ECONOMIC MONITOR - Warren Ross€¦ · ECONOMIC MONITOR 2 Dynamic Funds Economics Financial Markets Overview The global economic outlook has been revised downward in recent weeks

ECONOMIC MONITORMarch 3, 2016

Prepared by:

Dr. Martin Murenbeeld &

Chantelle Schieven

ECONOMIC MONITOR

Dynamic Funds Economics2

Financial Markets Overview

The global economic outlook has been revised downward in recent weeks by the IMF and OECD, and the G-20 Communique of February 27 called for more policy initiatives to boost growth. (Some policy options are discussed in an essay herewith commencing on page 4.) Disappointing economic growth, low oil prices, and concerns over the financial/economic stability of China have continued to be major headwinds for North American equity markets. At the time of writing equity markets have rebounded somewhat, as immediate concerns have ebbed. US economic growth in 2015-Q4 was revised upwards to 1.0% and Canadian economic growth surprised by posting a 0.8% rate for 2015-Q4. The charts commencing on page 10 highlight just how the Canadian and US economy have fared in recent months; in short it has been spotty. Business investment is not contributing to growth in either Canada or the US; the net-exports category (weak import demand) is making the single largest contribution to Canadian growth, whereas household consumption is the single largest contributor to US growth. The lower Canadian dollar is expected to help the Canadian manufacturing sector in 2016, but the US will not likely benefit from US dollar weakness; indeed, the US dollar is expected to remain quite firm.

The forecasts this month call for: 1.► The FED to hike the federal funds rate only

once in 2016 – September.

2.► The BANK OF CANADA to stand pat on interest rates in 2016.

3.► BOND YIELDS to rise very modestly over the next four quarters on the back of some increase in the rate of headline inflation; low yields abroad will dampen any upward pressure on North American yields.

4.► The CANADIAN DOLLAR to trade in a somewhat higher range than forecast last month; but oil remains a wild card: lower oil prices threaten the Canadian dollar directly – though we think oil prices have about bottomed.

5.► The US DOLLAR to remain firm over the next four quarters, though we have flattened out the baseline forecasts for the yen, euro, and RMB; “Brexit” is the wild card in June and a Trump victory the wild card in November.

3Dynamic Funds Economics

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ECONOMIC MONITOR


The Canadian Dollar Model by Rasim Jafarov

The Canadian dollar has been hit hard by the collapse of commodity prices in recent years and notably by the collapse of oil prices since 2014. Commodity prices are the most influential variables in our Canadian dollar model, which also includes such variables as the US/Canada short-term and long-term interest rate spreads and inflation differentials.

At February month-end, the model estimated that the fair value range for the Canadian dollar was 72.5 to 80.5 US cents, with 76.5 cents as the middle point of the range. We do not expect the Canadian dollar to rise to the middle point of this estimate soon, especially if oil prices remain at current levels (see our latest CAD forecasts in this Economic Monitor); models over/under-estimate reality all the time – see the chart below.

Yet, the model is still useful in providing us with a numerical range for “fair value”, and in providing some sense of how sensitive the dollar might be to changes in oil prices. A variation of the model below suggests that a 10% percent decline (rise) in the price of oil leads to a 2.8% decline (rise) in the Canadian dollar (i.e. a rise of about $3.00 in the oil price would add about 2 cents to the Canadian dollar, all else equal).

We’ll see how it goes. It’s not clear that the full weight of the commodity price/oil price plunge has yet worked its way through the Canadian economy. This means that interest rate developments in the US and Canada could yet lower the model’s estimate of “fair value” as the year progresses.

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MONTHLY CANADIAN DOLLAR MODEL

Variables:Interest rate differentialsInflation ratioOil price

Last month: February 2016

Actual: 74.0Estimated: 76.6

Source: Thomson Reuters Datastream, Dundee Economics

R-Squared .875


Great Recession ended (all data are quarterly, seasonally adjusted at annual rates). Yes, this is low by post-recession standards, and attests to the severity of the Great Recession, but is positive – unlike what has been recorded in Europe and Japan.

