Output and employment continued to expand steadily, unfazed by the late-summer turmoil in credit markets and the rapid ascent of the Canadian dollar.
The resiliency of the economy reflects a number of factors. While the turmoil in financial markets disrupted commercial paper in August, total short-term business credit grew steadily in August and September as borrowers switched to other instruments. The stock market recovered in September and October from small losses over the summer.
In no other sector was the resiliency of the economy to shocks better demonstrated than in manufacturing. Even after the exchange rate hit parity with the US, two indicators of manufacturing remained positive in October. The Business Conditions Survey reported that more manufacturers plan to expand than to reduce both output and payrolls in the fourth quarter. This was borne out by factory employment in October, which held onto its gain over the summer despite growing reports of shortages of both skilled and unskilled labour. The steady rise in the Canadian dollar will further test the resiliency of manufacturers.
Household demand rebounded strongly in Central Canada in August and September. Quebec took the lead with a jump of almost 50% in housing starts in September. The unusual strength was largely due to the construction of housing for the elderly in Montréal. The increase of almost 1,000 new and vacant multiple units in this city since its low in April, and the summer slowdown in sales of existing homes indicate that the underlying trend is more modest. However, new home prices were up only 4.3% year-over-year, one of the lowest in the country, making owning a home easier. Retail sales saw an end to two straight monthly decreases.
Housing starts in Ontario recovered to near their high set in January, while retail sales increased 2%, driven by a wide range of goods. At the same time, 30,000 more American tourists were visiting the province than in July, despite the higher Canadian dollar. Moreover, the higher Canadian dollar does not appear to have discouraged employment either, which picked up throughout the summer, stimulating labour income. In October, Ontario posted the strongest year-over-year increase in employment (+2.5%) since July 2003. This represents 164,000 more jobs in the past 12 months. Manufacturing sales fell for the fourth time in five months in August, largely due to the automobile industry.
Retail sales fell in British Columbia for the first time in 2007 after slowing over the summer. Shipments, however, halted a three-month slide. Shipments of metals rebounded sharply, offsetting the negative impact on production of the forestry strike. The drop in forestry products aggravated the decrease in exports to Japan, where the gross domestic product fell in the second quarter.
In the Prairies, shipments also strengthened, climbing 2.6% to reverse decreases in June and July. Saskatchewan has been the exception in this region for a number of months, recording its sixth increase in retail sales since the start of 2007. Its Canada-high year-over-year growth of 13.5% occurs at a time when property values are on the rise. In Saskatoon, for example, new home prices have risen about 50%, driven by employment growth of nearly 10% in only two years.
Definitions, data sources and methods: survey numbers, including related surveys, 1301, 1901, 2152, 2306, 2406 and 3701.
The print version of the November 2007 issue of the Canadian Economic Observer, Vol. 20, no. 11 (11-010-XPB, $25/$243), will be available soon. This issue summarizes the major economic events that occurred in October, and presents an article entitled, "Trading with a giant: An update of Canada-China trade".
For more information, or to enquire about the concepts, methods or data quality of this release, contact Philip Cross (