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China’s industrial output, U.S. retail sales and Canadian home prices point to faster recovery

0 515 Market Intelligence

The good news about the world economic recovery is coming fast and furious. Chinese industrial production is growing at an amazing rate, U.S. retail sales are almost back to levels of a year ago and home prices in Canada, for both new and existing properties, are on an upswing.

The good news about the world economic recovery is coming fast and furious. Chinese industrial production is growing at an amazing rate; U.S. retail sales are almost back to levels of a year ago; and home prices in Canada, for both new and existing properties, are on an upswing.

China’s growth

China is clearly taking the point position with regard to global growth. The Chinese statistical authority has just reported that factory output in November was 19.2% higher than in the same month of the year before. Exports have stopped falling and imports have risen by more than one-quarter. The import strength is actually good news since it reflects a pickup in domestic demand. The money supply in China has been increased to a record degree and new loans are surging.

China’s retail sales in the last couple of months have been +16% on a year-over-year basis. However, some of the exceptionally high percentage change numbers have to be interpreted with caution. They result from base levels being quite low. There continues to be considerable excess capacity in such industries as steel production. Nevertheless, China is already at the point where some asset price bubbles are starting to develop, for example in share prices and home prices. 

U.S. retail sales

On this continent, U.S. retail sales have been stronger than expected. For the first time since July 2008, actual sales by shopkeepers were positive on a year-over-year basis (+1.9%) in November. This is not to say that U.S. retail spending is anything like back to where it was. It still remains well below (-8.4%) the previous cyclical peak in November 2007. Auto and parts retail sales are even more encouraging. They were +5.1% on an actual basis and only -1.6% on a three-month smoothed basis in the latest tally. The November jobs report that recorded very little (-11,000) further decline in employment was good news for income prospects and consumer confidence.

Canadian home prices

North of the border, Statistics Canada has reported on new home sales prices across the country. Record low mortgage rates and a labour market that generated 79,000 new jobs in the latest month have resulted in new home prices rising 0.3% in October versus September. The largest jumps were recorded in Quebec City (+1.1%), where Statistics Canada says there was a shortage of land and some material cost increases, and in Vancouver (+0.7%), where the market is starting to turn around after a disastrous several months earlier this year. While the recent trend has been for higher new home prices in Canada, the year-over-year numbers are still depressed, particularly in the West, with Edmonton at -10.1%, Victoria -9.2%, Calgary -5.6% and Vancouver -4.7%.

As for the existing home market in Canada, double digit percentage increases have become the norm, according to the Canadian Real Estate Association. As with new homes, Quebec City (+10.8%) and Vancouver (+14.8%) are among the leaders. Saint John, N.B. (+17.8%) and Ottawa (+14.1%) have also experienced large bumps in prices. But most surprising has been the +20.0% increase in average home resale prices in Toronto. There is concern that some individuals may be taking on too much risk backed by super low mortgage rates. The era of almost non-existent rates will be coming to an end, perhaps sooner than expected. Some homebuyers may then find themselves e6xposed to significantly higher monthly loan payments.

U.S. retail sales – three months smoothed
U.S. construction-related retail sales – three months smoothed
*"Year over year" is each month versus the same month of the previous year.
Based on latest three-month averages of current dollar adjusted data (and placed in latest month).
Adjustments are for seasonal variation, holiday and trading day differences, but not for price changes.
Data source: U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data - CanaData.

by Alex Carrick

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