Monthly economic indicators[588]

November 2004 Includes a special report on: Canada’s Oil and Gas Sector The "Monthly Economic Indicators" (MEI) provides a variety of economic analysis and data in a convenient format. The MEI does not interpret or evaluate government policies, and every attempt is made to present factual information in an informed and balanced manner consistent with generally accepted economic principles. It is available to all employees of Industry Canada in either hard or electronic copy, or can be accessed via the Internet at http://strategis.ic.gc.ca/epic/internet/ineas-aes.nsf/en/h_ra01898e.html MONTHLY ECONOMIC INDICATORS November 2004 HIGHLIGHTS Real GDP rose 0.5% in August, fuelled by growth in manufacturing and trade. This was the sixth consecutive monthly increase. The l abour market ad ded 34, 000 n et positions in October, mostly in services and co n c en t r at ed i n O n t ar i o a n d B r i t i sh Columbia. The unemployment rate remained at 7.1%. These developments together with strong retail sales point to growth of 3.0% to 3.5% in the third quarter, led by domestic demand. The United States (U.S.) economy grew 3.7% in the third quarter, with consumer spending accounting for most of the growth. The Federal Reserve increased its fed funds rate by 25 basis points to 2.0% on November 10. The Bank of Canada has left the door open for another rate hike on December 7. In recent weeks the Canadian dollar has traded above US¢83, which is estimated by the OECD to be near its long-term equilibrium value. Key Monthly Economic Indicators % Change since last last month year Real GDP ($97 B) Goods Services Composite Index Employment (000's) Full-time Part-time Unemployment* (%) Youth* Adult* 1,052.6 330.6 723.1 199.9 16,111 13,160 2,951 7.1 13.4 5.9 0.5 0.6 0.4 0.3 0.2 0.1 0.7 7.1 13.5 5.8 1.9 0.8 -5.4 6,438 -3.4 0.4 -0.5 4.6 5.3 4.3 8.4 1.8 2.5 -0.9 7.6 13.9 6.4 Aug. Aug. Aug. Sep. Oct. Oct. Oct. Oct. Oct. Oct. CPI inflation* 1.8 Retail Sales ($M) 29,085 Housing Starts (000's)** 225.0 Trade Balance* ($M) Exports Imports M&E 5,055 36,088 31,033 8,794 2.2 Sep. 3.4 Aug. -7.3 Oct. 5,371 8.8 11.6 7.5 Sep. Sep. Sep. Sep. October November 17 *** 2004 3-mth Corp. paper (%)* Long bond yield (%)* Canadian dollar (US¢)* 2.76 4.45 83.79 2.60 4.52 82.10 2003 2.71 4.85 75.84 *Data in levels only – % change not reported **Canada Mortgage and Housing Corporation ***Bank of Canada's Weekly Financial Statistics All other data from Statistics Canada The "Monthly Economic Indicators" (MEI) provides a variety of economic analysis and data in a convenient format. The MEI does not interpret or evaluate government policies, and every attempt is made to present factual information in an informed and balanced manner consistent with generally accepted economic principles. It is available to all employees of Industry Canada in either hard or electronic copy, or can be accessed via the Internet at http://strategis.ic.gc.ca/epic/internet/ineas-aes.nsf/en/h_ra01898e.html Industry Canada Industrie Canada Canada MONTHLY ECONOMIC INDICATORS November 2004 CONTENTS The Economy Real GDP by Industry ............................................................................................ 3 Consumer Spending and Attitudes ....................................................................... 4 Business Investment in Plant and Equipment ....................................................... 5 Housing ................................................................................................................. 6 Trade and Competitiveness ................................................................................... 7 Labour Market Trends Employment and Unemployment ......................................................................... 8 Industry Overview ................................................................................................. 9 Provincial Overview .............................................................................................. 10 Prices and Financial Markets Consumer and Commodity Prices ......................................................................... 11 Short-term and Long-term Interest Rates ............................................................. 12 Exchange Rates and Stock Prices ....................................................................... 13 Page The United States Economy U.S. Economic Trends ......................................................................................... 14 Special Report Canada's Oil and Gas Sector ............................................................................... 15 Coming Up... Key Future Data Releases/Planned Events .............................................................. 17 This issue uses data available as of November 17, 2004. It has been prepared by Éric Chalifoux, Stéphane Crépeau, Kevin Koch, Joseph Macaluso, Sue Moore, François Poitras and François Rimbaud of the Micro-Economic Analysis Directorate, under the direction of Hossein Rostami. Translation has been provided by Lucie Larocque and Sue Hopf is responsible for production support. Sources of information primarily include Statistics Canada, as well as the Bank of Canada, Canada Mortgage and Housing Corporation, Canadian Real Estate Association, Conference Board of Canada, U.S. Bureau of Economic Analysis, and U.S. Bureau of Labor Statistics. Unless cited otherwise, data contained in graphs and tables are derived from Statistics Canada. Please address comments to Hossein Rostami at (613) 995-8452 or through the Internet at rostami.hossein@ic.gc.ca. ISSN 1206-2588 THE ECONOMY Real GDP by Industry Economic activity continued to pick up in August... Real GDP at basic prices rose 0.5% in August, after increasing 0.2% in July. Information and communication technologies (ICT) industries continued