Recap 2-08-13: Outlook for Canada


Before we get to Canada – there’s this: (h/t All Star Charts)

We got some pretty ugly data out of Canada today. Employment and Housing starts both missed expectations badly, with the housing starts figure at the worst level since mid 2009. This is particularly important for Canada because the strength of its currency vs the USD means that net exports will likely continue worsening for the foreseeable future, which leaves domestic spending as the sole driver of growth.

However, a deeper look at the data suggests that there were likely some seasonality & noise effects at play. First, the Housing starts figure has had a history of dropping sharply early in the year before recovering. This happened in 2005 and 2008. In particular, sharp deviations from the 12 month average have historically been mean reverting:

Secondly, while the employment figure was also bad, it is not out of line with historical levels of volatility:

Generally speaking, it appears the Canadian recovery is still broadly intact. The unemployment rate declined to a new post crisis low last month, changes to the labor force participation rate not withstanding.

HOWEVER, the drop in housing starts will need to be closely monitored, given the perceived richness of price levels. If they can’t climb back above the 200k figure soon, the chart will start to look like the US version circa 2006:

Thus far, (new) housing appreciation in Canada has been very stable:

This supports the idea that the housing starts figure was a one-off. But note that the BoC loan officer survey shows that credit conditions are now only barely easing. A further tightening from here would be quite worrying:


  • Japanese Finance Minister Aso was misquoted as saying that the Yen move was “too fast.” MoF officials later clarified that he meant “fast paced” but that didn’t work.
  • Canada Employment declined -21.9k in Jan vs +5k exp and 39.8k prev. Unemployment, however, declined to 7.0% vs 7.2% exp and 7.1% prev on the back of a 0.2% drop in the participation rate.
  • Canadian Housing starts dropped to 160.6k vs 195k exp and 198k prev. This is the lowest prince since 2009.
  • Japan Eco Watchers Outlook Survey increased to 56.5 in Jan vs 52 exp and 51 prev
  • China M2 jumped to 15.9% YoY vs 14.0% exp and 13.8% prev, although seasonal distortions may have had an impact
  • The RBA lowered 2013 GDP to 2.50% from 2.75%.

Upcoming Data:

  • Fri: Japan Eco Watchers Survey, German Trade Balance, Canadian Employment, USDA WADE reports
  • Mon: Japanese Money Supply, UK RICS House Price Balance, Australia Business Confidence,
  • Tue: UK CPI
  • Wed: BoE Inflation Report, US Retail Sales, Oil Inventories, Japan GDP
  • Thu: BoJ, EU 4Q GDP, US Jobless Claims
  • Fri: G20, US Existing Home Sales