Loonie’s strength goes beyond oil
With the oil price slipping down to t he l ow- US$ 40s per barrel, some are beginning to worry that the loonie, which has rebounded strongly since early May, could become vulnerable once again. But there are several reasons why I’m not too concerned about loonie slippage right now.
First, the current price of oil is still consistent with a Canadian dollar trading at close to US77 cents, more than a cent above where it was trading late this week.
Second, the near- record net speculative short position ( 88,510 contracts) has barely closed — down just over 10 per cent in the past two weeks, so there is still plenty of squeezing left. And, of course, the Bank of Canada seems to mean business when it comes to raising rates — and why shouldn’t it, with real GDP growth accelerating at a 3.8-per-cent annual rate over the past six months.
While it is true that housing and autos, both the direct impact and ancillary effects, have surged at a 12-per-cent pace, the rest of the Canadian economy has still managed to expand at a respectable 3.2- per- cent annual rate. This, in turn, should give the Bank of Canada some comfort that there is more to this latest leg of decent data outside of these two once- hot sectors, which are due for a pause at the very least. That the Canadian economy, excluding housing and autos, could be performing this well with oil and gas activity having contracted at a 3.1- percent annual rate over the past six months looks pretty impressive. Not to mention commercial construction slumping at a 4.6- per- cent pace as well.
So, what’s hot in Canada? Well, food manufacturing has expanded at a meaty 5.7-percent annual rate. Beverage production has risen a bubbly 11.5 per cent. Apparel output has dressed up by 12.1 per cent. Fabricated metal production is up a steely 14.7 per cent. Machinery manufacturing is up almost 15 per cent. Industrial machinery has gained 7.5 per cent — these are impressive performances in the classic industrials. So much for the hollowing out of Canadian manufacturing — it is growing leaps and bounds faster than the U.S. (shhhh ... Donald Trump isn’t supposed to know). The high-tech sector also has expanded at an 8.3-per-cent annualized rate in the past six months.
On the service sector front, there have been big gains in farm product wholesaling (26 per cent). On the retail side, furniture and home furnishings (15.4 per cent) and electronics and appliances ( 19.5 per cent) are booming. Drug stores and grocery outlets are actually seeing volume sales growth of five to six per cent at an annual rate. Same for clothing outlets.
Air transport services are up 4.2 per cent and the rails are seeing volume growth of 6.6 per cent, which is very solid. Same for trucking at a 5.4-per-cent annualized rate on a six-month basis.
The motion picture industry has expanded 9.5 per cent, and all anyone has to do is spend a few days in Vancouver (“Volleywood”?) to figure that out.
And the financial sector is churning out output at nearly a six-per-cent annual rate, which is why Toronto will do just fine even as the housing bubble fizzles out.
And, as with the manufacturing side, technology services (as in computer systems design) is running hot at a 9.7-per-cent annual rate, which is why the Kitchener-Waterloo area is increasingly being dubbed “Silicon Valley North.” Ancillary industries in management, scientific and tech consulting are also performing admirably at over a four-per-cent pace of expansion. And through all this, with very little help from the government sector, whose growth is being constrained at just one per cent. Call it the “look ma, no hands!” economy with a bid that actually transcends the credit- sensitive housing and auto sectors, whose best days are long gone.