to recover as production rose 14.4% compared to the year before. Average real GDP in July and August was 3.2% (annual rate) higher than in the second quarter, suggesting continued robust growth in the third quarter. ...as output in the goods sector rose... Goods production was up 0.6% in August after rising 0.3% in July. Industrial production (manufacturing, mining and utilities) was up 0.9% in August, marking the sixth consecutive month of expansion. The utilities sector led the increase followed by manufacturing and mining. Stronger domestic demand coupled with a build-up of inventories fuelled the increase in the manufacturing sector. ...and the service sector increased Service output increased 0.4% after edging up 0.2% in July. Increases were widespread, led by the arts, entertainment and recreation (AER) industry (3.4%) and retail trade (1.1%). Wholesale trade also increased strongly (0.8%) as sales of automotive products, machinery and electronic equipment surged. On a year-over-year basis, services output was up 4.3%, led by wholesale trade (15.1%), AER (6.8%), transportation and warehousing (6.7%), and public administration (4.0%). Real GDP at Basic Prices 1.5 % change Composite Leading Indicator Real GDP at Basic Prices (1997 chained dollars) August 2004 $ millions Total Economy Business Sector Goods-producing 1,052,578 894,228 330,596 monthly % Change since last month year change 4,769 4,337 1,998 -73 140 311 -217 1,869 2,748 528 678 -29 -7 675 83 112 143 111 330 27 40 67 0.5 0.5 0.6 -0.3 0.4 1.2 -0.4 1.0 0.4 0.8 1.1 -0.1 0.0 0.3 0.2 0.5 0.3 0.2 3.4 0.1 0.2 0.1 4.6 4.9 5.3 2.9 1.9 1.2 1.3 8.8 4.3 15.1 2.7 6.7 1.8 3.7 2.8 3.6 2.7 2.0 6.8 2.1 2.0 4.0 1.0 0.5 0.0 23,665 Agri., Forest, Fish, Hunt* Mining & Oil & Gas Extraction 37,968 Utilities Construction Manufacturing 1998 1999 2000 2001 2002 2003 2004 -0.5 25,918 57,177 185,490 -1.0 1997 Real GDP by Major Sector 135 131 127 123 119 115 111 107 103 99 1997 1998 1999 2000 2001 2002 2003 2004 January 1997 = 100 Goods Manufacturing Services Services-producing 723,131 Wholesale Trade 67,245 Retail Trade 59,879 Transportation & Warehousing 50,371 Information & Cultural 43,185 FIRE** Professional*** Admin. & Waste Mgmt Education Health & Social Arts, Entertain. & Recreation Accommodation & Food Other Public Administration 211,099 46,475 22,265 45,719 63,101 9,907 23,275 24,493 57,642 *Agriculture, Forestry, Fishing & Hunting **Finance, Insurance & Real Estate ***Professional, Scientific & Technical services MEI November 2004 3 THE ECONOMY Consumer Spending and Attitudes Consumer spending grew in the third quarter... Real retail sales remained brisk, rising in both July (0.4%) and August (0.8%). Assuming no growth in September, real retail sales will rise 5.5% in the third quarter, following a 2.4% increase in the second. New motor vehicle sales have declined 9.5% in the third quarter, following an increase of 19.2% in the second. However, this latest decline was accompanied by an 11.2% rise in the average vehicle price, following a similar decline in the second quarter. Total Retail and Motor Vehicle Sales 30.0 28.0 26.0 24.0 22.0 20.0 18.0 16.0 1996 1997 1998 1999 2000 2001 2002 2003 2004 Motor Vehicle Sales (Right) Total Sales (Left) $ Billions $ Billions 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 ...and rising income and high confidence bode well for sustained growth In the third quarter, major collective bargaining settlements provided base rate wage increases of 1.3% on average, the same as in the second quarter. Combined with employment growth in September (0.3%) and October (0.2%), this bodes well for sustained growth in personal income and consumption. Moreover, while the consumer confidence index retreated slightly (2.6 points) in October, it remains at a high level compared to its 10-year average (112.8). Retail Sales and Consumer Credit August 2004 % Change since last last $ millions month year 0.8 0.8 1.8 -1.5 0.8 0.9 -0.0 1.6 0.9 1.1 3.4 4.7 7.7 3.7 3.2 1.6 4.0 3.5 4.8 10.6 Total Retail Sales (S.A.) 29,085 Food Drug Stores Clothing Furniture Automotive General Merch. Stores All other Stores Total ex. motor vehicles Consumer Credit 5,679 1,917 1,666 1,867 9,776 3,527 4,653 22,075 262 Real Consumer Spending and Household Finances $ Millions, SAAR (unless otherwise noted) 2002 2003 Real Consumption (97$) % change Durable Goods % change Semi-Durable Goods % change Non-Durable Goods % change Services % change Disposable Income % change Saving Rate (%) Debt-to-Income Ratio (%) 601,594 3.4 93,099 8.3 54,472 3.8 137,196 2.3 317,627 2.6 692,691 3.8 3.2 98.1 620,444 3.1 94,923 2.0 56,142 3.1 140,078 2.1 330,098 3.9 713,548 3.0 1.4 101.6 2004 Q1 635,614 6.4 95,286 9.2 58,391 15.7 142,661 5.3 339,967 4.9 731,080 6.6 0.8 103.3 2004 Q2 637,677 1.3 96,145 3.7 58,720 2.3 142,269 -1.1 341,399 1.7 745,344 8.0 1.5 103.0 Real Consumer Spending and Attitudes 190 Index (1995 Q1=100) Total Spending (Left) 170 Durable Goods (Left) Consumer Attitudes* (Right) 140 1991=100 160 150 120 130 100 110 80 90 123412341234123412341234123412341234123 95 96 97 98 99 00 01 02 03 04 60 *Conference Board of Canada MEI November 2004 4 THE ECONOMY Business Investment Investment rose in the second quarter, notably in the energy sector... Investment in construction and machinery and equipment in the energy sector rose 13.3%* and 16.2%*, respectively. This was much higher than growth of 3.4% and 4.5% in total investment for these two categories, respectively. Investment in Plant and Equipment 235 215 195 175 155 80 Index (1992Q1=100) Machinery & Equipment (Left) Non-Residential Construction (Left) Capacity Utilization (Right) 90 % 100 ...but prospects are mixed for the third quarter Real business investment in non-residential structures declined 2.7% in the third quarter, following a drop of 7.3% in the second. Shipments of machinery rose 17.0% in the third quarter while exports of M&E declined 2.6%. This, combined with the fact that imports of M&E increased slightly in the third quarter, suggest M&E investment might rise in the third quarter. Sustained profits, high business confidence, and a strong Canadian dollar vis-a-vis the US greenback auger well for investment prospects. *Data from the Conference Board of Canada. 