Fiscal policy did provide significant support for the US economy during the Great Recession, but the Administration and Congress have not been able to forge a meaningful consensus on fiscal policy since then. The US budget deficit contracted once the economy began to expand again, and was a drag on US economic growth thereafter. Since 2010 the government sector’s contribution to quarterly economic growth averaged a minus .26%.

With the US dollar’s exchange value set abroad (by the Peoples’ Bank of China and other central banks – not by the US Treasury), US policymakers did not have the benefit of a lower dollar to help counter sluggish domestic growth in recent years. Indeed, US policymakers do not normally have an exchange rate policy option – unlike other policymakers. Net exports have subtracted an average .2% from quarterly US growth since the Great Recession.

Canadian policymakers have had a significant advantage over US policymakers; both monetary and exchange rate policies have been employed to deal with sluggish growth. Yes, the Canadian dollar floats freely, but that is a policy choice the Bank of Canada and the Government of Canada have made – and it has been an extremely beneficial policy choice. (Need we note that the Bank of Canada has “nudged” the Canadian dollar lower at propitious points in time?) The Canadian dollar declined dramatically during the Great Recession. It recovered as commodity prices around the world responded to improved global growth but recently, as oil and commodity prices have plunged, the dollar

Slow World Growth and Policy Options by Martin Murenbeeld

IMF Forecasts for world growth in 2016 have come down again; the IMF January Update forecast a 3.4% growth rate, which is down from 3.6% it forecast in its (Fall 2015) World Economic Outlook. (Readers may remember that anything below 4.0% is not helpful for commodity prices, because these typically decline year-over-year, inflation-adjusted, when world growth is less than 4.0%.) The OECD, too, revised downward the outlook in its February update. Together with other uncertainties, not least of which the outlook for oil prices, these downgrades have taken their toll on global equities.

The IMF’s January Update forecast the US economy will expand by 2.6% in 2016, and the Canadian economy by 1.7%. The OECD’s February Update forecast a 2.2% and 1.4% expansion for the US and Canadian economy respectively. Our expectations are modestly lower: in simple round numbers we look for 2.0% and 1.0% respectively. In short the outlook for the North American economy is also somewhat anemic.

How can policy help boost growth in North America – and in the US specifically? To organize the answer to this question we simplify the following discussion by classifying all policies as being either monetary, fiscal, or exchange rate. (“Restructuring”, a catchall for all other policies including, for example, legal changes in labor market legislation, falls outside of the present discussion – though is no less important.) Quick Review of Recent Policies in the US and Canada

In recent years, to keep economic growth from potentially contracting, US policymakers have relied heavily on monetary policy. But it has been difficult, and monetary policy has increasingly turned “unconventional”. The success however can be seen in the fact that the US economy has expanded by an average of 2.1% since the

ECONOMIC MONITOR


interest rates and QE did not accomplish. Indeed some see NIRP as a “calamitous misadventure” (Ambrose Evans-Pritchard, writing in the Telegraph, February 17). One reason is that the efficacy of NIRP is enhanced in a “cashless” financial system (where money is in the form of electronic bank entries only). But no country runs a “cashless” financial/banking system! This means the public is able to escape NIRP by hoarding cash (in large-denominated bills for convenience).

But there are other reasons for NIRP to be less effective than advertised: banks have been loath to pass negative interest rates (levied on part of their reserves with the central bank) on to their depositors. NIRP will likely also encourage retiring baby boomers to spend less because their assets need be stretched over their remaining lives; household savings rates are likely to rise instead. Fourth, if/when the central banks decide to charge fees on issuing bank notes (on the issuance of $100 bills and €500 bills for example) the public will be encouraged to hoard “near-money” assets like gold outside of the banking system.

(Expecting the removal of large-denominated bills, some observers have opined that governments will quickly abolish private-sector hoarding of gold again, along with other “near-money” assets. If this happened public distrust in government and the financial system will grow dramatically! For example, public distrust in the Indian government and the Indian financial system is widespread, which is why gold hoarding is an entrenched fact of life. And as the Indian government has discovered with import duties and now its gold monetization schemes, gold hoarding, and the lack of confidence in the monetary system, is not easily reversed.)

