Week of April 14
It’s Alright, Ma (I’m Only Bleeding)
There were some interesting touch points in the data this week that showed that while economic activity may be easing, it’s not collapsing. Given the heightened uncertainty that’s a win I’ll take. Consumers are continuing to show up, spend, and prop up the economy; multifamily starts were flat-ish; and I think that some modest growth is in the offing. Single family starts, though, were very soft.
We’re clearly still walking a tightrope, and each new week brings critical data reads, but at least the cracks in the foundation are not getting bigger. We’ll see what this week brings.
Important Data Points From The Past Week
Canadian Consumer Price Index (CPI)
Good news on the inflation front in Canada with CPI rising a lower-than-expected 0.3% in March, which also pushed down the year-over-year inflation rate from 2.6% to 2.3%. Core prices increased in line with expectations, and the year-over-year fell from 2.9% to 2.8%. This month’s data included the full removal of the GST holiday, making the weak inflation read more welcome.
Falling gas prices were a major contributor, but interestingly travel tour and airfares also posted large declines. The latter two likely the result of Canadians pulling back on travel plans outside the country.
The fall in global oil prices and gas prices will likely result in the headline inflation number continuing to ease. The March data also didn’t show a huge impact due to tariffs. This is likely the result of a mix of higher prices and lower demand working in tandem to stifle any major price gains.
U.S. consumers were in a spending mood in March, with retail sales climbing 1.4% from February. Excluding car sales, retail sales were up 0.5%.
I was eagerly waiting for this data to be released. With consumer sentiment falling, actual spending data would be an important metric in what consumers are doing with their feelings. And at least in March it had little impact. Indeed, gas sales (due to falling prices) were the loan main detractor – meaning the headline number should be even stronger. Some of this sales burst – take autos for example – are surely related to the pulling forward of demand out of fear for tariffs. But I’m not sure if that explains everything. Regardless, consumers are engaging in retail therapy and continuing to prop up the economy. April’s numbers will be another critical read since that’s when the stock market really started to plunge.
Bank of Canada (BoC) Policy Decision
The BoC opted not to cut the overnight rate, leaving it unchanged at 2.75%. This is the first time in a year that they have opted not to cut rates. It’s clear that the BoC is looking through the current haze and letting the data drive their decision; especially since the tariff position with the US has been mostly unchanged since their last rate decision in March. Looking forward, the BoC is going to save its dry powder till later in the year and the weight of tariffs begins to weigh down the economy. I’d expect another three cuts by the end of 2025.
U.S. Retail Sales
U.S. Housing Starts
Total housing starts fell 11.4% from February to March to a seasonally adjusted annual rate of 1.32 million. Most of the damage was in single family starts, which lost 14%, while multifamily starts were down by a milder 4%. On the upside, housing permits rose 1.6% - all the gain due to multifamily activity.
The housing market is clearly moving sideways. Purchasers are leery to pull the trigger given the fears over the economy and still high mortgage rates, while builders are dealing with costs/tariffs issues and are not feeling very confident. Looking at the first quarter vs what I was anticipating in my forecast, multifamily starts were just above what I forecast (and you know I’m reasonably positive on that market), while single family was just a little below. Regardless, I’m holding firm on my 2025 expectations for now.
What I’ll Be Watching This Week
A reasonably busy data week coming up. In the U.S. we have the Conference Board leading indicator, new home sales, durable goods orders, and the University of Michigan Consumer Sentiment Survey. In Canada, wholesale inflation data, and retail sales will give important pre-election information.
What I Watched Last Week
I’ve never been a huge Dylan fan but this was a great movie chronicling his early musical life culminating in his switch to electric guitar at the Newport Folk Festival in 1965. I think I’m a fan now. The title of this week’s newsletter is from his 1965 album Bringing It All Back Home.
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