10 mid-August economic nuggets


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The main concern for economic analysts these days is the question of how quickly prices (or costs, from a different perspective) move, and in what direction. The construction sector, especially on the residential side, has suffered most of this year from unusually high price hikes for forest products. July Producer Price Index (PPI) results from the Bureau of Labor Statistics (BLS) show a decline in this issue. Softwood’s July PPI was -29.0% monthly and -16.3% over the last three months. However, it was ahead by +45.0% YoY. But in May, it was +154% compared to the previous year. However, for some other key material inputs, slowdown in price/cost progress remains elusive. The PPI “Hot Rolled Steel Bars, Sheets and Structural Forms” was +6.0% m3/month, +10.5% over the last three months, and +43.7% annually. The PPI for Aluminum Sheets and Strips was +2.3% monthly, +7.8% over the last three months, and +41.2% annually. So, without further ado, let’s dive into some of the other pricing/cost issues, as well as discuss other key statistical information that appears in recent public and private sector data releases. (1) While there were some moderate dips in annual US inflation numbers in July, the numbers remained unusually high. The “core” subgroup of the “all items” CPI slipped slightly to +4.3% yoy from +4.5% yoy in June. The “energy” sub-index fell to +23.8% from +24.5%. Gasoline fell to +41.7% from +45.1%. However, July’s All Items Index remained the same as in the previous month at +5.4% YoY. The Fed’s target for “all items” inflation, under normal circumstances, is +2.0%. A theme that will likely continue to recur in the coming months is that normal cyclical patterns of recovery will not necessarily apply when emerging from the pandemic. (ii) A prominent indication of abnormal price activity can be found in the auto market. The ‘Used Car & Truck’ CPI sub-index rose in July by an incredible +41.7% compared to last year. The cost of new vehicles was more restrictive, +6.4% year over year. But the availability of new compounds is being tested. Many major automakers have had to change production schedules and cancel shifts due to lack of supplies of key components. The most serious deficiency is the computer chips used to monitor and direct the systems in today’s road fighting machines. (3) Canadian inflation numbers are also up, but not quite as much as in the United States. Canadian CPI for all items in July was +3.7% y/y, accelerating slightly from +3.1% in June. “All items without food and energy” were +2.8%, accelerating from +2.2% in the previous month. “Energy” in July remained roughly the same as in June, +19.7% yoy compared to +19.5%. And while gasoline showed a big jump in July, +30.9% yoy, it was a slight step back from June +32.0% yoy. The Bank of Canada, when assessing inflation with a focus on interest rate policy (i.e. hyperinflation and time to ‘tighten the screws’), places its confidence in three specially calculated indicators under the headings ‘common’, ‘average’ and ‘trim.’ Average price gains for these three indices in July were +2.5% yoy, advancing modestly from +2.2% in June. (4) Table 1 at the end of this report shows some of the more interesting comparisons in the labor market between the United States and Canada. In both countries, the total number of jobs in the construction sector is about the same year over year, +3.1% in America versus +3.4% north of the border. Non-seasonally adjusted (NSA) unemployment rates are also close, 5.7% in the United States and 6.2% in Canada. (The Canadian NSA U rate has been adjusted to align with the more stringent measurement stance adopted by the Bureau of Labor Statistics.) (5) However, the most notable side-by-side stats in Table 1 are job-recovery results (ie., vs. massive losses in the February period to April last year, when the coronavirus ‘entered the city’ for the first time, inspiring lockdowns almost everywhere). to the finish line (ie 100% or full recovery) compared to the US at 74.5%. (6) The fourth wave coronavirus cases, mainly caused by the delta variant, are negatively affecting the economic prospects of the United States. A University of Michigan consumer survey recorded one of the biggest monthly declines in August. The number decreased from 81.2 to 70.2, lower than at any time since December 2011.[7) As of August 9, Canada reopened borders to non-essential US visitors with proof that they had properly and adequately vaccinated. This opens the door to a boom in tourism. The United States has yet to reciprocate by easing land border restrictions on Canadians wishing to travel south. It might be for the better. It will force Canadians to focus on their next federal election, which Prime Minister Trudeau recently set for September 20. (8) Total US retail sales in July were disappointing, at -1.5% month-on-month (but +13.3% yoy). Auto sales and parts dealers played a significant role in driving them down, at -3.9% month over month. (This may have had something to do with chip-related inventory shortages and the price hike discussed earlier.) Other shopkeepers on a diminishing revenue trajectory in July included building materials and garden equipment suppliers, -1.2% (though +7.5% yoy), and out-of-store retailers -3.1% (i.e. sales made through online platforms). Food Services and Drinking Places Sales in July were +1.7% month over month, and most impressively, +38.4% year over year. (9) As with many other current statistics, recent US housing starts were fine in July, but not quite as excited as they were a little earlier. In July, 1.534 million units were seasonally adjusted annually (SAAR), compared to 1.650 million units in June. It was also just below the monthly average for the first half of the year, 1.6 million units. Regionally, the largest setbacks occurred in the Northeast (from 144,000 SAAR units to 73,000) and the South (from 433,000 to 384,000). (10) Canadian housing starts in July as moderate, to 272,176 SAAR units from 281,200 in June and the first-half average is just under 300,000. Year-to-date percentage changes (January-July 2021/January-July 2020) Housing starts in Canada’s three largest cities, by population, led by Vancouver, +47%, followed by Montreal, +39%, with Toronto making slight progress Only, +1%. In the other three cities in the country with populations of over 1 million people, housing achievements to date were +77% in Calgary, +15% in Edmonton, and +20% in Ottawa-Gatineau. Table 1: US and Canadian Job Markets – July 2021 SA seasonally adjusted / NSA not seasonally adjusted. US employment data is from the “Salaries Survey” / Canadian employment data is from the “Home Survey”. The Canadian National Security Agency “R3” unemployment rate is adjusted to US concepts (ie it adopts US equivalent methodology). Data sources: US Bureau of Labor Statistics (BLS) and Statistics Canada. Table: ConstructConnect.


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