135 115 95 75 60 1992 1994 1996 1998 2000 2002 2004 1993 1995 1997 1999 2001 2003 70 Corporate Profits & Business Confidence 225 200 175 150 125 100 Index, 1991=100 % of GDP 16 Corporate Profits as % of GDP (Right) Business Confidence* (Left) 14 12 10 8 6 75 4 1992 1994 1996 1998 2000 2002 2004 1993 1995 1997 1999 2001 2003 *Conference Board of Canada Business Investment and Corporate Finances $ Millions, SAAR (unless otherwise noted) 2002 BUSINESS INVESTMENT Machinery & Equipment (1997$) % change Non-residential Construction (1997$) % change Capacity Utilization (%, Non-farm goods) Capacity Utilization (Mfg. sector) CORPORATE FINANCES & ATTITUDES Corporate Operating Profits % change Profits - Non-financial industries % change Profits - Financial industries % change Business Credit % change 149,969 4.8 115,798 8.8 34,169 -6.8 890,789 3.8 172,118 14.8 128,203 10.7 43,915 28.5 905,602 1.7 171,528 22.8 125,872 19.0 45,656 34.2 906,185 1.5 178,676 17.7 131,604 19.5 47,072 13.0 911,884 2.5 194,936 41.7 143,232 40.3 51,704 45.6 922,183 4.6 202,952 17.5 153,088 30.5 49,860 -13.5 936,077 6.2 82,715 -1.2 44,493 -8.3 82.3 83.3 86,441 4.5 44,928 1.0 82.1 83.0 88,229 17.8 45,109 4.0 81.3 81.6 88,920 3.2 45,501 3.5 83.0 84.2 90,973 9.6 45,238 -2.3 83.4 85.0 91,985 4.5 45,613 3.4 84.6 86.6 2003 2003 Q3 2003 Q4 2004 Q1 2004 Q2 MEI November 2004 5 THE ECONOMY Housing Housing activity moderated in the third quarter... Residential construction fell again in August (0.3%), the fifth consecutive month of decline. However, it was still up 5.2% compared to the level a year earlier. The value of residential building permits issued fell 3.3% in September. This was the first time since late 1997 that perm its have fallen three m onths in a row. However, September's value was 4.3% higher than the average monthly level in 2003. Housing starts fell 5.4% in October, after declining 1.2% in the third quarter from the second. The urban declines were concentrated in British Columbia (21.2%) and Atlantic Canada (13.7%). In Ontario, housing starts also fell (3.8%). However, housing starts remain at a high level and are on pace to reach a 17-year high this year, according to the Canada Mortgage and Housing Corporation. Housing Activity 25 23 20 18 16 14 11 Residential Construction (Left) 9 1996 1997 1998 1999 2000 2001 2002 2003 2004 *Canada Mortgage and Housing Corporation Housing Starts* (Right) $ Billions Units (000s) 275 250 225 200 175 150 125 100 Monthly Housing Indicators Levels Residential Construction (1)* ($97M, basic prices) Change since Last Last month year -0.3% -4.3% -1,079 5.2% 2.3% -2,236 20,671 2,955 25,111 Building Permits, $M (2)* Sales of Existing Homes (3)** (# of units) ...helping the housing market to become more balanced Another sign that the housing market is cooling off is the recent moderation in housing prices. New housing prices rose by 5.8% in September, down slightly from the 6.0% and over posted in recent months. The average house prices have risen by more than 40% over the past four years amid rising demand associated with low mortgage rates, strong employment growth and pent-up demand. However, rising interest rates and exhausted pent-up demand are dampening housing demand and prices. Consequently, most analysts now expect a shift from a seller's to a balanced market. Real Investment in Residential Structures $97 Millions, SAAR (unless otherwise noted) Residential Construction % change New Housing % change Alterations & Improvements % change Ownership & Transfer Costs % change 2002 58,133 14.4 28,900 23.2 20,600 4.7 8,639 11.5 2003 62,452 7.4 30,678 6.2 22,619 9.8 9,204 6.5 2004 Q1 66,634 12.0 33,072 12.9 24,000 13.1 9,628 7.1 2004 Q2 67,632 6.1 33,449 4.6 24,040 0.7 10,128 22.4 Housing Starts, (3)*** (# of units, SAAR) Newfoundland & Labrador Prince Edward Island Nova Scotia New Brunswick Quebec Ontario Manitoba Saskatchewan Alberta British Columbia 225,000 -12,900 -17,800 2,700 -100 -700 900 200 200 4,600 -700 1,100 3,400 -1,200 -600 56,200 -2,900 -100 83,300 -2,700 -16,200 4,400 0 -2,000 4,200 700 800 38,100 700 4,300 27,200 -6,900 -4,600 1 - August data; 2 - September data; 3 - October data Sources: *Statistics Canada; **Canadian Real Estate Association; ***Canada Mortgage and Housing Corporation Growth in Real Residential Construction % change, SAAR 19.6 14.4 10.5 7.4 3.6 5.2 8.2 6.5 6.1 12.0 -0.3 -3.6 98 99 00 01 02 03 1 2 03 3 4 1 04 2 MEI November 2004 6 THE ECONOMY Trade and Competitiveness Imports rose and exports declined in September… Merchandise exports declined 3.4% in September after declining 0.4% in the previous month. Exports to the U.S., Japan and the European Union decreased, while exports to other major trading areas increased. On a commodity basis, exports fell in all principal groupings, led by agricultural and fishing products, machinery and equipment and automotive products. In the third quarter, export prices and volumes both rose 0.2%. Imports rose 0.4% in September following a decrease of 2.5% in August. Imports from the U.S. and the European Union rose, while those from other major trading areas fell. Agricultural and fishing products, forestry products and industrial goods and materials led the increase. Import prices declined 1.4%, while import volumes rose 3.9% in the third quarter. Merchandise Trade Flows and Balance 40.0 35.0 7.5 30.0 25.0 20.0 15.0 Trade Balance (Right) 10.