It has been a slower start to the year than anticipated, but the U.S. economy is still on track to break out from the sluggish 2% growth trajectory that has been in place for the last 5 years. Consumer spending, business investment and inventory building gained momentum through the course of the 2nd quarter and oil & natural gas extraction is giving a big push to industrial production. This is reflected in mining sector output, which increased at an annual rate of 18.8% in the 2nd quarter.
Recent U.S. job creation is widespread across industry groups and regions. Layoffs have stopped and job openings show solid increases. In contrast to the U.S., the economic outlook for the global economy and Canada has been downgraded. A widespread global slowdown will remain in place for some time. Supply-related issues have partly overshadowed the underlying softening in commodity demand. Economic activity in other emerging market economies is being held back by political uncertainty and tightening financial conditions. The performance of the Euro Area continues to be disappointing. Declining inflation is making it difficult for the European Central Bank to reduce real interest rates.
Back at home, the Canadian economy is depending on household spending. Export and import volumes have finally picked up. The end result is a continuation of monthly foreign trade deficits and lukewarm business enthusiasm for capital spending. Motor vehicles and parts also show persistent monthly deficits. It would be a mistake to conclude that a new upward move in inflation has now begun in Canada, even though the yr/yr CPI inflation rate moved up to 2.4% in June from 2.4% in May.
Housing starts in Canada are much stronger than expected. Low interest rates and population growth are supporting demand for both low-rise and high-rise homes. The latest monthly information shows total housing starts running at a seasonally adjusted annual rate of 198,200 units, up from 197,000 the month before. Rental markets remain tight in Canada and non-resident investors are able to readily find tenants for new condos. The average vacancy rate for primary purpose-built apartments in Canada’s 35 largest markets currently stands at 2.7%. The lowest rental vacancy rates are in Edmonton, Calgary and Kelowna.
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