How did Canada's economy start the third quarter?

Your top financial and economic news for Sept. 30


We often hear about hysteresis – the phenomenon by which joblessness remains permanently higher after an economic bust as some people who have been out of work for a substantial period of time are never able to find gainful employment. Well, that’s not the only form of lost potential stemming from a downturn. According to a paper from researchers at Princeton University, recessions lower birth rates – effectively serving as a drag on the future supply of labour:

Their calculations show that a one-percentage point increase in the unemployment rate experienced between ages 20 and 24 reduces the short-term fertility of women by six conceptions per 1,000 women. When following these women to age 40, the same unemployment rate increase leads to an overall loss of 14.2 conceptions per 1,000 women…

In terms of the Great Recession, the researchers estimate that the increase in unemployment rates experienced between 2008 and 2013 will result in an additional 151,082 women who will remain childless at age 40, leading to a long-term loss of 420,957 conceptions (and 426,850 live births) – a 2.4 percent decrease.

But what are the economic mechanisms driving these results? Currie and Schwandt cite recent empirical studies showing that young adults – especially young men – who enter the job market during an economic downturn are likely to have persistently lower earnings as they age. This phenomenon may make young men less attractive matches for women, explaining the increase in the number of women who forego childbearing.

On the Homefront

TSX 60 futures are flat ahead of the open after the composite index gave back ground on Monday.


The Canadian dollar is plumbing its March lows, trading around 0.895 against the greenback this morning.


The yield on the five-year Government of Canada bond has edged up to 1.635 percent.


Say sayonara to September. Investors in Canadian equities will be thrilled to turn the page on this month. Barring a comeback of epic proportions, September will be the TSX’s worst month of the year, by far. Canadian stocks recently snapped their worst losing streak (five sessions) in more than a year, and head into the Tuesday trade down more than 4 percent on the month. A decline in Energy and Materials stocks spurred by a strong U.S. dollar has weighed on the TSX, and in the past few sessions, the big banks have joined in the sell-off. Perhaps Q4 wil be kinder to Canada’s benchmark index.


How’d Canada’s economy start Q3? After better than expected growth of 3.1 percent in the second quarter of the year, Statistics Canada will provide an update on how the nation’s economy fared in July at 8:30am (EDT). Economists are calling for GDP growth of 0.2 percent month-over-month on the heels of a 0.3 percent increase in June. “A stronger-than-expected result from mining, oil & gas could lift growth to 0.3 percent,” writes Bank of Montreal senior economist Benjamin Reitzes. “Either result will keep Q3 GDP on pace for about 3 percent annualized growth, though a firmer figure would put risks on the upside.” Trade and manufacturing were bright spots in July, as Canada booked its largest trade surplus since October 2008 while manufacturing sales rose to a record high. But it wasn’t all good news. “Lacklustre showings from wholesaling and retailing did, however, weigh on July’s GDP gains,” writes CIBC economist Nick Exarhos. “Wholesaling volumes were down by 0.6 percent, while those for retailing were flat.”

UPDATE: July’s reading showed flat growth for the month, well below the consensus estimate.


Investor day for major pipeline company. Enbridge (ENB) holds its annual investor day in Toronto today beginning at 8:00am. Management will likely provide an update on the status of the Northern Gateway pipeline, which aims to take crude oil from Alberta to the West Coast and faces stiff opposition from environmentalists and some First Nations groups. Investors are looking for the company to announce a dividend hike at this event. We might also get some news on whether Enbridge is considering altering its business structure, perhaps consolidating its units à la Kinder Morgan in a move away from master limited partnerships.


Canadian broadcast regulator issues ultimatum to U.S. giants. The Canadian Radio-television and Telecommunications Commission (CRTC) will soon remove testimony delivered by Netflix and Google at recent hearings from the record after the companies failed to comply with a request to provide detailed information on their Canadian audiences. Compared to what Netflix was threatened with – that the CRTC might move to revoke its exemption from regulation if it didn’t hand over the data the regulator was seeking – this is little more than a slap on the wrist.


TMX Group names a new leader. After the close on Monday, TMX Group (X), the operator of the Toronto Stock Exchange, announced that Lou Eccleston will succeed Thomas Kloet as CEO effective November 3, pending approvals from government agencies. The 57-year-old external candidate had previously served as Chairman of the Board at S&P Dow Jones Indices and worked at Bloomberg LP for over a decade. “It was clear that Lou has the right skill set, experience and proven track record to be successful in this critical role,” said Chuck Winograd, Chair of the Board of Directors at TMX.


Another dose of BoC speak. Shortly after noon, Bank of Canada Deputy Governor Agathe Côté will speak in Chicoutimi, Quebec to promote the economic and financial welfare of Canada. The top two members of the Governing Council, Stephen Poloz and Carolyn Wilkins, have recently delivered rather weighty speeches, focusing on the role of the exchange rate and the trajectory of the neutral rate, respectively. Côté’s remarks likely won’t break much new ground, but will serve as a useful review of where the Canadian economy is at and what the central bank is doing to ensure that it continues to hum along smoothly. Next Tuesday, Deputy Governor Lawrence Schembri will take part in a panel discussion in Quebec, ending a fairly concentrated period of BoC-speak in which every member of the Governing Council delivered public remarks in a three-week period, a rather rare occurrence.

Daily Dispatches

A mixed bag of Japanese economic data was released Monday evening. Household spending declined 4.7 percent year-over-year in August, well below the consensus estimate, and industrial production unexpectedly fell 1.5 percent month-over-month. However, the unemployment rate improved, dropping three ticks to 3.5 percent, while retail sales showed some life, up 1.2 percent year-over-year.


China’s manufacturing sector expanded at a slow pace in September, according to the HSBC Manufacturing PMI. At 50.2, the final figure came in below the flash estimate of 50.5, which was also the consensus estimate. This marks the seventh consecutive reading in which the final reading has come in below the flash print. “We think risks to growth are still on the downside and warrant more accommodative monetary as well as fiscal policies,” writes Hongbin Qu, chief economist, China and co-head of Asian Economic Research at HSBC.


Inflation in Europe remains unacceptably low, with the initial estimate for annual headline rate in the euro area coming in at just 0.3 percent in September. A few more readings at this level or a move lower would surely provoke the European Central Bank to unleash the bazooka (begin to buy sovereign debt), as the current level of monetary stimulus does not yet appear to be adequate. Conditions in Italy look particularly awful, with youth unemployment running at an extremely elevated level, outright deflation setting in, and a triple-dip recession underway, as Business Insider’s Joe Weisenthal points out.


Some second-tier U.S. economic figures are slated to be released this morning, including July’s print of the Case-Shiller Home Price Index, the Chicago PMI, and September’s reading of consumer confidence from the Conference Board.