Canada’s latest manufacturing data could portend a strong third quarter for the economy, after last quarter’s gross domestic product (GDP) growth was undermined by historic flooding in Alberta and a province-wide strike in Quebec.
According to Statistics Canada, manufacturing sales climbed 1.7 percent month over month in July, to CAD49.5 billion, a solid rebound following June’s initial decline of 0.5 percent, which was subsequently revised to a decline of just 0.1 percent.
Sales growth was widespread, with gains across 15 of Canada’s 21 industries. Sales of durable goods rose 2.1 percent, to CAD24.8 billion, while sales of non-durable goods increased 1.2 percent, to CAD24.6 billion. Sales of motor vehicles, wood, fabricated metal, and non-metallic mineral products were important growth drivers, while sales in the aerospace sector detracted from growth.
July’s result trounced economists’ consensus forecast, which according to Bloomberg called for a more modest gain of 0.5 percent. Over the past five years, manufacturing sales have declined an average of 0.02 percent per month, while over the past year they’ve increased by an average of 0.04 percent per month. During the nearly five-year period preceding the 2008-09 global downturn, by contrast, factory sales grew an average of 0.3 percent per month.
As such, the July number is significant, though in reviewing data over the past year, February was the single best month for the manufacturing sector, when sales grew 3.4 percent month over month. Month-to-month data tend to be volatile, however, so that didn’t stop manufacturing sales from posting declines in three of the four months thereafter.
This time around, some of the demand that would have ordinarily occurred in the second quarter, absent the aforementioned one-time events, was probably pushed back to the third quarter. That’s evidenced by the dismal number for June GDP, which dropped five-tenths of a percentage point from the previous month, for year-over-year growth of just 0.9 percent.
As a result, economic growth decelerated during the second quarter to a rate of 1.7 percent annualized from 2.5 percent in the prior quarter. But in addition to deferred demand, the third quarter should also get a boost from rebuilding activity following Alberta’s floods.
On that front, we’re still awaiting the Bank of Canada’s (BoC) next set of economic forecasts, which are scheduled to be published in late October. The BoC’s July projections, which came out before second-quarter GDP numbers were announced, showed an ultra-conservative forecast for last quarter of just 1 percent growth. Meanwhile, the central bank forecast growth for the third quarter of 3.8 percent.
Given that growth for the second quarter actually came in at 1.7 percent, it’s likely that the BoC modeled a stronger dampening effect on the second quarter than actually transpired, with more demand pushed back to the third quarter. As a result, the bank will likely lower its third-quarter projection in its next report on monetary policy. For instance, the Royal Bank of Canada is currently forecasting third-quarter GDP growth of 3.4 percent, four-tenths of a percentage point below the BoC’s July estimate.
One of the major headwinds for Canada’s manufacturing sector has been weak demand from the US, which is the country’s largest trading partner. If the nascent US recovery continues to strengthen, then that should bolster the economy of its neighbor to the north. Indeed, the BoC is hoping that the Canadian economy will transition toward export growth, which will, in turn, spur greater business investment.
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To that end, Canada’s declining currency should help its exports become more competitive in the global market. The loonie traded above parity with the US dollar for much of the two-year period from 2011-12, but then dropped below this key threshold earlier this year in mid-February. The Canadian dollar fell as low as USD0.945 in early July, but currently trades near USD0.97, down about 5.8 percent from its trailing-year high.
While this latest snapshot of the manufacturing sector is just one piece of economic data, at the very least, it comports with economists’ narrative of a third-quarter rebound for Canada’s economy.
