Section 1: Current economic conditions

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Overview ¹ 

Output in the Canadian economy fell 0.1% in November after no change in October. Declines in energy production, construction and demand for utilities accounted for the overall decline in real GDP in November. Employment was flat in January, with gains in employment in natural resources and manufacturing being offset by declines in professional services and the financial sector.

Household demand rose, with retail sales volumes increasing for the fourth straight month and housing increasing from the previous month. Exports also increased, surpassing $40 billion in November for the first time since autumn 2008. Autos led the gain in exports, coupled with rising prices for energy and increased demand for metals. Imports fell 0.8%, resulting in a return to a trade surplus of $1.1 billion.

Prices fell 0.2% in December, the first monthly drop since June, reflecting a drop in gasoline and food prices. Clothing retailers also offered a second month of discounts. For 2011 as a whole, clothing prices increased for the first time in a decade. The reversal in clothing prices has also been documented in other OECD countries.

Output in the United States increased 0.7% in the fourth quarter of 2011, the fastest pace in a year and a half. Growth was attributed primarily to a large swing in inventories though consumer spending also improved slightly, driven by spending on autos.

Labour markets

Employment remained unchanged in January, after a 0.1% increase in December. The number of self-employed fell, offsetting gains in both private and public sectors. As well, the number of full-time positions posted virtually no change from December while part-time positions edged up 0.2%. With the increase in the labour force, the unemployment rate edged up to 7.6%.

Regionally, half of the provinces posted an increase in employment, including New Brunswick, Quebec and the Prairies, while the remaining Atlantic provinces, Ontario and British Columbia showed a decline.

Employment in goods-producing industries rose 0.2% in January while services-producing industries fell 0.1%. A second straight increase in manufacturing employment, concentrated in Quebec, British Columbia and Saskatchewan, coupled with a fifth consecutive monthly increase in natural resources employment accounted for the increase in goods employment overall. Alberta, Ontario and New Brunswick showed gains in natural resources employment. Within the goods-producing industries, construction was the only industry to post a decline, after also falling in December.

The decline in services-producing industries was concentrated in the financial sector, which fell for the fifth month in a row, and in professional services, which registered its largest decline on record, falling by 45,000. The decline in January brought professional services employment back to levels of August 2011. Health and accommodation services also decreased.

Leading indicators

The composite leading index increased 0.8% in December, following a gain of 0.9% in November. The increase was broad based with eight of the ten components rising. It was the sixth consecutive rise in the indicator.

Manufacturing increased across the board for the second consecutive month, with autos providing a substantial boost, while retail sales of durable goods increased for a sixth straight month. Housing, services employment, and money supply growth also contributed positively, while the US leading indicator rose again on the strength of financial indicators, building permits and consumer confidence in the United States.

In contrast, the stock market continued to decline, its seventh consecutive monthly drop. Furniture sales were also down.

Output

Real GDP edged down 0.1% in November after no change in October and a 0.2% gain in September. A drop in goods output of 0.6%, the second monthly decline following four monthly increases, accounted for the overall decline. Services expanded by 0.1% as they have each month since August.

The decline in goods output was attributed to a drop in utilities, construction, and oil and gas extraction, which offset an increase in manufacturing. As in October, the unseasonably warm weather in November depressed demand for energy and lower construction of single-family dwellings dampened construction. In addition, in November extended maintenance in the oilsands resulted in a drop in crude oil extraction and its support activities. Natural gas extraction also decreased. Mining output outside of oil and gas, which had been falling for the past three months, rose 0.3% in November on the strength of metal ores.

Manufacturing rose 0.6%, the third consecutive monthly increase, reflecting a 8.7% increase in motor vehicle manufacturing, which also supported suppliers, notably in iron and steel and metal fabricating. Non-automotive manufacturing edged up 0.1%.

The rise in services was broad based, led by retail trade which received a boost from dealership sales of motor vehicle parts, and real estate. This was the seventh consecutive rise in real estate services. Nearly offsetting this increase were declines in wholesale trade, and finance and insurance. The decline in output in the finance industry was largely due to a drop in trading volumes.

Household demand

The volume of retail sales rose 0.5% in November, the fourth consecutive monthly increase. Spending on durable goods rebounded from the previous month's decline with household furniture and appliances driving the overall gain. Automotive goods remained unchanged. Higher sales of parts were offset by lower car sales due in part to shortages of certain models in dealerships. Consumption of non-durable goods increased for the second month in a row as food and gasoline prices continued to moderate. Sales of clothing and electronics also rose.