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 0.0 Imports (Left) 2.5 5.0 $ Billions Exports (Left) $ Billions 10.0 Unit Labour Cost Comparison ($US) 110 Ratio: Canada/U.S.; 1992=100 A falling line represents an increase in Canadian competitiveness $US per $CAN …pushing the trade surplus lower As a result of exports declining and imports increasing, Canada's trade surplus declined by $1.4 billion to $5.1 billion. Furthermore, the trade surplus with the U.S. deteriorated. In the third quarter, the trade surplus fell to $17.3 billion. Consequently, net exports had a negative impact on economic growth in the third quarter after a substantial contribution in the second quarter. 0.9 90 Business Sector (Left) Exchange Rate (Right) 0.8 70 50 3 4 1 2 03 04 Source: Statistics Canada & U.S. Bureau of Labor Statistics 93 94 95 96 97 98 99 00 01 02 03 2 0.6 Merchandise Trade September 2004 Levels ($ millions) August 2004 Exports to United States 37,354 30,236 30,916 21,340 6,438 8,896 2,776 6,011 3,468 6,670 7,964 7,665 1,433 1,741 2,041 269 6,278 8,836 6,820 3,964 Year-to-date ($ millions) Jan.-Sep. 2003 302,466 250,671 258,363 181,369 44,103 69,302 21,821 47,061 25,649 49,304 67,633 65,731 12,978 16,301 14,770 2,288 49,196 74,396 57,807 34,815 Change ($M) % Change September 2004 36,088 29,425 31,033 21,529 5,055 7,896 2,468 5,906 3,387 6,555 7,552 7,440 1,400 1,805 1,989 273 6,362 8,794 6,755 3,974 Jan.-Sep. 2004 322,477 263,134 269,933 187,239 52,544 75,895 23,711 50,473 29,930 57,893 69,434 68,019 13,073 15,960 17,321 2,367 53,984 77,773 58,353 35,319 Aug. to Sep. Aug. to Sep. Jan.-Sep. 2003 to 2004 2004 Jan.-Sep. 2004 -1,266 -811 117 189 -1,383 -1,000 -308 -105 -81 -115 -412 -225 -33 64 -52 4 84 -42 -65 10 -3.4 -2.7 0.4 0.9 6.6 5.0 4.5 3.2 Imports from United States Trade Balance with United States Exports by Commodity Agriculture/Fishing Products Energy Products Forestry Products Industrial Goods & Materials Machinery & Equipment Automotive Products Other Consumer Goods -11.1 -1.7 -2.3 -1.7 -5.2 -2.9 -2.3 3.7 -2.5 1.5 1.3 -0.5 -1.0 0.3 8.7 7.3 16.7 17.4 2.7 3.5 0.7 -2.1 17.3 3.5 9.7 4.5 0.9 1.4 Imports by Commodity Agriculture/Fishing Products Energy Products Forestry Products Industrial Goods & Materials Machinery & Equipment Automotive Products Other Consumer Goods MEI November 2004 7 LABOUR MARKET TRENDS Employment and Unemployment Employment up further in October... Employment rose 34,000 in October, the second consecutive monthly increase following a pause in the previous two months. October gains reflect an increase of 13,000 full-time and 21,000 part-time jobs. Since the beginning of the year, full-time employment has risen 243,000 (1.9%), more than offsetting a decline of 52,000 (1.7%) in part-time jobs. The number of hours worked edged down 0.6% in October. Most of the decline is associated with an estimated 60,000 federal government employees that were absent from work due to a labour dispute during the Labour Force Survey reference week. Youth employment rose 11,000, all in part-time. (18,000). So far this year, youth employment has risen 27,000 (2.1%). The employment rate edged up 0.1 percentage point to 62.7% to reach its historical peak. Employment 100 80 60 40 20 0 -20 -40 1998 Monthly change in thousands 1999 2000 2001 2002 2003 2004 Unemployment Rate 13.0 12.0 11.0 10.0 66.0 9.0 8.0 7.0 Participation Rate (Right) 6.0 1992 1994 1996 1998 2000 2002 2004 64.0 % Unemployment Rate (Left) 67.0 % 68.0 ...and the unemployment rate remained at 7.1% Despite the employment gains, the unemployment rate remained at 7.1%, as more people sought jobs in October. The unemployment rate edged down to 13.4% for youths and rose to 5.9% for adults. 65.0 Labour Force Trends Levels (in thousands) Employment Full-time Part-time Youth 15-24 Adult 25+ Self-employed Unemployment Unemployment Rate Youth 15-24 Adult 25+ Labour Force Participation Rate Employment Rate 2003 October 15,822.0 12,843.0 2,979.0 2,397.6 13,424.5 2,433.8 1,304.3 7.6 13.9 6.4 17,126.3 67.6 62.4 Change since 2004 October 16,110.7 13,159.7 2,951.0 2,445.3 13,665.4 2,485.3 1,230.6 7.1 13.4 5.9 17,341.2 67.4 62.7 % Change since year-todate 190.0 242.5 -52.4 26.5 163.6 47.9 -36.2 -0.3 -0.6 -0.2 153.8 -0.3 0.0 2004 September 16,076.4 13,146.5 2,929.9 2,434.8 13,641.5 2,472.4 1,221.4 7.1 13.5 5.8 17,297.8 67.4 62.6 last month 34.3 13.2 21.1 10.5 23.9 12.9 9.2 0.0 -0.1 0.1 43.4 0.0 0.1 last year 288.7 316.7 -28.0 47.7 240.9 51.5 -73.7 -0.5 -0.5 -0.5 214.9 -0.2 0.3 last month 0.2 0.1 0.7 0.4 0.2 0.5 0.8 last year 1.8 2.5 -0.9 2.0 1.8 2.1 -5.7 0.3 1.3 MEI November 2004 8 LABOUR MARKET TRENDS Industry Overview Employment in the Goods sector recovered partially, fuelled by job gains in construction Employment in the Goods sector edged up 5,000 in October, following declines in August (7,000) and September (21,000). Employment rose in construction and agriculture, offsetting losses in utilities, natural resources and manufacturing. Since the beginning of 2004, the Goods sector has gained 29,000 jobs (0.7%), due to 56,000 more jobs in construction. Employment in the manufacturing sector posted its third consecutive monthly decline (totalling 34,000), wiping out job gains recorded earlier this year. Manufacturing employment is down by about 85,000 since its peak in November 2002, with most losses concentrated in Quebec and Ontario. Employment by Major Sector 118 116 114 112 110 108 106 104 102 100 98 1998 1999 2000 2001 2002 2003 2004 January 1998 = 100 Total Goods Services Strong job creation in sales pushed employment in services up further Employment rose 30,000 in the Services sector, following an increase of 64,000 in September. The highest gains were in trade (45,000), while the largest losses were in transportation* (19,000) and FIRE* (16,000). Employment in the service sector has risen 161,000 (1.4%) since the beginning of 2004, concentrated mostly in trade (68,000), professional, scientific and technical services (48,000), FIRE* (35,000), and health care & social assistance (23,000). Industries posting job losses were only accommodation & food (13,000), educational services (9,000) and transportation* (3,000). Industrial Employment Trends 2003 October 3,988.0 Goods-producing Agriculture 334.8 Natural Resources* 300.7 133.4 Utilities Construction 946.6 Manufacturing 2,272.5 Services-producing 11,834.0 Trade 2,474.2 Transportation* 775.3 953.1 FIRE* 998.8 Professional/Scientific 615.5 Business/Building 1,047.4 Educational Services Health Care/Social Assistance 1,712.2 Information/Culture/Recreation 713.0 1,026.1 Accommodation & Food 688.5 Other Services 829.8 Public Administration (in thousands) Levels 2004 September 4,039.2 325.7 299.9 134.3 998.7 2,280.5 12,037.2 2,499.9 798.0 1,007.2 1,021.2 644.5 1,046.3 1,754.7 720.4 1,011.0 703.0 831.1 2004 October 4,044.0 330.0 296.3 130.3 1,012.9 2,274.6 12,066.7 2,545.1 779.2 991.6 1,032.3 641.4 1,052.1 1,755.1 723.5 1,016.9 700.8 828.6 last month 4.8 4.3 -3.6 -4.0 14.2 -5.9 29.5 45.2 -18.8 -15.6 11.1 -3.1 5.8 0.4 3.1 5.9 -2.2 -2.5 Employment Growth by Worker Category October 2004 (thousands) Total 34.3 288.7 Private employees Selfemployed Public sector -0.9 22.3 146.8 12.9 51.5 90.4 month-over-month year-over-year Change since last year-toyear date 56.0 28.7 -4.8 -16.5 -4.4 0.3 -3.1 -0.4 66.3 55.8 2.1 -10.4 232.7 161.3 70.9 67.7 3.9 -3.0 38.5 34.9 33.5 47.8 25.9 3.8 4.7 -9.0 42.9 22.9 10.5 6.5 -9.2 -12.6 12.3 1.2 -1.2 1.0 % Change since last last month year 0.1 1.4 1.3 -1.4 -1.2 -1.5 -3.0 -2.3 1.4 7.0 -0.3 0.1 0.2 2.0 1.8 2.9 -2.4 0.5 -1.5 4.0 1.1 3.4 -0.5 4.2 0.6 0.4 0.0 2.5 0.4 1.5 0.6 -0.9 -0.3 1.8 -0.3 -0.1 *Natural Resources: Forestry, Fishing, Mining, Oil & Gas; Transportation includes warehousing; FIRE: Finance, Insurance, Real Estate & Leasing. MEI November 2004 9 LABOUR MARKET TRENDS Provincial Overview Job gains were concentrated in British Columbia and Ontario... Among western provinces, British Columbia registered the highest employment increase (12,000) in October, all in full-time (31,000). Employment also rose in Saskatchewan and Manitoba, while it declined in Alberta. Ontario's employment surged 33,000 in October, bringing its job gains to 88,000 (1.4%) so far this year. Quebec lost 12,000 jobs, mostly in the manufacturing sector (19,000), but has gained 39,000 jobs since last December. There were small employment changes in the Atlantic provinces, except in New Brunswick where employment declined 3,000. Over the last twelve months, all provinces have posted employment growth, led by Nova Scotia (3.3%), New Brunswick (2.7%) and British Columbia (2.0%). Regional employment patterns 116 113 110 107 104 101 98 1998 119 116 113 110 107 104 101 98 1998 1999 2000 2001 2002 2003 2004 1999 2000 2001 2002 2003 2004 January 1998 = 100 Atlantic Prairies British Columbia January 1998 = 100 Quebec Ontario ...while the unemployment rate declined in all western provinces With British Columbia's unemployment rate falling to 6.9%, all western provinces now have an unemployment rate lower than the national average. Over the past year, British Columbia has posted the largest decline in the unemployment (0.9 percentage points) among all provinces. Despite large employment gains, Ontario's unemployment rate remained at 6.5% as more people entered the labour force. Job losses pushed up the unemployment rate to 8.6% in Quebec and to 10.1% in New Brunswick. Pr in c e Edwar d I s la nd' s u ne m p lo ym e nt r at e r o s e 0.5 percentage point to 11.8% as the labour force grew at a faster pace than employment. Provincial Employment and Unemployment Trends Employment (thousands) Levels 2004 October Canada 16,110.7 Unemployment Rates --October 2004 % 15.8 11.8 10.1 8.8 8.6 6.5 5.1 5.2 4.7 6.9 7.1 Unemployment Rate (%) Change since last year (000's) % 288.7 3.8 0.9 14.2 9.4 61.9 116.3 9.3 8.3 23.1 41.5 1.8 1.8 1.3 3.3 2.7 1.7 1.9 1.6 1.7 1.3 2.0 Change since last month (000's) 34.3 0.1 0.5 -0.2 -3.0 -11.8 32.8 1.2 4.9 -2.0 11.8 % 0.2 0.0 0.7 -0.0 -0.8 -0.3 0.5 0.2 1.0 -0.1 0.6 Levels 2004 October 7.1 15.8 11.8 8.8 10.1 8.6 6.5 5.1 5.2 4.7 6.9 Change since last last month year 0.0 -0.1 0.5 0.0 0.5 0.3 0.0 -0.5 -0.6 -0.1 -0.2 -0.5 -0.8 1.2 -0.7 -0.7 -0.7 -0.4 -0.2 -0.4 -0.3 -0.9 Newfoundland & Labrador 219.6 69.8 Prince Edward Island Nova Scotia New Brunswick Quebec Ontario Manitoba Saskatchewan Alberta British Columbia 446.7 353.7 3,720.7 6,373.9 579.0 493.2 1,762.4 2,091.7 MEI November 2004 C B C an ad a Q ue L. PE I O nt an Sa sk N .& N N M A lta B S 10 PRICES and FINANCIAL MARKETS Consumer and Commodity Prices Inflation moderated to 1.8% in September... On a year-over-year basis, the increase in the Consumer Price Index (CPI) moderated to 1.8% in September from 1.9% in August. A decline in natural gas prices (-2.3%) and purchase costs of automobiles (-2.0%) contributed to the moderation. The rise in gasoline prices in September (7.2%) also eased compared to summer months. Excluding energy, inflation in September (1.4%) was lower than in August (1.5%). Inflation moderated in most provinces, led by Manitoba (2.6% in August to 1.8% in September) and Alberta (2.0% to 1.5%). Inflation was unchanged in Ontario and increased in Nova Scotia and New Brunswick. On a month-to-month basis (seasonally adjusted), the CPI rose 0.2% after falling 0.2% in August. The year-over-year increase in commodity prices was 32.1% in October, up from 25.0% in September. The jump was due to energy price inflation, which rose to 55.5% from 35.3% in September. On a monthly basis, commodity prices jumped 6.8% following a 1.9% decrease in September. Excluding energy prices, commodity prices fell 3.5% in October following a 2.2% decrease in September. Commodity Prices ($US basis) 220.0 200.0 180.0 160.0 140.0 120.0 100.0 Total 