Denis Ouellet

FED UP?

Jay Powell’s presser:

• It will take longer than originally thought to get the confidence that inflation is returning to 2% on a sustained basis.
• On rents: “The lags are significantly longer than we thought.”
• Omitted that “it will likely be appropriate to begin dialing back policy restraint at some point this year”.
• Policy remains “restrictive” so it is “unlikely” that the FOMC will need to hike again.
• He refused to add the word “sufficiently” to restrictive saying time will tell. “In terms of the peak rate, I think…the data will have to answer that question for us”.
• “Of course we’re not satisfied with 3% inflation, three percent can’t be in a sentence with ‘satisfied.’ ”

March JOLTS: Cooler Turnover and Labor Demand Point to Easing Wage Pressures

Job openings at the end of March fell to 8.49 million, leaving them down 12% over the past year and 30% below their peak in March 2022. At 5.1%, the opening rate has fallen to more than a three-year low. The moderation adds to the latest readings on small business hiring plans—which currently sit at a nearly eight-year low—and Indeed job postings signaling that employers are less interested in bringing on new workers. The number of job openings per unemployed worker in March slipped to 1.32, and while still above the 2019 average of 1.19, demonstrates that labor market continues to gradually loosen. (…)

The hiring rate fell back to 3.5% to match its lowest rate outside the throes of the pandemic since 2014. The lower rate of gross hiring comes as more workers are staying put in their current roles. The quit rate sank to 2.1% in March, its lowest level since the summer of 2020, and remains notably below its pre-pandemic average. With retention significantly improved over the past year and demand for new workers ebbing, we would expect to see employment costs resume their downward trend in the quarters ahead.

On net, the March JOLTS data point to a jobs market that continues to normalize but is far from falling apart. The lower rate of voluntary departures is reducing the need to backfill positions and is thus contributing to the overall reduction in job openings. Openings, however, remain elevated relative to the number of job seekers, and a subdued rate of layoffs suggest businesses are still reluctant to part with workers.

Yet with demand for workers ebbing further and businesses no longer having to scramble as intensely for workers, there are signs that despite Q1’s hot employment cost index reading, labor cost growth should continue to subside as we move further into 2024. The FOMC has made clear it will need to see actual progress on the wage and inflation front before gaining the confidence to ease policy, but the tamer readings on turnover and demand for workers suggests that the underlying downward trend in inflation is unlikely to have gone into reverse.

Indeed postings are down another 3% in April but still 16% above their pre-pandemic level. Total employment is up 3.8% in the meantime.

I don`t know the contribution of small businesses to the above surveys but the latest NFIB surveys revealed a sudden sharp drop in small biz hiring plans:

Gavekal:

Small businesses are a key source of employment in the US. Thus, when owners report a significant decline in hiring plans, as they have done recently, it is an ominous signal that unemployment is set to rise. We cannot rule out the possibility that the same thing might happen this year. Over the last two decades the share of employment represented by small businesses with under 500 employees has dropped below 50% and now stands at about 46%. That remains a sizable chunk of the labor market, but it is no longer dominant. If large businesses continue to hire workers, this effect could more than offset any mild contraction in employment by small businesses.

We are about to test that on Friday. This chart suggests a significant drop in private payrolls growth going forward:

NFIB hiring intentions versus private payrolls changes (000s)

We get the PMI Services at 9:45 Friday, right after the BLS job release. But last week`s flash PMI warned us that a surprise may be coming soon:

Signs of demand weakness impacted hiring plans at companies in the US at the start of the second quarter. A number of survey respondents indicated that they had held off on backfilling positions following the departure of staff. As a result, employment decreased for the first time since June 2020.

The overall reduction in workforce numbers was centered on services, where employment decreased solidly and to the largest extent since mid-2020. In fact, excluding the opening wave of the COVID-19 pandemic, the decline in services staffing levels in April was the most pronounced since the end of 2009. In contrast, manufacturing employment continued to increase modestly.

Recall that service-providing employees represent 86% of all non-farm employment in the U.S.

Slowing quits rate points to cooling wage pressures

Within the [JOLTS] report we focus on the quits rate as that has been the single best guide for the path of labour costs, which are so important for the inflation outlook. It slowed to 2.1% of all workers quitting their jobs to move to a new employer from 2.2% in February, which suggests that the jobs on offer are not particularly enticing, either because of the role or the rate of pay and workers are choosing to stick with what they’ve currently got. It hit 3% in April 2022 at the peak of the job frenzy.