The housing market edged up in December, after declining in November, with housing starts and existing home sales posting gains. New home sales were down slightly after a sizeable gain in November.

Housing starts increased following a drop last month, returning to an annual rate of 200,200 units in December. Starts for single-family dwellings rose for the fourth consecutive month to their second highest level of the year. The number of multiple units recovered two-thirds of November's decline.

Existing home sales increased 1.8% in December following a 0.5% gain in November. Sales were higher in the West and lower in the Eastern provinces in December, the reverse of the sales in November. Ontario posted increases in both months. Average sale prices dipped in December after posting zero growth in November.

Merchandise Trade

Exports rebounded 3.2% in November, more than recouping the previous month's drop. Half of the rise in exports was accounted for by an increase in volumes and the other half by higher prices. After posting gains throughout the third quarter of 2011, monthly exports surpassed $40 billion in November for the first time since fall 2008. Imports fell 0.8%, resulting in a return to a trade surplus of $1.1 billion.

A sizeable gain in automotive goods led November's rise in exports, although all major sectors but forestry increased. After a sluggish spring and summer, this was the third consecutive increase for autos. Exports of energy products and industrial goods also increased, with prices accounting for all of the rise in energy and half of the rise in industrial goods. Exports of industrial goods remained 3% lower than their September high. Forestry exports fell to their lowest level of 2011.

The decline in imports in November followed a 2.2% increase in October. Machinery and equipment edged down, as did auto products. Imports of autos fell despite the rise in parts, as a result of large declines in cars and trucks. Flooding in Thailand in October was reported to have disrupted auto production, primarily for Japanese transplants, into November. Energy rose as increased imports of fuel oil offset a decline in coal. Crude petroleum exports were unchanged, as a 10% increase in import prices was offset by an equal decline in volumes.

Prices

The consumer price index (CPI) declined 0.2% between November and December, resulting in a 0.6 percentage point deceleration in the year-over-year rate of inflation to 2.3%. The core CPI also slowed from 2.1% year-over-year to 1.9%.

Gasoline and food prices eased in December, contributing to the month's decline. Transportation prices were down 1.1%, with both decelerating gasoline prices and discounts on autos being factors. Food price gains continued to slow in December, rising only 0.1% compared to 0.2% the month before. Clothing prices continued to fall in December after a steep discount the previous month. Shelter, health and personal care costs rose in December while durable goods, recreation and alcoholic beverages and tobacco all remained unchanged for the month.

Commodity prices softened in January, with energy prices continuing to ease, offsetting modest gains in metals and minerals. Gold prices rallied to over US$1,739 an ounce in the third week of January but retreated from this six-week high by the close of the month.

Financial markets

The stock market rallied in January, with prices rising 5% in the month. While the gains were broad based, metals and mining, energy and industrials saw the largest increases in response to rising industrial demand.

Short-term business credit rebounded in December, after contracting the previous two months. Total business borrowing was restrained, however, by a slowdown in issues of stocks and bonds. Household credit continued to expand, supported by another increase in residential mortgage credit by chartered banks.

After retreating against the U.S. dollar in December, the Canadian dollar appreciated in January, touching parity near the end of the month.

Regional economies

Housing increased in Ontario in December, leaving the year 13% above the 2010 level, the largest gain of any region. Retail sales edged down for the second straight month in November, following a pickup in demand in late summer. Steady demand in November for autos, aerospace and machinery boosted manufacturing sales up 2%, their highest level of the year.

Quebec retail sales rose 0.7% in November, their third consecutive gain. Housing starts increased in both November and December but were down 5% for the whole of 2011, compared to an increase in housing the previous year. Manufacturing sales were flat in November, as a drop in aerospace offset the first rise in primary metals in four months.

Following a surge in October, housing starts fell in the Prairie provinces in November and December, and finished 2011 just 2% above 2010. Employment helped push retail sales up for the fourth straight month in November. Manufacturing sales recovered in November, driven by Alberta's petroleum receipts.

Manufacturing sales in BC recouped their losses from the previous two months in November, as demand for wood was buoyed by an upturn in US housing, while paper broke a four-month slide. Housing fell at year-end, capping the year's growth at 2.4%. Retail sales increased for the fourth month in a row in November.

