Morning Market Brief: May 17, 2024

Canadian data pointing to weaker economic conditions?

Critical economic data out of Canada on Wednesday might be pointing to relative weakness in Canada’s economy. Sales of manufactured goods and existing homes sales both dropped, hindered by relatively modest demand. Higher borrowing costs and elevated inflation appear to be taking a bite out of consumer strength.?

• Statistics Canada reported that manufacturing sales in Canada fell by 2.1% in March over the previous month. This marked the first drop in manufacturing sales in 2024. This and other sales data, notably retail and wholesale sales, are showing a pullback in consumer spending as households deal with tight financial conditions. This appears to be nudging the Bank of Canada (BoC) to begin lowering interest rates soon.
• March’s decline in manufacturing sales was driven by a fall in sales for motor vehicles. Sales of petroleum products and food also declined over the month. On the other hand, sales for machinery increased in March.
• The Canadian real estate market appeared shaky in April amid weaker demand. The Canadian Real Estate Association said that sales of existing homes dropped by 1.7% in April over March.
• Relatively weaker demand pulled down home sales in April. Home purchasers are being challenged by high mortgage rates. However, demand is expected to improve once the BoC starts cutting rates.
• Conversely, a lack of inventory did not have a negative impact on home sales. The number of homes for sale on the market rose by 6.5% over the month, the second largest increase ever recorded.

Modest demand is weighing on Canada’s economy. The drop in manufacturing sales and existing home sales could be pointing to the need for the BoC to begin lowering interest rates to help reignite consumer demand. In the meantime, economic conditions in Canada remain challenged, which could mean modest economic growth in the first quarter.

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