Canadian economic data received in May was generally better than expectations. Of particular note, unemployment declined to 5.7% from 5.8% as a massive increase in jobs (106,500) more than offset the participation rate rising from 65.7% to 65.9%. Also, in the labour report hourly wage growth accelerated to 2.6% from 2.3% the previous month. The housing sector showed strength, with starts much higher than forecasts and existing home sales were better than expected. Even the first quarter GDP release which showed growth of only 0.4% (annualized) was interpreted positively because the details of the report showed activity was improving through the first three months of the year and had good momentum going into the second quarter. Forecasts of the second quarter growth rate are generally better than 2.0%.

As unanimously expected, the Bank of Canada left its interest rates unchanged at its May meeting. However, it disappointed dovish observers by indicating that it did not anticipate lowering rates for the foreseeable future. The Bank’s announcement had little impact on the bond market, however, as Canadian investors followed the global bond rally.

U.S. economic data was mixed in May. Unemployment fell to a remarkably low 3.6% rate, as robust job growth combined with a drop in the participation rate. In addition, first quarter growth in American GDP was revised marginally lower to a still hearty 3.1% pace. Other indicators of strength included personal income, consumer confidence, housing starts, and factory orders. These were countered by weaker than expected industrial production as a result of a drop in manufacturing, weaker retail sales, and slower construction spending. CPI inflation edged higher to 2.0% from 1.9% the previous month. At the beginning of the month, prior to the trade negotiation collapse, the U.S. Federal Reserve held its interest rates unchanged and gave no hint that moves either up or down were likely in coming months.

1 2 3