CHART 1: The cross-border jobs gap
The unemployment rate in Canada has been rising of late while falling sharply in the United States. But Canadians shouldn't conclude that we're in any imminent danger of being surpassed by our southern neighbour.
While joblessness stands at 7.6 per cent in Canada and 8.3 per cent in the U.S., the American situation is actually worse than a simple comparison of the two numbers would suggest. Avery Shenfeld, an economist at CIBC World Markets Inc., points out that the U.S. figure excludes some people without jobs who have given up looking for work or gone back to school.
Indeed, a look at employment rates shows that 61.6 per cent of those aged 15 and over in Canada are working, while only 58.5 per cent of those over the age of 16 in the U.S. are employed. Mr. Shenfeld contends that the true gap isn't the 0.7 of a percentage-point difference in the unemployment rate, but the "massive" 3.1 percentage-point gap in the shares of those who are working.
There is a caveat, though: Mr. Shenfeld points out that Canada's lead on that measure has been narrowing since June, and that growth in U.S. gross domestic product has also been exceeding Canada's. Canadian housing starts and prices are showing signs of levelling out, which could limit our GDP growth this year at a time when the U.S. housing market is turning more positive.
CHART 2: A peak in profits?
The good news is that U.S. stock prices have been on a tear over the past three years, thanks largely to cost cutting and cheaper borrowing costs that boosted earnings. The bad news is that the best days of this trend may be behind us.
Profits at companies in the S&P 500 index have rebounded following their plunge during the financial crisis, but lately they've been taking a breather. The concern for investors is that this pause could be more than temporary and signal the end of the upward trajectory.
"Profit margins for the S&P 500 are likely to peak this year, capping the upside on earnings growth," Marco Lettieri, an economist at National Bank Financial Inc., said in a report.
"Historically, margins tend to peak at the end of the business cycle. However, a topping-out process is already occurring," he said.
Excluding financial firms, profit margins are the widest in 30 years, according to Mr. Lettieri's analysis. The data suggest "that the largest benefits from productivity gains are behind us."
Although shares may appear cheap when investors look at price-earnings ratios, which are still below historical averages in many cases, a halt in earnings growth could put a damper on stock prices.
CHART 3: Looking for an inflation tamer
It's payback time. The sharp ascent of the Canadian dollar in the past decade helped cap inflation by making imports cheaper. But not any more, according to an analysis by Matthieu Arseneau, an economist at National Bank Financial Inc.
"For years, currency appreciation meant lower import prices," Mr. Arseneau said in a recent report. "Those conditions have now changed."
His analysis shows that the exchange rate between the U.S. dollar and Canadian dollar was highly correlated with import prices over the last decade. Over the past two years, however, that relationship has broken down. Despite a slight appreciation in the loonie over the last two years, import prices have risen strongly.
"This increase in import prices explains why the goods component in core consumer-price inflation rose last November at its highest rate since 2001," Mr. Arseneau said.
"In the past, the loonie's strength was a cause of concern for economists but they knew it also had an advantage in taming inflation," he added. "This advantage seems to be fading now."