As the chart below shows, it points to a further slowing in the employment cost index (ECI), which was surprisingly strong yesterday. Less turnover in workers means the incentive to pay staff more to retain them is weakening. Consequently, the ECI should soon resume a softening trend given today’s quit rate plus pay rate numbers for jobs website Indeed, the Atlanta Fed wage tracker and today’s ADP wage series which all point to a clear cooling in pay pressures.

Slowing quits rate points to cooling wage pressures

Source: Macrobond, ING

U.S. Manufacturing PMI: New orders down for first time in four months

The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI^®) posted in line with the 50.0 no-change mark in April to point to stable business conditions at the start of the second quarter. The reading was down from 51.9 in March and signaled an end to a three-month sequence of improving operating conditions.

Manufacturing new orders decreased for the first time in four months during April, albeit modestly. Respondents signaled caution among clients and a reluctance to commit to new business amid subdued market conditions. The reduction in total new business was recorded in spite of sustained growth in new export orders. New business from abroad increased for the third month running, but only slightly.

Manufacturing production increased for the third consecutive month, albeit at the slowest pace in this sequence. With new orders down, output was often supported by work on previously received orders.

Work on backlogged orders led to a further depletion of outstanding business, with the latest solid decline the most pronounced since January.

The latest expansion in manufacturing production was supported by a fourth successive month of job creation, with the pace of hiring quickening to the fastest in nine months. According to respondents, the increase in employment reflected the replacement of leavers and positive expectations regarding output requirements in the months ahead.

Indeed, firms remained confident that production will rise over the coming year, in part linked to capacity expansions but also hopes that demand conditions will improve. That said, the reduction in new business in the latest survey period acted to dampen optimism, with sentiment at a five-month low.

While staffing levels were raised over the month, manufacturers scaled back their purchasing activity in response to the reduction in new orders.

The fall in purchasing and a general reluctance to hold excess inventories at a time of declining new orders fed through to a further solid reduction in stocks of purchases, with the pace of depletion the most marked since last November.

On the other hand, stocks of finished goods increased marginally following a fall in March. The reduction in new orders meant that finished products were sometimes kept in stock awaiting sale.

Input costs increased sharply, with the rate of inflation quickening for the second consecutive month. Higher prices for oil and metals were mentioned in particular. The overall rise was much slower than those seen during 2021 and 2022, but the second-highest seen over the past year. Meanwhile, output prices increased solidly, but to the least extent in three months.

This was reflected in yesterday`s ISM release:

Source: Institute for Supply Management and Wells Fargo Economics

Is something finally biting? All 3 construction spenders have stalled or cut spending in recent months. Construction employment keeps rising.

RENTS

While everybody debates on what is market rent and why it is not showing in official data, Invitation Homes Tuesday revealed that “Blended rent growth came in at 4.4% in Q1 which was a 10bp acceleration from 4Q23 and below the 7.1% posted in 1Q24 and compares to the company’s outlook of the high 4s to the low 5s for all of 2024.”

It’s not that “The lags are significantly longer than we thought.” It’s that lease renewals are more than 90% of all leases, there is still a shortage of housing, house prices are up 45% since the pandemic and mortgage rates are north of 7%. Simple supply and demand.

Tiff Macklem says higher interest rates having more bite in Canada than U.S.

Mr. Macklem told the Senate committee on banking, commerce and the economy on Wednesday that he and his team are growing more confident that inflation is on a sustainable path back to 2 per cent. (…)

“The Canadian data and the American data are evolving in a slightly different way,” Mr. Macklem told the Senate committee. “Six months ago, the U.S. economy was getting some pretty good inflation readings, while our inflation was kind of sticky. In the most recent three months, we’ve been getting some more encouraging inflation readings.”

Consumer Price Index inflation in Canada has been slightly under 3 per cent for the past three months, while core measures of inflation have also been trending lower. In the U.S., headline inflation has been running closer to 3.5 per cent while core inflation has been moving up.

“More broadly, our economy has been much weaker than the United States. Monetary policy looks like it’s having more traction in Canada,” he said, pointing to the difference between U.S. and Canadian mortgage markets as one possible explanation.