AP, Pablo Martinez Monsivais WASHINGTON -- A potential federal shutdown looming, President Barack Obama on Monday warned congressional Republicans they could trigger national "economic chaos" if they demand a delay of his health care law as the price for supporting continued spending for federal operations. House Republican leaders were to meet Tuesday in hopes of finding a formula that would avoid a shutdown on Oct. 1 without alienating party conservatives who insist on votes to undercut the Affordable Care Act. Even more daunting is a mid- to late-October deadline for raising the nation's borrowing limit, which some Republicans also want to use as leverage against the Obama administration. "Are some of these folks really so beholden to one extreme wing of their party that they're willing to tank the entire economy just because they can't get their way on this issue?" Obama said in a speech at the White House. "Are they really willing to hurt people just to score political points?" The Republicans don't see it that way. House Speaker John Boehner, who opposes the threat of a shutdown, said, "It's a shame that the president could not manage to rise above partisanship today." Obama, said Boehner, "should be working in a bipartisan way to address America's spending problem, the way presidents of both parties have done before," and should delay implementation of the health care law. While some conservatives supported by the tea party have been making shutdown threats, Sen. Rand Paul of Kentucky said Monday that was "a dumb idea." At a community meeting in Louisville, he said, "We should fight for what we believe in and then maybe we find something in between the two. ... I am for the debate, I am for fighting. I don't want to shut the government down, though. I think that's a bad solution." Obama timed his remarks for the fifth anniversary of the bankruptcy of Wall Street giant Lehman Brothers, a major early event in the near-meltdown of the U.S. financial system and a severe global recession that preceded his presidency. He used the occasion to draw attention to the still-recovering economy and to what he called a "safer" financial system now in place. He delayed his remarks as authorities responded to the shootings that officials said left at least 13 people dead at the Washington Navy Yard just a few miles from the White House. While unemployment has dropped to 7.3 percent from a high of 10 percent and the housing market has begun to recover, the share of long-term unemployed workers is double what it was before the recession, and a homebuilding revival has yet to take hold. A new analysis conducted for The Associated Press shows that the gap in employment rates between America's highest- and lowest-income families has stretched to its widest level since officials began tracking the data a decade ago. Obama conceded the problems. "As any middle class family will tell you or anybody who's striving to get in the middle class, we are not yet where we need to be," he said. Still, his National Economic Council argued his case for progress, issuing a report detailing policies that it said had helped return the nation to a path toward growth. Those steps ranged from the unpopular Troubled Asset Relief Program, or TARP, that shored up the financial industry and bailed out auto giants General Motors and Chrysler, to an $800 billion stimulus bill and sweeping new bank regulations. Of the $245 billion that the government injected into the banking system, virtually all of it has been paid back, the report noted. "After all the progress that we've made over these last four and a half years, the idea of reversing that progress because of an unwillingness to compromise or because of some ideological agenda is the height of irresponsibility," Obama said. He reiterated his stance that he will not negotiate over the debt ceiling. Failure to raise it could lead to the first national default in U.S. history. Conservative Republicans, on the other hand, say the health care law, which has yet to take full effect, will place a burden on businesses and the public and will damage the economy. As a result, they insist that it be starved of taxpayer money or at least delayed. Chances are fading for a complicated GOP leadership plan that would allow the House to also vote to "defund Obamacare" but automatically separate the measures when delivering them to the Senate to ease the way for quick passage of a "clean" funding measure for delivery to Obama. The next steps aren't clear, but one option under consideration is to accede to conservatives' demands to deliver to the Democratic Senate a combined bill that pays for government and defunds the health care law. The Senate would be virtually certain to strip away the attack on the health care law and bounce the funding measure right back to the House. That scenario might frustrate conservatives, with the funding measure probably gaining enough votes to win passage in the House and proceed to the White House for Obama's signature. Stopgap spending bills are usually routine, so the difficult path for the current one hardly inspires confidence for an even more important measure to raise the government's borrowing cap. Republicans want to use the debt limit measure as a mechanism to win further spending cuts on top of those they forced upon Obama two years ago. It's not clear how the debt limit conundrum will be solved, though a time-tested recipe would be to add mostly symbolic reforms like a "no budget, no pay" proposal that worked early this year when House leaders orchestrated a debt limit increase that was intended to last through July or so but is now likely to suffice until mid-late October. The idea was that lawmakers wouldn't get paid if the chamber in which they served didn't pass a budget. It was a House GOP jab aimed at the Senate, which hadn't passed a budget since 2009. This year it did but there's been no effort to reconcile it with a competing House measure. Obama intends to continue pressuring Congress with daily events this week, including a speech Wednesday to the Business Roundtable, an association of CEOs from the top U.S. companies, and a trip Friday to Kansas City to visit a Ford plant, where he will promote the strength of the auto industry. 