80.0 60.0 40.0 1996 1997 1998 1999 2000 2001 2002 2003 2004 Excluding energy Energy Index, 1982-90=100 Consumer Prices September 2004 Index (1992=100) All items CPI Food Shelter Household operations Clothing & Footwear Transportation Health & Personal Care Recreation, Educ. & Reading Alcohol & Tobacco Energy 124.9 124.7 121.2 115.4 104.9 143.7 119.2 129.4 144.6 151.7 % Change since last last month year 0.1 -0.5 0.2 0.3 3.0 -0.7 0.3 0.6 -0.1 0.3 -0.5 1.8 2.8 2.8 0.3 -0.1 1.3 1.4 0.4 5.5 1.5 5.8 ...and the "core" rate remained at 1.5% The "core" rate of inflation, which excludes the eight most volatile components and indirect taxes, remained at 1.5% in September, below the midpoint of the 1%-3% official target range. Consumer Price Index 5.0 % change, year-over-year All items Excluding 8 most volatile components and indirect taxes 4.0 Excl. 8 Most Volatile/Indirect Taxes 124.7 Commodity Prices (October 2004) Index, 1982-90=100 Excluding Energy Energy 158.0 122.7 217.5 6.8 -3.5 19.0 32.1 14.2 55.5 Provincial CPI Inflation -- September 2004 % 2.5 2.4 1.8 1.4 1.5 2.0 1.5 1.9 1.8 3.0 Official Target Range: 1%-3% 2.2 2.0 2.0 1.0 0.0 B C an ad a C Q ue O nt an Sa sk L. PE I lta A B N S N .& -1.0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 MEI November 2004 N M 11 PRICES and FINANCIAL MARKETS Short-term and Long-term Interest Rates Short-term interest rates in North America trended higher... In the United States, the Federal Reserve raised its fed funds rate by 25 basis points (bps) to 2.0% on November 10, the fourth consecutive rate increase. The Fed noted that the economy appeared to be growing as expected despite the rise in energy prices, as labor market conditions have improved and inflation expectations remained contained. The Bank of Canada raised its target for the overnight rate by 25 basis points (bps) to 2.50% on October 19, following a 25 bps increase in September, and left the door open for further increases on December 7, the next scheduled announcement. The rate on three-month corporate paper was 2.75% in Canada on November 15 and 2.21% in the U.S., up about 65 bps since mid-August. ...and long-term yields also edged up Evidence of healthy labour markets on both sides of the border gave some support to bond yields. U.S. 10-year yields rose about 20 bps to 4.20% on November 15, up from 4.0% on October 25. However, Canadian yields rose less, edging up slightly from 4.44% in late October to 4.51% on November 15, and resulting in a narrowing of the spread to about 30 bps. One-year mortgage rates were 4.90% on November 10, up from 4.80% one month ago. Five-year mortgage rates eased back to 6.30% on November 10, from a brief jump to 6.50% in mid-October. Key Market Rates 3.00 Short-term Interest Rates 10 8 6 4 2 0 A u Se gu st pt em 30 Se be pt r em 14 be O r2 ct ob 8 er O 1 ct ob 3 N ov er em 27 be r1 0 90-day Corporate Paper Canada (daily) (end of period) 2002 90-day spread Corporate against Paper U.S. Long Bond Yield spread against U.S. 2.83 2.66 2.07 2.10 2.12 2.22 2.50 2.60 2.72 1.50 1.62 N/A 0.70 0.55 0.55 0.65 0.59 0.55 4.88 4.66 4.77 4.83 4.82 4.68 4.58 4.52 4.54 0.93 0.39 0.10 0.21 0.21 0.42 0.48 0.41 0.29 2.75 United States 2.50 Canada 2.25 2003 May June July August September October Nov. 10 * -2 Spread 2.00 -4 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Long-term Bond Yields 10 8 6 United States 4 2 0 4.55 Canada 4.75 4.95 A positive spread indicates that Canadian rates are above their U.S. counterparts. * Bank of Canada's Weekly Financial Statistics Canada (daily) Key Lending Rates (end of period) 2002 2003 May June July August September October Nov. 10 * Prime Overnight Lending Mortgage Rate 1 year 5 year Rate Rate 2.75 2.75 2.00 2.00 2.00 2.00 2.25 2.50 2.50 4.50 4.50 3.75 3.75 3.75 3.75 4.00 4.25 4.25 4.90 4.75 4.55 4.70 4.60 4.40 4.80 4.90 4.90 6.70 6.45 6.50 6.70 6.55 6.30 6.30 6.40 6.30 4.35 -2 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 A u Se gu st pt em 30 Se be pt r em 14 be O r2 ct ob 8 er O 1 ct ob 3 N ov er em 27 be r1 0 Spread 4.15 * Bank of Canada's Weekly Financial Statistics MEI November 2004 12 PRICES and FINANCIAL MARKETS Exchange Rates and Stock Prices The Canadian dollar is near its equilibrium level Since the beginning of September, the Canadian dollar has appreciated steadily, rising about US¢7.5 (9.6%) to close at US¢83.3 on November 15. Since early November, the loonie has traded above US¢83, which is considered by the OECD to be its long-term equilibrium value. The U.S.-Canada exchange rate has been trading below its long-term equilibrium value for over a decade, but it is not uncommon for major currencies to trade above or below their estimated equilibrium levels for an extended period of time. The upward trend of the Canadian dollar against the euro and Japanese yen continued in November. In the last six months, the dollar appreciated about 7.3% against the euro and 8.3% against the yen. Stock markets rose in November The S&P/TSX has maintained its momentum amid further evidence of good economic and employment conditions. The index closed at 8,937 on November 15, the highest in 45 months. The index rose 7.6% in August with gains in resource and financial stocks. With oil prices at two-month lows, the Dow Jones picked up in mid-November after falling below 10,000 in October. The index closed at 10,550 on November 15, 8.2% above its level on October 25 (9,750). Canadian Dollar 0.85 0.80 0.75 86 0.70 82 0.65 0.60 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 78 74 $US/$CAN 1992=100 versus US dollar (Left) versus C6 index (Right) 94 90 98 0.85 0.84 0.83 0.82 0.81 0.80 0.79 0.78 0.77 0.76 0.75 The Canadian Dollar Canada (daily) (close) $US vs. $CAN index vs. C-6 (92=100) $CAN vs. EURO yen vs. $CAN 2002 2003 May June July August September October Nov. 10 0.6339 0.7713 0.7335 0.7497 0.7522 0.7616 