In Canada, mortgage rates tend to reset every five years, while in the U.S., homebuyers can lock in for much longer terms. Canadians are also carrying much higher levels of household debt, making them more sensitive to rising interest rates. (…)

Around 60 per cent of Canadians with a mortgage have seen their payments reset since the central bank started hiking rates. And so far, the data “don’t tell a story of a high level of stress,” Ms. Rogers said. Mortgage defaults remain at historical lows and the number of households in arrears, while rising, are still roughly in line with prepandemic levels.

The next leg of renewals could be more challenging. The other 40 per cent of homeowners will renew over the next two years, and many who took out mortgages at rock-bottom rates during the height of the COVID-19 pandemic are likely to face large payment jumps.

Ms. Rogers said that both banks and household are taking steps to manage this risk. “What banks are telling us is they are reaching out proactively to those borrowers. And most of them, they are preparing, so there we see people holding larger savings or liquidity buffers.” (…)

Subdued performance of Canada’s manufacturing sector continues in April

The seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index^TM (PMI^®) signalled another deterioration in operating conditions during April, extending the current downturn to 12 months. However, the rate of contraction was again marginal, with the PMI registering 49.4. That was slightly down on March’s 49.8 and a three-month low.

(…) New orders fell for a fourteenth successive month. Although modest, the decline was the steepest since January amid reports that high prices and soft market demand were weighing on sales. Weak underlying global demand was also reported to have led to a reduction in new export orders during April, extending the current downturn to eight months. The rate of contraction was also marked and the steepest since January.

Manufacturers were understandably reticent when it came to input buying, instead signalling a continued preference to utilise existing inventory wherever possible. Overall, purchasing activity declined for a twenty-first month in a row, though only slightly. Meanwhile, stocks fell again but only modestly and to the weakest degree since January.

In contrast, firms took on additional staff for a third month in a row. The marginal increase in employment reflected efforts to keep on top of workloads (…).

Eurozone production downturn continues to cool in April despite sharper fall in factory orders

The HCOB Eurozone Manufacturing PMI posted in sub-50.0 contraction territory for a twenty-second consecutive month in April. At 45.7, down from 46.1 in March, the headline figure signalled a slightly faster rate of deterioration in euro area manufacturing business conditions.

There remained considerable differences in country-level trends during April. The southern parts of the eurozone continued to perform the strongest, with Greece and Spain registering growth. They were joined by the Netherlands, which saw manufacturing conditions improve for the first time since August 2022. Expansions in these three nations were more than offset by deteriorations elsewhere, however. Germany and Austria were again the worst performers, albeit with declines softening.

April survey data indicated falling manufacturing production in the euro area. However, the rate of decline eased for a second consecutive month to the slowest in a year. A shallower drop in output came despite overall factory orders decreasing at an accelerated pace. The fall in total sales was marked and the sharpest in the year-to-date. April survey data also highlighted a slightly stronger drag from export markets, as new orders from abroad declined at a quicker rate.

In a bid to dampen the adverse impact of lower new order intakes on production, euro area manufacturers made further inroads into their backlogs of work in April. The rate of depletion was sharp overall and marginally faster than that seen in March. Job losses were nevertheless sustained, extending the current period of falling employment that started in June last year. That said, the rate of decline was modest overall and the softest for seven months.

After decelerating in each of the previous five months, April saw the decline in purchasing activity strengthen. Stocks of inputs were also reduced, and to an extent that was slightly stronger than seen on average across the current 15-month period of inventory drawdowns.

For a third month in a row, eurozone goods producers reported shorter lead times on their purchased items. The degree to which vendor performance improved was the most marked in eight months.

Elsewhere, eurozone factory input costs continued to fall in April. There was a marked easing in the rate of decrease, however, with overall input prices falling only marginally and at the softest pace since they started falling in March 2023. Prices charged were reduced for the twelfth consecutive month.

Lastly, eurozone manufacturers turned more positive towards the 12-month outlook for production in April. The overall level of positive sentiment strengthened for a second successive month and was its highest since February 2022.

