To my clients:

It was a mixed week for North American stock markets with the Canadian TSX finishing “flat” at + 0.004% (note the two extra 0’s); the U.S. Dow Jones Index finishing essentially flat also at - 0.06% (note the one extra 0 here); and the U.S. S&P 500 finishing up 1.2%.

U.S. first quarter GDP was released this morning, and at +3.2%, it came in much better than expectations for a mere 2.0% growth rate. That said, the underlying details were not necessarily quite as strong as the headline suggested, with a significant portion of the gain coming by way of increased inventories (not usually viewed as a strong or sustainable component of GDP growth). However, even after accounting for the contribution from a build in corporate inventories, the overall reading could still be characterized as better than expectations… especially given the rise in consumer spending which occurred late in the quarter. The bottom line is that this initial read of U.S. economic performance in the first quarter of 2019 reveals an economy doing better than the dire predictions of late 2018. It also reinforces the belief I have espoused many times in these weekly emails, that the slowdown in economic growth was/is just that – a slowdown and not a reversal into recession.

For those clients who have retained me on a discretionary basis, you likely received your 1st quarter commentary letter earlier this week. In that letter, I discussed the trend in weekly jobless claims as being arguably the second most important recessionary indicator RBC tracks. I make mention of this here because I’d be remiss if I didn’t point out a spike that occurred in this metric this week. After two successive weeks of posting sub-200,000 weekly jobless claims, the indicator jumped to 230,000 yesterday. This jump is on first blush concerning and will have to be watched, but there are two very important caveats: 1) the sub 200,000 readings are 50-year lows in absolute terms, and easily all-time lows in population adjusted terms; and 2) the claims period being measured coincided with the Easter holiday which typically distorts this data set. As such, I’m strongly inclined to dismiss this data point for the time being. However, should the trend continue in the weeks ahead (luckily, this is a weekly indicator rather than monthly, so it is much more timely in that regard), then my opinion might change. I’ll watch with interest.

Lastly, Chines/U.S. trade negotiations resume again next week. Some sort of trade agreement is looking ever more likely.

That’s it for this week. All the best,

Nick

Nick Scholte, CIM, FCSI

Vice-President & Portfolio Manager
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
3200-1055 West Georgia │ Vancouver, BC │ V6E 3P3
Toll Free: 1.844.665.9900 │ nick.scholte@rbc.com

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