2020 kicked off with some relief on the domestic Canadian labour market front. A weak run of Canadian economic data for October, and a very soft November employment report had put focus squarely on domestic growth concerns after most of the past year was spent worrying about potential global trade spill-overs. December’s employment numbers provided some reprieve with employment bouncing back, and more importantly (in our view) the unemployment rate reversing most of what was an unusually large increase in November. That leaves hope alive that softness in recent monthly economic data reports could just be ‘normal’ monthly volatility combined with a number of ‘transitory’ disruptions as opposed to a more fundamental underlying deterioration in the economic backdrop. Oil prices spiked higher earlier this week due to the US-Iran conflict, but have largely reversed those gains with both sides showing little immediate appetite for further escalation.
The week ahead is short on ‘hard’ economic data releases in Canada, aside from December’s home sales data that was previewed by board-level releases . But the Bank of Canada’s quarterly Business Outlook Survey on Monday will be watched closely for just how worried Canadian businesses are about softer recent domestic growth outcomes versus a thawing in US-China trade tensions that has made the go-forward external demand backdrop look less concerning. Employment intentions will be watched closely as usual, although the bounce-back in Canadian labour markets in December has eased some of the near-term labour market concerns. Perhaps more important will be measures of capacity utilization. Even with better December labour force numbers, Canadian employment growth has shown clear signs of decelerating. But that should also be fully expected with labour markets still looking ostensibly quite tight. Labour shortages were reportedly wider spread and more intense in the Q3 BOS, and businesses continue to report the most significant impediment to growth is a shortage of skilled labour. As always, the tone of the commentary the central bank attaches to the survey numbers often reflects underlying unpublished details and can be as or more important an indicator than the actual survey numbers of how the economic backdrop is being viewed by policymakers.
An added wrinkle this survey cycle is that the Bank of Canada will also be releasing their quarterly Survey of Consumer Expectations for the first time alongside the BOS release. The survey was first collected in late 2014, but has not been publicly released to-date. Content should cover things like household expectations for inflation (of particular interest for the central bank), labour markets, and household finances. The latter in particular may prove timely given concerns about a tick up in household insolvencies over the second half of last year that, while still small from a big-picture perspective was also still surprisingly large given ostensibly very strong labour markets over the period.
On the external growth backdrop, we expect economic data releases will broadly support a somewhat improved tone for US growth indicators with retail sales and housing starts both expected to tick higher in December. Industrial production should remain a soft spot for now given a 0.1% dip in manufacturing hours worked in December.