Europe Takes Radical Steps to Boost Production EU official Thierry Breton wants state spending to support domestic manufacturing to compete with China and the U.S.—a reversal of longtime policy to clamp down on national subsidies

(…) But in March, the bloc unveiled a €1.5 billion plan aimed at buying more of its defense equipment domestically. And when European leaders met soon after for a summit in Brussels, a central topic of their talks was how to boost funding further for the continent’s defense industry, and whether to do that through debt.

The effort for the defense industry is just one example of Europe’s new willingness to break longstanding taboos in a bid to build up domestic businesses. The EU is aiming to keep the continent’s industrial base competitive with the U.S. and China, whose governments are lavishing firms with hefty subsidies. 

At stake is Europe’s manufacturing sector, the bedrock of its economy, which is losing ground in the race to build the industries of the future. Chinese electric-car companies are starting to flood Europe with affordable EVs. Europe’s share of global semiconductor production, critical for high-tech products including cars, is a fraction of that of the U.S. or China. And the U.S. is expected to surpass Europe in production of batteries by 2030, with China far ahead of both. 

Hamstrung by expensive energy, high interest rates and anemic domestic demand, the cradle of the Industrial Revolution risks becoming a museum for rich American and Chinese tourists.

The €100 billion defense fund was proposed by the EU’s internal market commissioner, Thierry Breton, a former tech CEO, theme park developer and French Finance Minister with a strong belief in the power of the state to shape the economy. In recent years, Breton has also helped steer new plans through the EU’s slow-moving bureaucracy to allow European governments to match massive U.S. clean-tech subsidies and to earmark billions in public money for the semiconductor industry. (…)

In the years before the pandemic, the total reported aid governments granted to businesses was in the range of €100 billion to €150 billion a year. (…)

The EU’s share of global manufacturing shrank to around 16% in 2022, the latest year available, from 24% in 2008, while China’s share rose from 14% to 31% over the period, according to World Bank data. (…)

Meanwhile, the U.S. Inflation Reduction Act, which among other things aims to tackle the climate crisis by investing in clean energy manufacturing, is luring international businesses with grants and subsidies worth as much as $1.2 trillion through 2032—about half of EU manufacturers’ entire net annual output. (…)

In March, the European Commission endorsed a plan that was championed by Breton to encourage European governments to move toward buying nearly half their defense equipment domestically, including by encouraging large joint purchases.

Initially, the commission wants to set aside €1.5 billion to give governments a financial incentive for joint procurement and to offer subsidies to help companies produce more.

Officials have said that much more would be needed to prop up domestic production. To fill that gap and support Ukraine in its fight against Russia, some European leaders have called for joint borrowing modeled on the bloc’s roughly €800 billion pandemic recovery plan. For that fund, launched in 2021, the European Commission sells common bonds to international investors to finance public investment across the continent.

Most major powers subsidize their defense industries, but a shift to large-scale funding at the EU level would mark a big change for the bloc. (…)

The rise of Breton, a confidant of French President Emmanuel Macron, coincides with the broader ascendancy of French economic ideas. Having the government intervene to shape companies and the economy, an approach long sneered at by free-market economists as a Parisian obsession with a poor track record of picking corporate winners, is back in vogue. Around the globe, countries are bankrolling new industries, from chip-making to green energy.

Breton pointed to the futility of defending pure pro-market ideals when governments around the world have taken much more active roles in directing economies. “It’s the end of naiveté,” Breton said. “Was Europe naive toward China? Of course, of course, of course.”

China funneled subsidies worth as much as 1.7% of gross domestic product to domestic businesses in 2019, compared with 0.4% of GDP for Germany and the U.S., according to a 2022 report by the Center for Strategic and International Studies, a Washington-based think tank. (…)

Instead of solely focusing on national subsidies, Breton would like the EU to spend more as a bloc. He previously called for a Sovereignty Fund financed by joint borrowing to support the EU’s response to the U.S. Inflation Reduction Act.

The Sovereignty Fund is on the back burner for now, slapped down by Germany and other member states. EU leaders continue to debate how much exactly should go into the defense industry, and some of Breton’s other efforts to favor European companies have been vetoed during the bloc’s internal decision-making process.

Critics say the risk for Europe is that it wastes billions of taxpayer dollars on projects or sectors that don’t become self-sustaining or competitive. That would further undermine the continent’s costly social-welfare model and leave Europeans poorer, not richer. (…)

THE GREATER FOOL GAME

First time I see this chart of market cap divided by M2. Not stupid! Equity values per unit of M2.

