higher expenditures on building supplies and garden equipment. Demand for appliances and electronic equipment also increased. Clothing sales rose as higher prices for new spring fashions offset a drop in volumes. Higher gasoline prices boosted receipts at gas stations, while sales of food and non-alcoholic beverages rose.

Housing starts rose to an annual rate of 244,900 in April, an 11.4% increase from March and the highest level since September 2007. Starts of urban multi-family units led the gain, rising 27.4%, while ground-breaking on single family homes was flat. Quebec recorded the largest increase in urban multiples, a doubling of February levels.

Existing home sales rose 2.5% in March, following a 1.4% gain in February. In contrast to last month, sales in the Prairies led growth, while demand declined in the Atlantic provinces. Sales remained steady in Ontario and Quebec. The average sales price contracted 0.5% from a year earlier, in part reflecting an 8.1% drop in prices in British Columbia.

Merchandise Trade

Both exports and imports, in nominal values, declined in March, down 0.4% and 0.6%, respectively from February levels. The larger drop in the value of imports relative to exports resulted in a $78 million increase in the trade surplus in the month, to $351 million.

The volume of exports rose 0.9% in March with increases in the industrial goods, machinery and equipment and consumer goods sectors offsetting declines in the energy, auto and forestry sectors. Export prices fell for the fourth straight month, primarily due to energy prices which have fallen 11.7% from their peak in December 2011.

Import volumes increased 1.8% from February, with gains in every sector except energy, which declined 13.9%, and agriculture, which was flat. The industrial goods sector had the largest price decline of 5.3%, even as volumes posted the largest increase in the month at 2.8%.

Prices

The consumer price index rose 0.2% in March, following a 0.1% increase in February. Year-over-year, prices rose 2%, the slowest pace since December 2010. The core index increased 0.1% in March for an annual rate of 1.9%, down from 2.3% in February.

Consumer food prices fell in the month, the first decline in a year, as prices declined for fresh vegetables. Clothing prices declined in the month, primarily due to the discounting of women's clothing. The cost of shelter declined for the second straight month as unseasonably warm weather led to a decrease in the demand for energy and electricity. Alcohol and tobacco posted the largest price hike in March, up 0.7%, after having little or no change for most of 2011.

Commodity prices fell 3.3% in April, the largest monthly decline in a year, as energy prices declined further. Prices for metals and mining fell for the second consecutive month as a rally in gold prices could not offset declines for silver and platinum. Forestry prices continued to firm, while food commodity prices saw the smallest increase in four months.

Financial markets

Short-term business credit expanded in March, matching the 1% gain the month before. Business fund-raising remained supported by new bond issues in April, as new equity issues were flat. Household credit continued to advance due to increases in residential mortgages, as consumer credit remained flat for the fourth consecutive month.

The Canadian dollar appreciated in April, ending the month above parity and at its highest level against the US dollar since last summer.

Toronto stock prices dipped for the second month in a row in April. Losses in materials and metals and mining were partially offset by gains in consumer stocks and utilities. Energy prices were little changed in the month, after falling in March.

Regional economies

Manufacturing sales advanced 2.7% in Quebec in February, as receipts for petroleum, machinery and aerospace products all increased. Retail sales resumed their upward trend, while housing starts in March fell as a result of a decline in multiple units.

Housing starts rose for the third straight month in the Prairies in March, boosted by ground-breaking on multiple units in Alberta. Manufacturing sales rose 2% in February, after two consecutive monthly declines. Petroleum receipts hit last year's September high, while demand for non-metallic minerals also increased. Retail sales edged down in the month.

Manufacturing sales in British Columbia posted their second straight monthly gain in February, the only region to do so. The recovery in US housing starts supported a second rise in wood shipments and demand for primary metals picked up. Retail sales remained upbeat, while builders reduced construction on multiple units in March.

Manufacturing sales in Ontario declined for the second month in a row in February, down 2.7%. Sales of primary metals fell to their level of a year ago, while demand for autos and food tapered off. Retail sales edged down following three monthly gains. Housing starts rebounded in March, supported by an increase in multiple units, particularly in Toronto.

Housing starts in the Atlantic provinces edged up in March after ground-breaking stalled in the first two months of the year. Manufacturing sales declined in every province with the exception of New Brunswick in February and retail sales fell for the third time in four months.

International economies

In the United States, growth in real GDP slowed to 0.6% in the first quarter of 2012 from 0.8% in the fourth quarter of 2011, as business investment and inventory accumulation slowed. This marked the 11^th consecutive month of expansion in real GDP. Support came from growth in consumer spending and exports and a smaller decline in government expenditures. Government spending has contracted for six straight quarters, primarily due to lower defence outlays.