0.7926 0.8210 0.8375 78.80 91.65 87.57 88.68 91.00 91.80 93.52 96.36 99.93* n/a 1.628 1.662 1.627 1.599 1.599 1.569 1.559 1.540 n/a 82.86 80.23 81.59 83.64 83.19 87.21 86.88 89.74 A u Se gu st pt em 30 Se be pt r em 14 be O r2 ct ob 8 er O 1 ct ob 3 N ov er em 27 be r1 0 * Bank of Canada's Weekly Financial Statistics Stock Market Indices 12,500 Dow Jones Industrial Average 9,500 9,000 8,500 7,500 S&P/TSX 5,000 7,500 2,500 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 A u Se gu s pt em t 30 Se be pt em r 14 be O ct r 28 ob O er ct 13 N obe ov r em 27 be r1 0 Key Stock Market Indexes S&P/TSX (daily) October Close 8,871 S&P/TSX 192 Energy 236 Metals & Mining Utilities 151 157 Materials 70 Industrial 151 Financial 218 Gold Telecommunication 65 Information Technology 31 Consumer Discretionary 87 Consumer Staples 178 S&P 500 Dow Jones 1,130.2 10,027 % change from last last month year 2.3 2.4 -4.4 4.1 -2.9 1.1 4.8 1.2 6.5 5.8 0.8 0.6 1.4 -0.5 14.1 41.4 22.2 1.3 13.5 -6.5 17.5 4.6 6.5 25.8 2.4 4.7 7.6 2.3 10,000 8,000 MEI November 2004 13 THE UNITED STATES ECONOMY U.S. Economic Trends U.S. growth picked up slightly in the third quarter According to advanced estimates, real gross domestic product (GDP) increased 3.7% (annual rate) in the third quarter following a 3.3% rise in the second quarter. Growth was fuelled by consumer spending which rose 4.6%, up from 1.6% in the second quarter. Moreover, net exports exerted a lesser drag. Business investment in equipment and software also contributed, rising 14.9% in the third quarter following a 14.2% rise in the second quarter. These factors more than offset a drop in inventory investment as the level of inventories went down in the third quarter. Third quarter labour productivity rose 1.9% in the non-farm business sector following strong increases of 3.9% (revised up from 2.5% due to upward revision to output growth and downward revision to hours) in the second quarter and 3.7% in the first quarter. The slowdown reflected an increase in total hours worked, which rose 2.1% in the third quarter compared to 0.3% in the second quarter as output growth remained just above 4.0%. Employment growth has contributed to output growth since the third quarter of 2003, but, by and large, productivity has remained the major engine of growth. This is particularly the case in the manufacturing sector where hours worked has resumed declines in the past two quarters. Non-farm employment increased sharply in October Non-farm employment rose by 337,000 in October, double the gain expected by analysts and the largest increase since March 2004. Gains were broadly based, with notable increases in professional and business services (97,000) as well as education and health services (62,000). Due to reconstruction efforts in hurricane-stricken areas, construction employment increased by 71,000 in October. Non-farm employment (payroll concept) figures were upwardly revised by 40,000 to 139,000 in September and 70,000 to 198,000 in August. U.S. Real GDP Growth % change, SAAR 7.4 600 400 4.4 3.7 1.9 0.8 98 99 00 01 02 03 3 4 2003 1 2 2004 3 1998 1999 2000 2001 2002 2003 2004 3.0 4.5 3.3 3.7 0 -200 -400 200 U.S. Non-Farm Payrolls Monthly change in thousands 4.2 4.2 U.S. Consumer Price Inflation 4.0 % change, year-over-year U.S. Unemployment & Participation Rates 8.0 % % Unemployment Rate (Left) Participation Rate (Right) 69 3.0 6.0 68 2.0 4.0 67 1.0 2.0 66 Excluding Food & Energy Total 0.0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: U.S. Bureau of Economic Analysis & U.S. Bureau of Labor Statistics 0.0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 65 MEI November 2004 14 SPECIAL REPORT Canada's Oil and Gas Sector The rise in the price of oil is a threat to global growth... The price of crude oil closed the week of November 5 near US$50, a 68% increase from the same week in 2003 and 14% above the average price of about US$44 in the third quarter of 2004. The rising price of oil is mostly due to higher demand, particularly from China and other newly industrialized economies in Asia. Demand in North America has also not abated, where automobile and house sales rose so far in 2004 and have contributed to demand for gasoline and home heating oil. Most analysts anticipate oil prices to stabilize at a higher level than expected one year ago due to robust world growth. The International Monetary Fund (IMF) estimates world growth at 5.0% in 2004 before moderating somewhat to 4.3% in 2005. The strength of the global economic recovery has led the International Energy Agency (IEA) to revise upward its oil demand forecast all through 2004. At the same time, uncertain supply conditions including some disruptions in major oil producing countries like Russia, Nigeria, and Venezuela have also put upward pressure on crude oil prices. According to the IMF, Germany, France, and other countries in the eurozone, with already sluggish output and employment growth, are expected to face a more pronounced economic growth slowdown in 2004 and 2005. They are more dependent on oil imports than economies in North America and Japan. The United States (U.S.) economy is less vulnerable to rising oil prices as it satisfies over 40% of its oil needs with domestic production, but its oil intensity is higher. Nevertheless, analysts widely forecast that the rising price of crude oil has already reduced U.S. GDP growth by 0.5 to 0.8 percentage point in 2004. As a net exporter of oil, Canada's receipts from the rest of the world will increase, as will profits in the oil and gas sector. Oil rich provinces such as Alberta and Newfoundland and Labrador benefit most. In addition, a rise in natural gas prices (which tend to follow a rise in oil prices) can provide some benefit to British Columbia, Saskatchewan, and gas-producing Atlantic provinces (Newfoundland and Nova