Using real M2 would make it even scarier. Inflation has taken away that punch bowl.

“Never argue with a fool, onlookers may not be able to tell the difference.” ― Mark Twain

Thanks for your Twain note John. Loved it.

THAT BUMPY ROAD

Labour costs reaccelerate more than expected

We have seen a big jump in the US 1Q employment cost index of 1.2% quarter-on-quarter versus 0.9% in 4Q23, well above the 1% expected and above every single individual forecast in the Bloomberg survey.

Not a good look as this is the Federal Reserve’s favoured measure of labour costs, and given labour costs are the biggest cost input in a service sector-led economy, such as the US, it can help to keep price pressures elevated.

The details show the strength was primarily led by the government sector where wage and salary growth rose from 4.7% year-on-year to 5% YoY while for the private sector, wages and salaries remained at 4.3% YoY with overall compensation continuing to grow 4.1% YoY.

In terms of QoQ rates, government worker compensation rose 1.3% versus 1.0% in 4Q23 while private industry compensation rose 1.1% versus 0.9% in 4Q 23. It is likely that a decent hike in minimum wages in around half the US states was the primary driver. The increase in minimum wage to $20/hour for California fast food workers will hit in 2Q. (…)

Wells Fargo:

The pickup in Q1, from a 0.9% increase in Q4, is particularly disappointing given that the ECI tends to offer the cleanest and most encompassing read on labor costs and thus is the Fed’s preferred gauge of inflationary pressures from the labor market. Unlike the more timely average hourly series from the monthly employment report, the ECI controls for compositional shifts in the economy’s jobs and includes compensation growth for public sector workers. It also includes the cost of employee benefits, which account for about one-third of compensation.

 

U.S. Department of Labor and Wells Fargo Economics

This QoQ chart compares the ECI private wages with hourly earnings reported monthly but shown quarterly here. In truth, the deceleration since last spring is very minor and trending back up. We will get April data on Friday.

However you look at it, wages are rising in the 4.5% range.

Department of Labor, Goldman Sachs Global Investment Research

This makes it challenging for services inflation to really break the 4% range.

Goldman Sachs remains hopeful:

The employment cost index accelerated sharply in this morning’s release for Q1. Our preferred measure, private wages and salaries excluding incentive-paid occupations, rose 4.6% on a quarterly annualized basis, moving away from the 3.5% rate that we estimate is compatible with 2% inflation.

However, we think the actual news on wage growth was less worrisome, in part because the Q1 number was boosted by strong compensation growth for unionized workers, which has historically been a lagging indicator of labor market conditions because union workers’ contracts adjust less frequently and therefore take longer to reflect past inflation spikes. Put more simply, a portion of today’s wage growth reflected lagged catch-up, not a reheating labor market. Nonunion compensation growth, which adjusts more rapidly, picked up but to a more moderate 4.1%.

Citi CEO says US consumers are more cautious

CEO Jane Fraser told shareholders on Tuesday that U.S. consumers are becoming more cautious with their spending and making smaller purchases.

U.S. borrowers earning lower incomes are increasingly struggling to keep up with loan payments, prompting banks to become more cautious about issuing credit cards and car loans.

“Consumers remain healthy and resilient,” Fraser said at the bank’s annual meeting on Tuesday. “But we are seeing them more cautious in the U.S. and more discerning in their spending patterns.”

Affluent customers account for almost all spending growth, while consumers with lower credit scores are spending less, she said. Meanwhile, borrowers’ delinquency rates have risen above pre-pandemic levels on all loan categories, except mortgages, Fraser added. (…)

• From AMZN’s Q1 results:

The company’s main e-commerce business reported sales of $54.6 billion in the quarter, slightly missing analysts’ estimates. Olsavsky said consumers continue to trade down to save money. Shoppers are ordering more consumables, which they need quickly, but also cost less than other categories, he said. That puts pressure on the profitability of the business because Amazon has to process and deliver more units.

