Next set of data will signal where economy headed
Central bank’s take on information is eagerly anticipated, Gordon Isfeld writes.
If you’re concerned about where the Canadian economy might be headed in the coming months, look to where it has already been for direction.
We know the path of growth has begun to narrow and the signposts are pointing to a still slower pace ahead.
In particular, the next dozen days of data will provide critical pieces to the big picture — from what consumers have been purchasing and at what cost, to how companies view demand for their products, especially manufactured goods, and where output levels and hiring patterns could be affected.
A little farther down the calendar, all these numbers will be crunched and analyzed for the Bank of Canada’s quarterly Monetary Policy Report, to be published Oct. 25, alongside the latest interest rate decision — an announcement many analysts now view as a non-event, given the weaker economic outlook of just two per cent in the secondhalf of 2017 that followed a blistering 4.5-per-cent pace during the first six months.
Even without the possibility of governor Stephen Poloz and his monetary team hiking their key lending level for a third round this year, policy watchers will be keen to parse the central bank’s interpretation of the data gathered in the MPR since the last rate decision.
And for only the second time since Poloz surprised many economists with a 25-basis-point rate hike on Sept. 6 — coming quickly after a similar increase on July 12, the first upward move in seven years — the governor will face public scrutiny over the bank’s policy path, which has now lifted the borrowing benchmark to one per cent.
The first post-hike encounter came after the governor’s Sept. 27 speech in St. John’s, N.L., where a question-and-answer session drew market attention more for what he didn’t explicitly say, but strongly alluded to: No more rate increases, for now.
“We’re in uncharted territory,” Poloz told the audience. “The fact is, nobody really knows.” Earlier, in his prepared address, the governor noted: “There is no predetermined path for interest rates from here. We will continue to feel our way cautiously.”
The “appropriate path” for interest rates “is very difficult to know, because there are a number of important unknowns,” he said. “At a minimum, that additional stimulus is no longer needed.”
But his next meeting with reporters could shed more light on the “if and whens” of another rate move. Poloz will hold a news conference in Ottawa shortly after the Oct. 25 rate decision and MPR release.
“We’re expecting the Bank of Canada to remain on hold ... reflecting their stated intention to monitor how the economy is doing in the wake of the earlier hikes and the stronger Canadian dollar,” said Avery Shenfeld, chief economist at CIBC Capital Markets.
After all, Shenfeld said, “you can’t ‘monitor’ those impacts if you don’t step back for a while and let the data unfold.”
That unfolding continues this week with the Bank of Canada’s quarterly Business Outlook Survey — a key indicator of hiring intentions, sales expectations, investments plans and corporate growth potential. Monday’s survey results are based on cross-country interviews with senior managers at about 100 companies.
According to the previous survey, released June 30, “business activity is continuing to gain momentum, buoyed by indications that domestic demand will improve further.”
But Pedro Antunes, deputy chief economist at the Conference Board of Canada, said “for the last two or three years, we’ve been really worried about investment outside of the resource sector.”
“The narrative was, oh well, the oil and gas sector is suffering but we’ve got a resilient economy — we’re going to see those traditional manufacturing sectors in Eastern Canada doing better with the weak exchange rate and the strong U.S. economy,” Antunes said.
“But, in a matter of fact, we’ve seen very little of that. Investment has actually been negative for two years — and we’ve been waiting (for a turnaround) up until the last couple of quarters — especially in the retooling component.”
On Wednesday, Statistics Canada will offer the most recent data on the manufacturing sector. If the July numbers were any indication — when sales fell 2.6 per cent, due in part to auto plant shutdowns — the sector was likely still struggling in August.
Also this week, retail sales for August — coming out on Friday — should show steady improvement following a 0.4-per-cent increase the previous month. New cars and food items led the gains overall in July.
How much Canadians paid for those items will feed into the next inflation reading, also to be released Friday by Statistics Canada.
The consumer price index rose 1.4 per cent in September from the same month a year earlier, up from an annual rate of 1.2 per cent in August. That’s still below the Bank of Canada’s two-percent target but within its target zone of one to three per cent.