This week, as is always the case before Christmas, Statistics Canada will publish a large amount of economic data before the holidays blackout period. Since those data are published closely one after another, it also gives rise to interesting disparities between economists’ estimates. Here is how this year’s December flurry of economic data is expected to play out:
Tuesday, Dec. 18: Manufacturing Sales (Oct. 2018, Poll: +0.4% m/m, LBS: -1.0% m/m): The largest contributor to the decline in nominal manufacturing sales should be petroleum products, which were being sold at a large rebate in October on the back of falling crude oil prices worldwide. The rebound in trucks and cars production is unlikely to provide a full offset. Moreover, the explosion at the Irving Oil refinery on Oct. 8 temporarily disrupted activity.
Wednesday, Dec. 19: CPI Inflation (Nov. 2018, Poll: -0.4% m/m; 1.8% y/y, LBS: -0.2% m/m; 1.9% y/y): By all accounts, inflation is expected to decelerate sharply in November at 1.8% y/y, from 2.4% in October and a multi-year high of 3% back in July. Energy prices are again a predominant factor in the slowdown and the Bank of Canada will continue to make sense of this volatility by looking at various measures of core CPI Inflation, expected to be stable around 2.0% in November.
Thursday, Dec. 20: Wholesale Trade (Oct. 2018, Poll: +0.4% m/m, LBS: +0.4% m/m): Durable goods order should support a moderate pickup in wholesale trade. Similar to retail trade, wholesalers have seen their shipment slowdown this year as consumer spending growth slowed due to considerably higher interest rates.
Friday, Dec. 21: Retail Sales (Oct. 2018, Poll: +0.4% m/m, LBS: 0.0% m/m), GDP (Oct. 2018, Poll: +0.2%, LBS: +0.2%): Despite the weakness in important services sectors like retail and wholesale highlighted above, a rebound in crude oil production in October and growth in electricity generation due to colder-than-average weather, among others, should lift real GDP by a healthy 0.2% m/m.
Finally, on Friday Dec. 21: The BoC will release its December Business Outlook Survey (for 2018Q4). This widely-followed survey on Canadian firms’ opinion on the state of the economy has been strongly positive since 2017. With this year’s Q4 survey having likely been conducted in October and November, when financial markets entered a pronounced turmoil, we expect some moderation in businesses’ optimism across the board.
Overall, early indicators suggest that Canadian economic activity continued to moderate in 2018 Q4 on a year-over-year basis. We currently expect 1.4% Q/Q AR in 2018 Q4, lower than the BoC’s October 2018 MPR forecast (2.3%). The mandatory oil curtailments in Alberta will also drag down economic activity in late 2018 and early 2019, enough to bring real GDP growth below potential in both 2018Q4 and 2019Q1. Without renewed upward inflationary pressures, it will be difficult for the BoC to resume its tightening cycle before the April meeting, if not later.
Finally, last week’s release of household balance sheet data is likely to make difficult for the BoC to bring its policy rate at or above the mid-point of the large neutral range estimates of 2.50%-3.50% within the next two years. For instance, the share of disposable income dedicated to interest payments and principal rose to 14.5% in 2018 Q3 due to downward revisions to disposable income. This 14.5% figure is the highest in the current business cycle. Thus, robust wage growth will be necessary to preserve the ability of Canadians to honor and refinance their debt.