In this week’s economic update, we are focusing on the U.S. and unpacking the factors that have contributed to a resilient and even strengthening economy south of the border – and how this could impact inflation and the central banks potential response.
We are also sharing the latest episode of The 10-Minute Take, where RBC economists Claire Fan and Carrie Freestone discuss what we could expect from the Canadian economy in the second half of the year.
Lastly, we are proud to highlight our sponsorship and involvement in the Milton Chinese Canadian Association’s New Year Gala, held on February 3rd.
Economic Update
Expectations that central banks will lower interest rates in the coming months have moderated recently. Meanwhile, the global equity market is off to a reasonably good start this year, driven once again by the U.S. market and large-cap technology stocks. Notably, an abundance of recent data suggests the U.S. economy not only remains resilient - but is showing signs of strengthening.
Increasing confidence in central bank’s ability to ease inflationary pressures
Through much of 2023, there was evidence of slowing growth globally. This was seen particularly in the manufacturing sector, and to a lesser extent services. By contrast the U.S. appeared to be moderating rather than slowing to the degree seen elsewhere. As a result, investors’ confidence in central banks’ ability to effectively cool economic activity to ease inflationary pressures has been steadily rising over the past year.
U.S. economy is demonstrating overall strength
Recent data continues to highlight the U.S. economy’s resilience. The latest jobs report revealed an addition of 353,000 jobs in the month of January - nearly double the anticipated amount. Moreover, figures for the prior two months were revised higher, and gains were spread across a variety of industries as opposed to a select few.
While layoff announcements have attracted attention over the past year, the employment backdrop has yet to markedly deteriorate. The number of Americans filing for unemployment benefits remains stable, and relatively strong wage growth continues. However as usual, there are some signs of moderation to keep in mind. These include: an increase in part-time workers and a decrease in full-time positions, a lower number of job openings, and fewer people quitting their jobs. The U.S. labour market overall continues to display impressive strength.
Other U.S. sectors showing positive signals
Other recent indicators also signal a favourable backdrop for the U.S. For example, January’s manufacturing data (while still weak in absolute terms) was better than expected and reached its highest level in over a year. Furthermore, the “new orders” component was particularly strong and may suggest further gains ahead.
The services sector also showed an acceleration in January, while other areas such as consumer confidence and construction spending also came in reasonably strong. Additionally, an improvement in financial conditions – often measured by a combination of equity market performance and the cost of accessing credit – is supportive for business activity overall.
Summary
A lingering question is whether U.S. inflation can continue to moderate in the face of an economy that is potentially re-accelerating. This may take some time to answer. With inflation largely trending in the right direction, the economy resilient as ever, and the U.S. central bank contemplating rate cuts, the U.S. equity market may continue to push higher for the time being. So too could investor optimism, as it often does when things are going well. As always, it’s our responsibility to remain level-headed and attentive to the risks and opportunities that may emerge.
Podcast: What will drive economic growth in the back half of 2024?
It is expected that the Bank of Canada will be considering cutting interest rates sometime in the middle of 2024, once they’ve seen inflationary pressures reduce and the decision is seen as an appropriate step. But what happens next? While the second half of the year is expected to look different from the first, what can we expect for the Canadian economy?
In the latest episode of The 10-Minute Take, RBC economists Claire Fan and Carrie Freestone examine how consumers are going to play a key factor in determining what our economy might look like in the fall of 2024. You can find this episode wherever you listen to podcasts, or by clicking here.
Celebrating Chinese New Year with the Milton Chinese Canadian Association
Elinesky Schuett Private Wealth was delighted to sponsor the Milton Chinese Canadian Association (MCCA) New Year Gala on February 3rd.. We are proud to be supporters not only of the gala itself, but of all the efforts put forth throughout the year to support such a culturally-rich community. Thank you to everyone involved for making the event such a great celebration and success.
As always, we are available to connect with you personally. Please don’t hesitate to contact us at 519-822-2024 or elineskyschuett@rbc.com.