So what monetary policy might come after NIRP? Some have suggested “helicopter money” is next! (We wrote in the February 19th Gold Monitor: “’Helicopter money’ … is a reference to pumping money – liquidity – directly into the financial system outside of the banking system. Milton Friedman famously suggested in 1969

has declined again. And, of course, the Bank has cut interest rates when required, though not yet to zero. Because of the highly flexible dollar, the Bank of Canada has not needed to adopt more “unconventional” monetary policies.

Canadian fiscal policy was supportive for the economy during the Great Recession, but the Harper government preferred an early return to balanced budgets as the Canadian economy basked in the sun of rising commodity prices. (Indeed, the government sector’s contribution to quarterly economic growth since 2010 has averaged exactly zero!) Demands for “fiscal stimulus” have escalated in recent quarters however as the Canadian economy has weakened on the back of plunging commodity prices; we accordingly expect the new Trudeau government to go “all in” on fiscal policy in coming quarters. Monetary Policy

In the following sections we will discuss the three policies in turn – with a view on what options are available.

Policymakers in the US, Canada, and abroad have relied heavily on monetary policies in recent years; first in response to the Great Recession, and thereafter to its disinflationary aftermath, to the continuing structural problems in Europe and now to the collapsing investment bubbles in many parts of Asia/China. In a sequence of stages, interest rates around the world have been cut to historic lows; unconventional policies, QE (the outright purchases of financial assets on the open market), have been adopted; and a number of countries have now introduced negative interest rates (NIRP – negative interest rate policies) - all to help boost consumption, investment and growth.

(Even the Fed allowed recently that NIRP was not off the FOMC’s table - that it had been discussed. The probability of the Fed actually adopting NIRP must be considered quite small at this stage however.)

It is doubtful NIRP will do much that near-zero


(tongue-in-cheek?) that the Fed could always distribute money by distributing cash from helicopters for the public to gather up and spend”.) To quote AEP, cited above, helicopter money is “an injection of money directly into the veins of the real economy through fiscal stimulus … [paid for by] central bank transfers rather than government debt issuance”.

The following is one example of “helicopter money”, taken from “The ECB’s original sin and Franco Modigliani’s long view” (Voxeu.org, 02/19):

“The ECB has proven unable to raise inflation through its QE program. Higher price dynamics cannot be achieved if the monetary stimulus fails to reach the real economy. When the latter is in deep recession or deflation, and fiscal space is limited, only monetary finance can be effective as it allows newly created money to be transformed into additional (public or private sector) spending without raising public debt. One way to apply money finance at the whole EZ level would be through an initiative whereby the European Investment Bank would issue bonds to finance a large investment plan for the area, and the ECB would purchase the EIB bonds with newly created money. Through such initiative, money finance would pursue the inflation target by stimulating demand and reducing unemployment.”(Bolding added.)

In other words, “helicopter money” is the direct financing of public investment by the central bank, in infrastructure, defense, and other projects that will spin off employment and growth. The trick is to keep the debt purchased by the central bank off the books of the government, so as to ensure the government’s budget deficit and its overall debt level do not rise, and that the government isn’t on the hook for more interest payments. (Presumably that is why the authors above have the European Investment Bank borrowing from the ECB - not the Greek or German government.)

It must be noted here that “helicopter money”, the central bank financing (directly or indirectly) of government policies, is how Zimbabwe and most

Latin American countries at one time or another slipped into hyper-inflation - and then went bust. But we shouldn’t get carried away just yet; the FT’s Martin Wolf noted recently “the economic forces that have brought the world economy to zero real interest rates and, increasingly, negative central bank rates are, if anything, now strengthening … Policymakers must prepare for a new ‘new normal’ in which policy becomes more uncomfortable, more unconventional, or both” (see “Helicopter drops might not be far away”, FT.com, 02/23). Fiscal Policy

Which brings us to fiscal policy: in my view central bank financing of public infrastructure, defense, and other public assets crosses the line between monetary and fiscal policy. Any entity (i.e. the European Investment Bank) initiating infrastructural investment funded by the central bank is almost certain to be a public-sector entity. This means the liability of that entity to the central bank must perforce be a government liability (similar to other “unfunded” government liabilities that are not recorded in the annual budgetary accounts).

