1. Art and Diseño

SMALL BUSINESS WEEKLY
TD Economics
February 2, 2015
HIGHLIGHTS OF THE WEEK
• The Canadian dollar hit a new low this week, ending the week a little under US$0.79, as financial markets
continue to price in a further rate cut by the Bank of Canada, just as the Fed is getting ready to lift rates.
• The data this week continued to feed pessimism. Real economic output fell 0.2% in November and the
decline was broad based across most sectors. Meanwhile, Statistics Canada released revisions the
labour force data, which showed job creation was much slower in 2014 than previously thought.
• Going forward, TD Economics estimates that Canadian economic growth will decelerate sharply in the
first half of the year as the recent plunge in oil prices hurts commodity producing regions. However, as
the year progresses, a depreciating Canadian dollar, robust U.S. economic growth and the recent plunge
in interest rates will offer positive offsets to economies and housing markets elsewhere.
FINANCIAL MARKETS
52-Week 52-Week
High
Low
INDUSTRY CONTRIBUTION TO REAL GDP
DECLINE IN NOVEMBER, %
Current*
Week
Ago
S&P500
2,021
2,052
2,091
1,742
S&P/TSXComp.
14,637
14,779
15,658
13,486
BoC(OvernightRate)
0.75
0.75
1.00
0.75
Retail
TDBankPrimeRate
3.00
3.00
3.00
3.00
Wholesale
0-0.25
0-0.25
0-0.25
0-0.25
Stock Market Indexes
Cash Rates
FedFundsTargetRate
U.S.5-yrTreasury
Financeandinsurance
Transportationandwarehousing
Manufacturing
Construction
Fixed Income Yields
Canada5-yrBond
Others
Publicsector
0.63
1.19
0.79
1.79
0.63
1.31
1.83
1.16
Foreign Exchange Cross Rates
C$(USDperCAD)
0.78
0.80
0.94
0.78
Euro(CADperEUR)
1.46
1.44
1.46
1.28
Pound(CADperGBP)
1.92
1.86
1.92
1.76
Yen(JPYperCAD)
92.0
94.8
106.2
90.8
CrudeOil($US/bbl)
44.6
45.2
107.6
44.5
NaturalGas($US/MMBtu)
2.88
2.96
7.92
2.75
Copper($US/met.tonne)
5433.0
5549.0
7235.0
5433.0
Gold($US/troyoz.)
1262.6
1294.1
1383.1
1140.7
Commodity Spot Prices**
*asof9:15amonFriday**Oil-WTI,Cushing,Nat.Gas-HenryHub,LA
(Thursdaycloseprice),Copper-LMEGradeA,Gold-LondonGold
Bullion;Source:Bloomberg
Utilities
Miningandoilandgasextraction
Agricultureandforestry
-0.3
-0.2
-0.1
0.0
0.1
Source:StatisticsCanada
KEY ECONOMIC INDICATORS
Current
RealGDPGrowth(q/q,annualized)
2.8
Q3-14
MonthlyRealGDP(m/m,%)
-0.2
Nov-14
NetChangeinEmployment(000s)
-11.3
Dec-14
UnemploymentRate(%)
6.7
Dec-14
AverageHourlyWageRate(y/y,%)*
2.1
Dec-14
CPIInflation(y/y,%)
1.5
Dec-14
RetailSales(m/m,%)
0.4
Nov-14
Source:StatisticsCanada,Bloomberg.*Permanentjob.
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TD Economics | www.td.com/economics
CANADA - SEARCHING FOR A BOTTOM
Another week, another dip in Canadian dollar. The loonie
ended the week a little under US$0.79. The impetus behind
this week’s depreciation was the combination of a further
decline in the WTI price of oil and diverging trends in
monetary policy expectations between the U.S. and Canada.
Following the Federal Reserve Statement this week, markets
continued to price in a rate hike by year end, while pricing
in further rate cuts by the Bank of Canada in early 2015.
The Bank of Canada and financial markets are concerned
about the negative economic consequences of falling oil
prices on the Canadian economy – and with good reason.
This week, Statistics Canada released revisions to its labour
force survey, which showed that 65K fewer jobs were created in 2014 than previously anticipated – making it the
slowest year for job creation since the recession. The release
of Canadian monthly real GDP Friday morning showed that
economic output fell 0.2% in November. The weakness was
broad based and not just an oil production story. Output in
most sectors declined, with the exception of retail trade and
industries tied to the public sector.
So far, the data has been consistent with our view that real
GDP growth will decelerate sharply through the first half of
this year as falling oil prices weigh on growth in oil producing regions. Real GDP is estimated to grow by just 1.4%
annualized over the first two quarters of the year. However,
as the year progress, a depreciating Canadian dollar, robust
U.S. economic growth and the recent plunge in interest
rates will offer positive offsets. Indeed, the CFIB business
barometer released this week confirmed just that. The index
5-YEAR GOVERNMENT BOND YIELDS
Level,%
2.5
2.0
1.5
1.0
Canada
U.S.
0.5
0.0
1-Jan
1-Apr
1-Jul
Source:Reuters
February 2, 2015
1-Oct
1-Jan
1-Apr
1-Jul
1-Oct
CANADIAN S&P/TSX REIT PRICE INDEX
Level
180.0
175.0
170.0
165.0
160.0
155.0
150.0
145.0
140.0
135.0
31-Dec
31-Mar
30-Jun
30-Sep
31-Dec
Source:Reuters
showed modest improvements in sentiment among business
in most provinces outside of Alberta, Newfoundland and
Saskatchewan. Overall, we continue to expect real GDP to
grow by a decent 2.0% for 2015 as a whole.
As preliminary data on resale housing activity in January
is released by some of the big cities next week, we expect
to see that some of December’s sharp drop in home sales
will be reversed. Some of the decline in December was
likely due to a knee-jerk reaction to falling oil prices. But,
if investments tied to housing, like REITs, are any indication, confidence in Canadian housing has since improved.
Prices of REITs had also plummeted in December, but have
since rebounded. With the big Banks announcing that they
will lower their prime rate by 15 basis points this week, the
housing market (outside oil producing economies) is likely
to pick up more traction as the year progresses. Calgary
and Edmonton, however, are likely to endure their second
housing correction since 2009.
It can take up to two quarters for lower oil prices to hit
real GDP growth, and as such we will have to wait for Q1
2015 data to have a complete picture of the full impact of
falling oil prices on the Canadian economy. We will not have
this information by the time the Bank of Canada meets next
in March. At that point, oil prices will likely be lower than
they are today and risks to the outlook will remain elevated.
As such, the Bank of Canada is likely to take out more insurance and cut the overnight rate by a further 25 basis points.
1-Jan
Diana Petramala, Economist
416-982-6420
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