Key Takeaways
- Readings were mixed for real-time Canadian economic indicators through January.
- Consumer confidence improved but remains depressed, while the Local Business Conditions Index fell.
- Inflation and inflation expectation readings eased in January.
Most real-time Canadian economic indicators tracked by S&P Global Ratings Economics showed modest change through January, with readings mixed.
Mobility has continued to improve as COVID-19 cases and deaths dropped through Jan. 30, with restaurant reservations in Canada 15% above pre-pandemic levels as of Jan. 29 though down from holiday highs. In contrast, domestic aircraft movements have continued to trend lower since late summer.
While consumer confidence came off its Oct. 28 low, it remains depressed, with only 12.8% of Canadians reportedly expecting a stronger national economy through the year. The Local Business Conditions Index fell in five of the seven tracked cities, with the index down by 7.9 points for the week ended Jan. 16. The Manufacturing New Orders Index remained in contraction territory for the sixth straight month.
Inflation pressures have moderated as cumulative rate hikes slow demand, and inflation expectations likewise moderated in late January. The Consumer Price Index decelerated by 0.5 percentage point in December to 6.3% year over year, owing to lower energy prices, while core inflation edged down by 0.1 percentage point to 5.3% in December. Commodity prices we track have also all come off their highs. While improving pricing conditions gave the Bank of Canada reason to stay on the sidelines after its 25-basis-point rate hike on Jan. 25, the bank's recent statement had a hawkish lean, saying that it's "prepared to increase the policy rate further if needed to return inflation to the 2% target."
Summary Of Indicators
Virus and mobility
COVID-19 cases: Public health indicators continue to point to a reduction in COVID-19 across the country. The seven-day average of new cases dropped by 59% to 1,341 cases per day through Jan. 30, 2023, after the caseload suddenly jumped to an average 3,200 per day during the second week of January. In December 2022, average daily cases were about 2,321, well below the record rate of 41,362 on Jan. 10, 2022. Meanwhile, new deaths followed a similar trend at less than half the number seen at the Jan. 10, 2022, peak and about one-fifth the pandemic's all-time high from May 4, 2020.
People-facing COVID-19-sensitive
OpenTable: According to OpenTable data, restaurant reservations in Canada as of Jan. 29 are 15% above the pre-pandemic level--after surging above the pre-pandemic level during the holiday season. Restaurant reservations in Montreal plunged to 24% below the pre-pandemic threshold on Jan. 29, largely due to extreme weather conditions. Likewise, reservations dropped significantly in Toronto.
Air traffic: Aircraft movements continued to fall in January, with the week of Jan. 7 25% below the pre-pandemic level. Aircraft movements have decelerated dramatically since late summer, after peaking at 36% above pre-pandemic levels the week of July 9. Passenger movements have dropped as well. Further, the Canadian aviation sector is facing a shortage of pilots that is deepening sector challenges, alongside a surge of complaints against the airlines after December travel chaos.
Current and future activity
Bloomberg Nanos Canadian Confidence Index (BNCCI): Consumer confidence in Canada stayed in negative territory at 45.8 for the week ended Jan. 23, improved modestly from a low of 42.07 for the week ended Oct. 28. Consumer moods have remained significantly lower than the average 2019 level. The average print of the confidence index in the past 12 months was 50.2 with a maximum of 59.88. According to a recent survey conducted by Nanos Research, 12.84% of Canadians expect a stronger national economy through the year, while almost 50.91% expect the economy to weaken.
Local Business Conditions Index: For the week ended Jan. 16, the Local Business Conditions Index fell by 7.9 points to 260.6 compared with the previous week. Five of the seven tracked cities fell, except Montreal and Calgary. That said, business conditions show overall improvement compared with the past 12 months, despite headwinds from price rise and the Russia-Ukraine war. The average index reading in the past 12 months was 220.
Business Barometer Index: The 12-month expectation of small businesses for Canada inched up again in January to 51.4 but remained almost 13.5 points lower than the full potential of 65. Provinces such as Quebec and British Columbia displayed improvement but were still below 50, while in other provinces, the readings stayed in expansion territory but nudged down from the previous month.
SPGI Manufacturing New Orders Index: The manufacturing index has hovered at 46-47 since September and remained in contraction territory for the sixth consecutive month in December. As of Dec. 22, the index reading for Canada was 47.0, suggesting weaker demand for the manufacturing sector; major provinces also remained below the 50 mark. Growing uncertainty and high inflation, along with the overall global slowdown, have been weighing on demand.
Prices
Lumber futures: Lumber futures prices gained over 33% relative to December, hitting $516 per 1,000 board feet on Jan. 30 amid supply shortages ahead of the homebuilding season. This followed a marked decline of over 66% in lumber prices through 2022.
Gasoline prices: Retail gasoline prices are up again at C$5.98 per gallon for the week ended Jan. 31, after declining to C$5.4 per gallon for the week ended Dec. 20 as international crude prices picked up. However, gasoline prices are 33.5% below the all-time peak of C$8.09 seen the week of June 14, though they remain 2 standard deviations higher than the mean. Moreover, news of the opening up of the Chinese economy increases chances of an increase in crude oil demand and, with that, higher prices down the road.
Forward inflation expectations: Inflation expectations have been declining on the back of further easing in supply-chain challenges, lower crude oil prices, and, more important, rising interest rates. Five-year break-even inflation expectations declined to 1.8% on Jan. 27 from 2.04% on Dec. 30, while 10-year break-even inflation expectations edged down to 1.81% from 1.88%.
Labor market
Indeed job postings: Indeed job postings moderated through January and are now 54.5% above pre-pandemic postings seen Feb. 1, 2020. The lower postings reflect cooling labor market conditions, with the jobs market very tight and a concern for the Bank of Canada as it tries to tame inflation.
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The views expressed here are the independent opinions of S&P Global's economics group, which is separate from, but provides forecasts and other input to, S&P Global Ratings' analysts. The economic views herein may be incorporated into S&P Global Ratings' credit ratings; however, credit ratings are determined and assigned by ratings committees, exercising analytical judgment in accordance with S&P Global Ratings' publicly available methodologies.
This report does not constitute a rating action.
| North American Chief Economist: | Beth Ann Bovino, New York + 1 (212) 438 1652; bethann.bovino@spglobal.com |
| Research Contributors: | Debabrata Das, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai |
| Shruti Galwankar, CRISIL Global Analytical Center, an S&P affiliate, Mumbai | |
| Soumyadip Pal, CRISIL Global Analytical Center, an S&P affiliate, Mumbai |
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