• MCD:

Four months into the year, I think what we can say is clearly 2024 isn’t going to be a typical year for the broader industry. I say that because we’re certainly seeing, as you heard in our upfront remarks, that the macro headwinds have been more significant than I think we even anticipated coming into the year. And we continue to see those macro headwinds as we have started quarter two. And, frankly, many of our large international markets and the U.S. and I think we expect in the U.S. that we’re going to start the quarter roughly flat from a comp sales perspective from what we can see so far.

If you look at margins in the U.S. today, restaurant level margins for franchisees versus where we were in 2019, we’ve just now rebuilt franchise restaurant level margins back to where we were in 2019. So the pricing that’s been taken over the last several years was all taken as a means to offset what we were seeing around quite high labor inflation and quite high commodity food and paper inflation. So restaurant margins are now back to where we are — where we were again in 2019 in the U.S., which then says to me that we do have the ability to be thinking about what we do from a value proposition going forward.

(We) do continue to see there’s certainly labor inflation. Much of that is coming out of what happened in California. And on a national level, you could probably see we’re expecting high single-digit labor inflation. Again, much of that from the bleed-over of what California introduced. (via Bloomberg’s Joe Weisenthal)

Americans are resourceful when times get tougher:

Number of gig workers on the rise again

Gig employment continues to increase. The three-month moving average of the share of Bank of America customers who received income from gig platforms through direct deposits or debit cards was 3.8% in March 2024, above the previous peak in early 2022. While gig employment stalled through 2022 as wage gains attracted workers to more traditional forms of employment, there was a renewed uptrend starting in spring 2023, according to Bank of America internal data.

Bank of America data also shows that ridesharing has driven overall gig employment over the past year and is now the gig type with the largest share of workers. Conversely, the share of Bank of America customers earning income from social commerce and deliveries has moderated since December 2021. This mirrors the pivot in consumer spending towards out-of-home services and away from in-home services and goods, with more people eating out, for example, rather than ordering in. (…)

Meanwhile, internal Bank of America data shows that the share of workers earning gig income for all 12 months of the year, which we view as a proxy for full-time gig employment, has increased consistently for the past three years (Exhibit 8). This is particularly the case for customers earning income from ridesharing platforms, as these types of gig workers account for nearly half of full-time gig employment.

Japan Manufacturing PMI: Manufacturing sector moves closer to stabilisation in April

The headline au Jibun Bank Japan Manufacturing Purchasing Managers’ Index™ (PMI®) recorded 49.6 in April. Although still below the crucial 50.0 no-change mark, the index posted its highest level for eight months and was noticeably higher than March’s 48.2.

Latest data showed that output was down again in April, extending the current period of contraction to 11 months. The rate of decline was however modest and the lowest recorded by the survey since last October. Firms again continued to signal a preference for utilising existing inventories rather than raising output.

There were also reports that a lack of incoming new orders had weighed on production. Amid reports of soft demand and destocking at clients, new orders were also down for an eleventh successive month. That said, the degree to which sales fell was marginal and eased noticeably for a second month running. New export volumes also declined amid evidence of low demand from key export markets like China and the US.

Against a backdrop of subdued underlying trends in output and new orders, purchasing activity was reduced for a twenty-first successive month. The cut was modest, and the lowest recorded since October 2022. Stocks of purchases continued to be utilised wherever possible, and this meant inventories of inputs fell again in April (albeit marginally).

Meanwhile, companies noted that supplier performance had improved, as evidenced by the first shortening of lengthening lead times in nine months. Apart from semi-conductors, the availability of goods was noted to be generally better.

That said, prices data showed that inflation rates picked up in April. On the cost front, input prices rose to the steepest degree of the year so far, with inflation remaining above trend. Metals were a key source of upward cost pressure, although inputs in general continued to increase in price. Firms responded by raising their own charges to the greatest degree in 11 months.

Confidence in the future meanwhile was unchanged since March, and therefore remained relatively high in the context of the survey history. Firms are looking for the global inventory cycle to turn upwards, and for a general improvement in demand over the next 12 months.

These projections in part explained a second successive monthly rise in employment. The rate of growth was solid and the best recorded by the survey since September 2022. Additional capacity meant that firms were able to comfortably keep on top of overall workloads: backlogs of work were cut again in April for a nineteenth successive month, with the rate of contraction remaining marked despite easing to the lowest since last October.

The weak yen is not helping much so far.

