Watching the Canadian GDP

April 30: And wondering if the U.S. GDP is as weak as it seems. Plus, oil company profit flops, and Silicon Valley’s furry doppelgängers

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MORNING-PLAYBOOK-STORYIt’s a two-day bonanza for first-quarter GDP.

Yesterday showed the U.S.’s underwhelming 0.2 per cent GDP growth (and not much of significance from the Fed’s monthly presser), and today it’s Canada’s turn. Stephen Poloz has warned of an ugly first quarter (I’m not dropping “atrocious,” even if he is!) and the expectation is for a contraction of -0.1 per cent for February*. The price of an oil crisis doesn’t come cheap, and that’s a lesson oil companies are doing their best to drive home themselves today, as one after another, they announce massive losses and cost cutting. Meanwhile, oil is actually strengthening: West Texas Intermediate, the American benchmark, is above $58 this morning, and was above $59 earlier.

The impact of the oil rout will also feature heavily in politics today, as both Manitoba and Newfoundland and Labrador are set to present their budgets, and the main certainty is they won’t be balanced. Both are facing deficits they attribute to oil, as Manitoba pushes back pledges to get in the black for another year. Today will also bring the survey of employment, payrolls, and hours for February, which can add a little bit of colour and detail to the Labour Force Survey, and Poloz and BoC senior deputy governor Carolyn Wilkins are back on Parliament Hill. They were in the House on Tuesday, accounting for frightening the Canadian public, and today they’re in the Senate.

There will be lots of economic data out today. Japan has already released an update on monetary stimulus, and the U.S. will have personal income numbers, as the eurozone has a host of employment numbers from across the eurozone nations – so far, even more proof the German economy is doing just great, thank you, as unemployment ticks still lower. But the real movers today are a traffic jam of major earnings reports, from most of the world’s major oil companies (Royal Dutch Shell, Exxon Mobil, Statoil), to Sony, DreamWorks and Visa. The trend so far has been complaints of the impact of the strong dollar – look for more of that today.

Is the American economy as fragile as the first quarter looks? In the first quarter, GDP growth was just 0.2 per cent – a fair shade lower than the one per cent that was widely predicted (with some analysts predicting growth as much as 2.4 per cent). The question now is whether the low growth is a statistical and seasonal aberration – the Upshot blog has shown that first quarters typically see much lower growth than the rest of the year, and this winter was particularly harsh – or a sign that 2015 isn’t shaping up to be the economic bright star for the U.S. that it pledged to be. The main factors to watch start with the strength of the U.S. dollar (remember when it almost hit parity with the euro?), which knocked net exports down 7. 2 per cent, as companies have complained through earnings season of diminished earnings on currency swings. A slowdown in business investment also looked worrying, unless it’s only limited to diminished oil rigs and energy infrastructure, which could result in eventually heightened oil prices (in theory). But the real mystery, as the Upshot blog notes (besides the statistical one), is why lower oil prices haven’t spurred consumption and retail sales, as economists and analysts have long predicted they would (“In Battle Between Strong Dollar and Cheap Gas, the Strong Dollar is winning.”

The oil company profit flop. Today is a big day of oil profits, and they’re coming in – as predicted – short. While oil has been strengthening in recent days, it’s been a staggering fall from last summer, when oil was above $100, and it has hollowed out profits for major Canadian and global companies, alike. Yesterday, Cenovus said it was down $668 million in the first quarter – in 2014, that same quarter saw a profit of $274 million. Meanwhile, Suncor said it had lost more than $340 million, compared to a profit of almost $1.5 billion in first quarter of 2014. This morning, major oil companies are reporting, and though some of those companies are beating expectations, the impact of oil prices is not a surprise – so expectations for profits have been set low. Europe-based energy companies have already started reporting, and the state Norwegian oil company, Statoil, saw their net income halved compared to a year earlier (it was $928 million for Q1), and was forced to write down $1.6 billion in U.S. assets, mainly shale production, after writing down Canadian oil sands production. Royal Dutch Shell saw its earnings slip 56 per cent. ExxonMobil is still to come. 


What to expect from another budget day. There are two provincial budgets on today, one from Manitoba, another from Newfoundland and Labrador. The debate in Manitoba is over the recent announcement by the premier, Greg Selinger, to push back balancing the budget to 2017, after promising to balance by 2016 – a pledge that was passed as a law (a note to Joe Oliver on balanced budget laws). The pledge to balance the books, after deficits began in 2009-10, has now been pushed back three times. Selinger also said tax increases are a possibility. The Manitoba government has now estimated a deficit of $394 million for the last fiscal year, pushed up by falling oil prices. Falling oil prices are expected to be a running theme for Newfoundland and Labrador’s budget, as well: the government predicts a $916-million deficit, as revenues have fallen from offshore oil projects. The government says it will have a balanced budget by 2020-21, and will cut more than 1,400 public service jobs before then in an effort to scale back costs.

What if Silicon Valley was populated by cartoon animals? I’m so glad you asked. If you’re young enough to have grown up on Arthur, but old enough to name 20 tech companies you use daily off the top of your head, there’s a good chance you’ll enjoy jokes about “Elon Muskrat.” Welcome to Business Town, a tumblr by illustrator Tony Ruth on the furry archetypes of the tech industry, from a “fail fast” platypus with a jetpack, to a pair of buffalos who use anonymous secret apps to share their most unpleasant inner thoughts and feelings. (On both of those notes, the founder of the Secret app announced he was shutting it down. The app, a source of tech-world rumours and gossip, but otherwise of supremely dubious use, was a magnet for oodles of venture capital cash. He said it’s not the app he imagined it would be – also, he believes in “failing fast.”)

Need to know:
TSX: 15,347.34 (+1.27), Wednesday
Loonie: 83.17 (+0.04), Wednesday
Oil (WTI): $58.90, Thursday (6:15 a.m.)

*This is for February’s GDP – not the first quarter. Apologies!