Key Economic Indicators

• Employment rose 15,200 in August. The quick return to positive job gains provides some optimism that the extent of the weakness in July may have reflected more transitory than fundamental factors. The unemployment rate held steady at 6.1%. Annual growth in the key wage measure for permanent workers moderated sharply to 3.3% from 3.8% in July and 4.3% in June.
• A gain in August employment was widely expected on the basis of some reversal of the 48,100 drop in part-time jobs that occurred in July, which represented the main source of weakness. However, the overall August gain occurred as a result of a 16,100 rise in full-time employment. Part-time employment continued to fall, albeit by a minimal 900 jobs. Strength in full-time compared to part-time employment has more favourable implications for income growth in the economy. Private-sector employment soared 40,900, although this only partially reversed the 95,300 drop that occurred in July.
• Employment rose 14,800 in the goods-producing industries, led by an 18,500 rise in construction and a 13,800 increase in manufacturing. Service-producing jobs on net only rose 400, but this masked significant moves in some of the sub-components - educational services rose 30,000, while accommodation and food services was up 15,900, but there was a 21,700 drop in the health care and social assistance component. The gains were concentrated in Ontario (14,000) and Saskatchewan (6,100).

Retail sales...
Gain in retail sales muted
Latest month available: July

• Nominal retail sales rose 0.1% in July and sales growth in June was revised up to 0.6% from a previously estimated 0.5%. In contrast to past months, rising prices played a negligible role in the overall gain with the volume of retail sales unchanged compared to a decline of 0.3% in June.
• A 0.9% drop in new car sales in July was partly to blame for limiting the rise in overall retail sales to only 0.1%. Excluding autos, retail sales rose a stronger 0.4%. None of this strength was the result of rising gasoline prices boosting service station sales — this component rose only 0.1% compared to monthly gains of 4% and 2.6% in June and May, respectively.
• The July gain in the ex auto component reflected strength in a number of components, including sales at furniture and electronic stores (+1.8%), building and outdoor home supplies stores (+1.2%) and pharmacies (+1%). The main offset occurred in a 0.4% decline in sales at clothing stores.
• The fact that the volume of retail sales was unchanged is somewhat disappointing, but is an improvement from the 0.3% decline recorded in June. With the earlier-reported 2% surge in real manufacturing shipments for July following a 0.4% rise in June, this recent retail sales result augurs well for overall GDP growth to strengthen in July.

Housing starts...
Housing starts soar; back up above 200,000 mark
Latest month available: August

• Housing starts rose 13.1% to an annualized 211,000 units in August, almost fully reversing the 13.6% drop in July. However, the strength in the August starts data was narrowly based in the volatile multiples component in Ontario.
• The urban multiples component surged much more that expected, rising 25.2% to an annualized 114,700 units, which more than reversed the 20.2% drop recorded in July. Urban singles also rose in the month, although by a more modest 2.0% to an annualized 71,200 units.
• As a result of the strength in the multiples component, overall starts in Ontario almost doubled, climbing 81% to an annualized 86,500 from 47,800 in July in stark contrast to declines in all other major provinces and regions, led by a 22.5% drop in the Prairie region. Declines were also recorded in the Atlantic region (down 11.5%), Quebec (down 8.7%) and British Columbia (down 8.2%).
• The strength in August starts was narrowly based in the volatile multiples component in Ontario; as well, the deterioration in housing affordability will likely reassert a downward trend in the starts data for the remainder of this year and through 2009. Thus, we still expect housing starts to average a little above 180,000 next year, down from a recent annual peak in 2006 of 229,000.

Merchandise trade...
Merchandise trade surplus shrinks
Latest month available: July

• The merchandise trade surplus slipped in July to C$4.9 billion from June's surplus of C$5.6 billion. Exports rose by 2.2%, while imports rose by a stronger 4.6% in the month.
• The rise in exports largely reflected higher sales of industrial goods (up 5%) and machinery and equipment (up 6.6%). Exports of energy products dipped in July as falling volumes outpaced the rise in prices, the first month in nine that energy exports declined. The rise in imports was broadly based, with auto imports posting a sold 9.5% gain on the back of strong Canadian auto sales early in first half of the year. Industrial materials and machinery and equipment imports also posted healthy increases.
• On a volumes basis, exports increased by 1.7%, while imports jumped 3.6%. As a result, the net export balance in volume terms deteriorated, with the July deficit rising to C$7.1 billion (in 2002 constant dollars) from $6.2 billion in June.
• After trimming 2.8 percentage points from the second quarter's annualized economic growth rate, the deterioration in net export volumes in July sets up for this sector to be drag on the economy's growth rate again in the third quarter.
• However, we still expect the economy to accelerate after the very tepid growth recorded in first six months of 2008 based on our view that consumer spending will pick up pace, that business investment will rebound and that there will be another quarterly inventory build.
  

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Consumer price index...
Inflation rises at fastest pace since 2003
Latest month available: August

• The headline inflation rate, at 3.5%, was the highest in August since March 2003 and stood above the Bank of Canada's 3% target for the third month running. The core measure held below the mid-point of the Bank of Canada's target band, but it rose more than expected in the 12 months to August and is up from March's low of 1.3%. We expect the CPIX measure will continue to snake its way higher in the months ahead as the impact of the sharp price declines for items like motor vehicles continues to wane.
• The biggest contributor to August’s 3.5% rise was gasoline prices, which stood 26.3% higher than in August 2007, slower than July's rate but still formidable. Prices of other fuels also firmed, with the energy complex posting a 20.2% increase in the 12 months to August. Mortgage interest costs also contributed to the rise and were up 8.1%. This component continues to show smaller year-over-year increases in line with the slowing pace of house price gains. Food prices were up 4.5%.
• Mitigating some of the impact of the price increases were lower prices for the purchase and lease of passenger vehicles (-7.3%) with computer equipment prices posting an 11.6% decline and women's clothing prices off 3.4%.

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Economy at a glance

% change from
		Lastest month	Previous month	Year ago		3-month trend
Real GDP		July	0.7	1.2		Down
Industrial production		July	2.2	-2.1		Down
Employment		Aug.	0.1	1.3		Down
Unemployment rate (%)*		Aug.	6.1	6.1		Flat
Manufacturing
Production		July	1.3	-2.9		Up
Employment		Aug	0.7	-3.3		Up
Shipments		July	2.7	6.0		Up
New orders		July	0.0	1.3		Up
Inventories		July	0.2	1.7		Up
Retail sales		July	0.1	4.9		Up
Car sales		Apr.	-1.0	-0.4		Down
Housing starts (000s)*		Aug.	211.0	231.1		Down
Exports		July	2.2	14.3		Up
Imports		July	4.6	9.7		Up
Trade balance ($billlions)*		July	4.9	3.4		Up
Consumer prices		Aug.	-0.2	3.5		Up
* Levels are shown for the latest period and the same period a year earlier.

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