Industrial production was flat for the second straight month in March, as gains in utilities and mining were offset by a drop in non-auto manufacturing. Auto production rose 0.6%, following larger gains at the start of the year. Orders for durable goods fell 4.2%, the largest monthly drop in three years, as companies cut back on orders for steel and other metals, industrial machinery and computers.

The trade deficit narrowed to $46 billion (US) in February, with a 2.7% drop in imports, notably from China, and a 0.1% increase in exports. Exports were supported by an increase in prices, as volumes fell in the month. Crude oil deliveries by volume declined 17% as the country continues to reduce its dependence on foreign supplies.

Housing starts contracted for the second consecutive month in March, although construction still remains at a relatively high level. Ground-breaking on new homes fell 5.8%, due mostly to a 20% drop in multi-family construction, as single family starts were essentially flat. Building permits increased 4.5% to the highest level since September 2008.

Consumers increased their spending in March, boosting retail sales 0.8% across a wide variety of retailers ranging from building supply stores to electronics to clothing stores. Consumer prices rose 0.3% in March, moderating from the 0.4% rise in the previous month. Gasoline price increases continued to exert upward pressure, along with the cost of some food items, such as meats, poultry and eggs.

Employers added 115,000 jobs in April, the slowest pace since October 2011, as hiring in weather-related industries decelerated. However, job gains for February and March were revised upwards. The unemployment rate eased to 8.1%, aided by the second consecutive monthly contraction in the labour force.

Industrial production in the euro-zone rose 0.5% in February, after being flat or falling for the past five months, as a rise in capital goods and energy output more than offset contractions in intermediate and consumer goods production. Construction retreated for the third straight month when winter storms curtailed building in Germany, France and Italy. External trade tipped into a surplus position as a rise in the surplus of manufactured goods more than offset an increase in the energy deficit. The trade surplus with the US widened, while deficits with China and Japan narrowed. Consumer demand edged up in March, with retail sales volumes up 0.3%. The annual rate of inflation was stable at 2.7% with rising prices for energy and gasoline offset by declines for telecommunications and autos. The unemployment rate rose to 10.9%.

German industrial production contracted in February for the third time in four months. Although manufacturing was also down, the decline was led by a 17% drop in construction due to extreme cold weather. Imports outpaced exports leading to a slight narrowing of the external trade surplus, although Germany continues to have the largest surplus in the euro-zone. Real retail sales rebounded in March, rising 0.8%, boosted by higher pay increases. The unemployment rate was steady at 5.6% for the fifth consecutive month. Consumer prices rose 2% in April from a year-earlier, the slowest pace in over a year.

Industrial production in France grew 0.2% in February, following a 0.3% gain in January, as extreme winter weather raised demand for gas and electricity. Manufacturing output fell 1.2%, as refining activity was dampened by a major plant closure. Construction retreated after a pickup in January. Imports continued to outpace exports, while consumer demand remained upbeat with real retail sales posting a third straight monthly gain in March. The unemployment rate was steady at 10%, while the annual rate of inflation edged up to 2.6%.

Real GDP in Britain fell 0.2% in the first quarter of the year, after contracting 0.3% in the fourth quarter of 2011. A slight increase in the services sector was not enough to offset declines in construction, manufacturing and energy output. Industrial production rose 0.4% in February, as unseasonably cold weather boosted demand for energy and electricity, and mining recovered from a five month slump. The external trade deficit widened in February, led by a decline in exports to the United States. Retail sales volumes bounced back 1.8% in March, the largest monthly gain in over a year, as demand for clothing and gardening supplies were buoyed by warmer weather and gasoline sales were driven higher by a possible strike of fuel-tanker drivers. The annual rate of inflation rose to 3.5% in March, led by higher prices for food and clothing.

Industrial production in Japan rose 1% in March, led by increased output of autos, computers and communications equipment. The trade deficit continued to widen, despite a boost in exports from a weaker yen, as oil imports continued to increase in the wake of more nuclear reactor shutdowns. Retail sales rose 10.3% year-over-year in March, the fourth straight monthly gain, led by autos after government subsidies were introduced for fuel-efficient cars. Consumer prices increased 0.5% year-over-year, reflecting rising food costs, while the unemployment rate was unchanged at 4.5%.

The annual rate of real GDP growth in China in the first quarter of 2012 decelerated to 8.1%, from 8.9% in the last quarter of 2011, and marked the fifth consecutive quarterly slowdown, as industrial production continued to slow. Trade returned to a surplus position in March, as exports to the United States more than offset a drop in EU demand. Consumer prices rose 3.6% from a year earlier, led by rises in fuel and food costs.

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