Canada GDP Rises 0.2% in February Canada’s economy lost momentum, supporting expectations a first cut to interest rates could come before summer

Preliminary data suggest gross domestic product, a broad measure of goods and services produced across the economy, was essentially unchanged in March, Statistics Canada said Tuesday.

That follows 0.2% growth in February GDP from the month before to 2.218 trillion Canadian dollars, the equivalent of $1.624 trillion. That was softer than the data agency’s advance estimate a month ago of 0.4% growth and follows a downwardly revised 0.5% expansion in January. Compared with a year earlier, GDP in February increased 0.8%.

If March’s estimate stands when official numbers are released late next month, Canada managed industry-level growth of 2.5% annualized in the first quarter following growth in the prior quarter of 0.6% or a slightly stronger 1% when consumption figures not included in monthly GDP data is included. The Bank of Canada has forecast the economy will continue to strengthen this year after stalling in the second half of 2023, and has projected total annualized growth for the latest quarter of about 2.8%.

With growth in Canada waning after January’s jump, most economists don’t anticipate a rebound in the second quarter of the year that could derail the central bank from pivoting to rate cuts as soon as its next policy meeting in early June, provided inflation continues to cool. The growth Canada has seen in recent months has been bolstered by a booming population and recovery in consumer spending, but has come alongside an increasingly softer labor market and steady rise in unemployment. (…)

The latest data again highlights what economists expect will be a policy divergence between the Bank of Canada and Federal Reserve. The U.S. economy has shifted down a notch even as core inflation has accelerated in the first quarter, though the slowdown in headline GDP growth to 1.6% still shows an economy outpacing that of its northerly neighbor. (…)

NBF:

Record population growth (+3.7% annualized) in the quarter supported not only economic growth, but also potential GDP, which is consequently rising at a fast clip. For illustration, GDP per capita continued its downward trend during the quarter and is now 3% below its peak recorded in September 2022. A decline of this magnitude has never been recorded outside of a recession. Moreover, this “solid” growth during the quarter did not prevent the unemployment rate from rising, another sign that economic growth was below potential during the quarter.

There are many other signs that the Canadian economy has cooled significantly, including significant progress in inflation, particularly over the last three months. (…)

We expect the Canadian economy to contract by mid-year, limiting growth to 0.6% in 2024, with a slight acceleration to 1.2% the following year. This would translate into an unemployment rate of around 7.0% by the end of the year.

  

Euro-Zone Speeds Out of Recession But Inflation Proves Sticky

The euro zone exited recession as its four top economies drove much speedier growth than expected, though the recent retreat in inflation stalled.

First-quarter gross domestic product increased by 0.3% from the previous three months — the strongest pace in 1 1/2 years. A separate release showed consumer prices rose an annual 2.4% in April, matching March’s pace and in line with analyst estimates.

The prospects for the 20-nation bloc are brightening after elevated inflation, rising interest rates and weak global demand sank output. Helping the revival is Germany, which is emerging from a similar malaise led by its industrial sector. June’s likely start of monetary easing by the European Central Bank should also provide a shot in the arm. (…)

Inflation, meanwhile, has been approaching 2%, with officials more confident that it’s on track to meet that target – opening the door for a rate cut in June. They’ve been worrying about sticky services inflation, which eased to 3.7% in April after five months of staying unchanged at 4%.

Core pressures as a whole, which exclude volatile items such as food and energy, also moderated this month — to 2.7% from 2.9%, coming in a touch higher than anticipated. (…)

BIGGER FOR LONGER

There is this:

There is no escaping Ozempic and Wegovy. The diabetes and obesity drugs are a global phenomenon. They’ve won over the rich and famous, generated billions in sales and blown open a new market for weight loss drugs, which Goldman Sachs estimates will reach $100 billion a year by 2030.

The development of semaglutide, the key ingredient in the medicines, has also transformed their maker, Novo Nordisk, into Europe’s most valuable company, with profound implications for its home country of Denmark. Novo’s market capitalization of more than $570 billion is bigger than the Danish economy.

Now that:

McDonald’s Will Test a Bigger Burger

The Quarter Pounder is not enough. McDonald’s Corp. will test a bigger burger this year to meet diners’ appetite for more filling patties.

“Our team of chefs from around the world have created a larger, satiating burger,” Chief Financial Officer Ian Borden said Tuesday on a call with analysts.