Scotia). On the downside, provinces (Ontario, Quebec, and Manitoba) with relatively large energy-intensive sectors like manufacturing and transportation face a moderation in economic growth. A sustained rise in energy prices normally leads to an increase in consumer and producer prices, and lower spending by consumers and businesses. A slowdown in consumption, particularly in the U.S. (Canada's largest trading partner) will undoubtedly reduce Canada's growth prospects. Canada's outward-oriented economy is more vulnerable to a slowdown in global demand than other industrial economies, which will likely have an impact in the longer term as oil-importing countries reduce their demand for Canadian goods and service exports. In October's Monetary Policy Report, the Bank of Canada revised down Canada's growth for 2005 by 0.5 percentage point to about 3.0%. It indicated that higher oil prices are likely to have a small negative impact on Canadian GDP in the near term, before the positive impact of higher energy output and capital spending is realized. Prices, Crude Oil & Gas 275 250 225 200 175 150 125 100 75 50 25 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1997=100 Corporate Profits and Prices, Oil & Gas Sector 125 100 75 50 3 25 0 -25 -50 1996 1997 1998 1999 2000 2001 2002 2003 2004 -3 0 y/y change in price, % Crude Oil (LHS) Natural Gas (LHS) Profits (RHS) $ billions 9 Natural Gas Crude Oil 6 MEI November 2004 15 SPECIAL REPORT Canada's Oil and Gas Sector ...but how will it impact Canada's oil and gas sector? The benefit to Canada of rising oil prices stems from increased activity in the oil and gas sector, which will be reviewed in this section. In 2003, the oil and gas extraction sector accounted for 2.2% ($22.3 billion) of total Canadian output and 0.3% (41,300) of total employment. From 1997 to 2003, real output in the sector grew at an average rate of 0.9% per year compared to 3.7% for the total economy. In these years, employment in oil and gas extraction (3.3%) grew at a faster average annual rate than employment in the total economy (2.4%). The oil and gas industry is a large component of Canada's trade. Oil and gas exports rose 24.5% from 2002 to 2003 and accounted for 15.3% of total merchandise exports. In 2003 the trade surplus in crude oil and natural gas was $32.7 billion, more than half of the overall merchandise trade surplus of $58.1 billion. Canada has long been a net exporter of oil, and the U.S. is essentially our only trading partner. It was the market for 97 percent of Canada's oil and gas exports in 2003, and all of Canada's crude oil and natural gas exports in the first quarter of 2004. Corporate profits in the energy sector increased 42.5% in 2003. Profits have risen at a healthy pace so far in 2004 due to higher crude oil prices, but their growth will likely moderate compared to 2003. Nonetheless, profits will remain at historically high levels. This is expected to lead to further exploration and development of non-conventional sources of crude oil such as the oil sands in northern Alberta and off-shore drilling in Atlantic Canada. These new projects face high development and extraction costs, and so become viable when the price of oil and profits face a sustained rise. The Canadian Association of Petroleum Producers (CAPP) estimates exploration and development costs are twice as high in Canada than the world average. Increases in productivity can also contribute to the profitability of new developments. According to the Conference Board, labour productivity rose 1.9% per year from 1987 to 2002, which was mostly due to a high level of investment in capital stock and new technologies. At the same time, capacity utilization fell from 81% in 1995 to 63% in 2003, well below the historical average, indicating that the sector may be able to expand output without an immediate need to increase its capital stock. The benefit of higher oil prices has already been evident in the sector. After growing 0.9% in 2002, the sector grew an average of 5.0% in the first two quarters of 2004, leading to a rise in capacity utilization to 65.2% in the second quarter. In the short-term, however, development of new projects, which are subject to regulatory approval, and tight markets for some inputs, including skilled labour, may limit the direct positive impact of higher oil prices on activity. Real GDP, Oil & Natural Gas Extraction 22.5 ($ billions) % Exports and Trade Balance, Oil & Gas 2.8 60 50 2.6 40 ($ billions) Share of Cdn GDP (RHS) GDP level (LHS) 22.0 Total Exports U.S. Exports Trade Balance 21.5 2.4 30 20 21.0 2.2 10 20.5 1997 1999 2001 2003 2.0 0 1990 1992 1994 1996 1998 2000 2002 Sources: Bank of Canada, October Monetary Policy Report; Canadian Association of Petroleum Producers; Conference Board of Canada; International Energy Agency; International Monetary Fund, World Economic Outlook (September 2004); Statistics Canada. MEI November 2004 16 COMING UP Key Future Data Releases and Planned Events CANADA Consumer Price Index - October Financial Statistics for Enterprises - 3rd Quarter 2004 Balance of International Payments - 3rd Quarter 2004 National Economic and Financial Accounts - 3rd Quarter 2004 Real GDP by Industry - September Labour Force Survey - November Key Policy Interest Rate Announcement Canadian International Merchandise Trade - October Monthly Survey of Manufacturing - October November 23 November 24 November 29 November 30 November 30 December 3 December 7 December 14 December 14 UNITED STATES GDP - 3rd Quarter 2004 (preliminary) The Employment Situation - November International Trade in Goods and Services - October Federal Open Market Committee Meeting Consumer Price Index - November November 30 December 3 December 14 December 14 December 17 Note: The November 2004 MEI uses data available as of November 17, 2004 MEI November 2004 17