Canada’s Economy Expanded in January for Fourth Month
Canada’s economy expanded for a fourth-straight month in January, led by a rebound in energy production.The economy grew 0.1 percent during the month, from a pace of 0.4 percent in December, Statistics Canada said today in Ottawa. Economists had forecast 0.2 percent growth, according to the median of 26 estimates in a Bloomberg News survey.
The Canadian dollar is poised for its biggest monthly gain since August, amid evidence the nation’s economy is rebounding from a fourth-quarter slowdown. Canada’s pace of expansion, at a three-year low of 1.4 percent in the fourth quarter, may have doubled that rate in the first quarter, economists say.
“Moderate further gains in February and March should give us a 3 percent rate for the first quarter,” said Ted Carmichael, chief Canadian economist for J.P. Morgan Securities Inc. in Toronto.
Investors and economists have been trimming bets for an interest-rate reduction. The yield on the banker’s acceptance contract due in September was trading at 4.31 percent in Montreal today, suggesting some investors are speculating the central bank will raise its 4.25 percent benchmark rate. That yield has risen from as low as 4.05 percent three weeks ago.
The Canadian dollar has gained 1.5 percent this month, trading at 86.71 U.S. cents at 11:06 a.m. in Toronto. The currency has gained 27 percent against the U.S. dollar over the past four years.
Job Gains
Canadian employers have added workers for six consecutive months, including more than 100,000 new jobs in the first two- months of this year, a trend that likely continued into March, according to a survey of economists by Bloomberg News. Canada’s March jobs report is scheduled for release on April 5.
The country’s core inflation rate, the measure most closely monitored by the Bank of Canada and which excludes volatile goods such as gasoline, rose 2.4 percent in February from a year ago, the fastest pace since March 2003, Statistics Canada said last week. The Bank of Canada, which has warned that the economy is at full capacity, sets borrowing costs to keep inflation at 2 percent, and the core rate has been at or above that target since July.
To be sure, the higher Canadian dollar and slowing U.S. growth continue to weigh on the nation’s economy. Factories cut production by 1 percent in January, led by a 12 percent decline by automakers, the statistics agency said today.
Activity by wholesalers and retailers also was tepid in January. Output generated by the nation’s wholesalers rose 0.1 percent, while retailers reduced by 0.2 percent, Statistics Canada said.
U.S. Housing
Bank of Canada Governor David Dodge said yesterday the U.S. housing market’s slump is lasting longer than the central bank had forecast. Canada sends more than 80 percent of its exports to the U.S., including lumber and other building supplies.
Still, construction, one of the main drivers of the nation’s expansion in recent years, remains buoyant, according to today’s report. Construction advanced for an eighth straight month, gaining 0.5 percent in January, today’s report said.
Energy companies, which generate 5.7 percent of the nation’s economic output and have been one of the main job creators in recent years, also rebounded in January with a 1.5 percent increase in production.
With the “economy operating at its capacity limits, core inflation running above target, and the economy likely to expand close to its potential rate in the first quarter, the odds remain heavily tilted towards the Bank remaining firmly on the sidelines,” Marc Levesque, chief economics strategist at TD Securities in Toronto, said in a note to investors.