International economies

In the United States, real GDP increased 0.7% in the fourth quarter of 2011, up from 0.5% in the third, and its fastest pace in a year and a half. Growth was fuelled primarily by a large swing in inventories, as business investment slowed and exports and government spending contracted. Consumer spending improved slightly, driven by spending on autos. For the year as whole, the economy expanded 1.7%, compared with 3% in 2010.

Industrial production rebounded 0.4% in December, after a 0.2% decline in November when there was a shortage of auto parts. Manufacturing output grew 0.9%, its largest gain in a year, led by business equipment and autos. New orders rose 3%, down slightly from November's pace as aerospace demand eased.

Housing starts slid 4.1% in December, after hitting their highest level of the year in November. However, all of the drop was in multiple units. Starts of single-family homes posted their largest rise in seven months, up 4.4% from November.

Retail sales rose 0.1%, following a 0.4% increase in November. The increase was the smallest in seven months, dampened by lower gasoline prices and heavy discounting by retailers during the holiday season. In contrast, higher auto sales saw their best two months of the year in November and December. Employment gained a further 200,000 jobs in December, marking the sixth straight month at least 100,000 jobs were added, and helped push the unemployment rate to a three-year low of 8.5%.

The U.S. trade deficit widened in November for the first time in five months. Exports fell for a second consecutive month, down 0.9% due to a 6% drop in shipments to Europe, which buys approximately one-fifth of US exports. Imports rose 1.3%, driven by higher oil prices and volumes.

Industrial production in the euro-zone fell 0.1% in November, following larger declines in September and October, as a pickup in energy could not offset lower output elsewhere. New orders contracted 1.3%, led by capital goods. Construction grew for the first time in fourth months, boosted by Germany. Aided by continued weakness in the euro, external trade tipped into a surplus position in November when exports grew 3.9% and imports remained flat. Consumers put their wallets away as confidence waned and the unemployment rate remained high at 10.3%. Inflation eased to an annual rate of 2.7%, primarily due to lower energy prices.

German industrial production retreated 1% in November, offsetting all its October gain, as auto manufacturers reduced production after ramping up output during the summer. New orders fell 5%, hampered by weak demand for capital goods. Exports rose 2.5% to partially offset a 2.9% contraction in October. Construction rose for the second straight month in November, after stagnating for most of the year. Consumers remained reluctant to spend, with retail sales falling for the third time in four months. The annual rate of inflation eased to 2.3% in December and the unemployment rate in November fell to 5.5%, marking a record low since figures for a unified Germany began in 1991.

Industrial production in France strengthened 1.1% in November, lifted by electronic equipment and refinery output, while new orders posted their first gain in three months. The external trade deficit continued to widen as imports further outstripped exports. Construction recouped its October loss, while the unemployment rate inched up to 9.8%. Inflation held steady in December.

Real GDP in the UK fell 0.2% in the fourth quarter of 2011, as manufacturing contracted and services were flat. Industrial production shrank for the second straight month in November and Britain continued to have the largest external trade deficit in the euro-zone. Construction posted its second consecutive monthly gain as some easing occurred in credit markets. Despite heavy discounting by retailers in November, consumer spending was unchanged. Declines in fuel and energy costs lowered the annual rate of inflation to 4.2% in December, down from November's rate of 4.8%.

Japan recorded a $32 billion (US) trade deficit for 2011, the first trade deficit in three decades. Exports had been dampened throughout the year by the March tsunami, flooding in Thailand which caused supply chain disruptions, a rising yen and a nuclear crisis that caused power shortages and boosted fuel imports at a time of high energy prices. Exports rose slightly in December, but that only partly offset sharp declines in October and November. Consumer demand remained tepid at year-end, with persistent deflation and an unemployment rate of 4.5%, high by historic levels.

China's economy grew 8.9% year-over-year in the fourth quarter of 2011, its weakest pace in two-and-a-half years. Growth for all of 2011 slipped to 9.2%, down from 10.4% in 2010. Industrial production in December rose 12.8%, up slightly from November, as manufacturers ramped up output. Both export and import growth slowed in December from year-earlier levels. Exports rose 13.4%, while imports grew 11.8%, half the previous month's rate. The trade surplus for the year was down 14.5% from 2010 and marked a three-year low. Consumer spending increased 18.1% in December on a year-over-year basis, boosted by a government rebate for replacing household appliances and the upcoming New Year holiday. Inflation dipped to an annual rate of 4.1% in December, the lowest level in 15 months. Food prices, however, rose 9.1%, up from 8.8% the month before.

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