(If the entity were a private-sector entity then the central bank in question will have crossed a Rubicon of sorts; for example, the Bank of Canada and the Federal Reserve are not, to my knowledge, permitted to buy the debt of private entities directly. If a private-sector entity’s project is deemed important enough to be funded directly by the central bank, then elected officials and the finance ministry will of necessity be involved.)

Our view is that fiscal policy should be making more of a contribution to growth. If ever there was an argument for Keynesian policy stimulation it is presently! (Keynesian economics was borne out of the Great Depression, and the global economy is about as close to the Great Depression experience as is possible without actually being in a Great Depression.) Keynes argued that when the private sector exhibits insufficient demand, the public sector must step up to the plate – and I agree.

ECONOMIC MONITOR


There is no limit to the projects in which governments can invest. (For a summary of necessary US infrastructural investments the reader can consult the American Society of Civil Engineers’ 2013 report card on US infrastructure: http://www.infrastructurereportcard.org/.) The market is also sending the government a message: when the US government is able to borrow hundreds of billions of dollars for 10 years at less than 2%, the US government ought to be able to find infrastructure and defense-related projects that will have an economic return to the economy exceeding 2%!

The reason fiscal policy has not made a contribution to growth is highlighted in the charts herewith: heavy spending on entitlements has left little room for infrastructural and defense-related spending. The combination of massive spending on entitlements with politically-mandated balanced budgets (or at the very least, modest budget deficits) negates large spending in the more traditional “make-work/boost-demand” areas of infrastructure and defense upgrades. A majority of politicians agree that North American infrastructure needs upgrading, but many are unwilling to incur the large budget deficits that come with infrastructural spending. Hence, the option of “helicopter money”: central bank funding of necessary projects outside of the fiscal (political) process!

The obvious solution is not “helicopter money” however, but fiscal policy restructuring! Room has to be found in budgets for infrastructure spending, defense upgrades, and other publicly important assets. (We may, and will, debate how much infrastructural investment should be done by the public sector versus how much by the private sector, because the public sector typically runs inefficient and high-cost operations, but the time horizon on public projects is generally longer than the private sector is willing to undertake without

some form of public-sector guarantee.) Even so, western governments must reduce

“entitlements” and make room for more important fiscal initiatives. Excessive entitlements, defined simplistically as a government payment for which no work need be performed, has been instrumental in the present economic malaise for at least two reasons: entitlements reduce the fiscal room for more growth-oriented fiscal initiatives and entitlements increase the unhealthy, economically-regressive, attitude among the public that the government is responsible for an individual’s well-being.

Entitlements dominate fiscal expenditures …

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1970 1975 1980 1985 1990 1995 2000 2005 2010 2015Annual data (last year 2015)

US Budget:Percent of total outlays Entitlements

DefenseInterest on Debt

Other

Source: Bureau of Economic Analysis, Dundee Economics

Leaving no room for defense and infrastructure

Source: BEA, Dundee Economics


We have argued in favor of a flat income tax, a consumption tax, zero corporate tax, a suitably high minimum income before the flat tax kicks in, and a withholding tax on interest and dividend payments to non-residents (with zero corporate taxes the government will lose revenues on such payments to non-residents; such payments to residents will be included in their income and will incur the flat tax). We have also argued that “tax expenditures”, which in the US total over $1 trillion and include mortgage interest rate deductibility (for a quick summary of US tax expenditures please see: http://www.gao.gov/key_issues/tax_expenditures/issue_summary), should be cut back dramatically, because they are/were politically-motivated and distort the market’s process of resource allocation.

With respect to entitlements, the government should replace public sector provisions with private sector insurances at its earliest opportunity, and repeal the programs that do little more than enrich the bureaucracies that oversee such programs.

(Yes, US medical care costs more than elsewhere, but it is also the best medical care for those who can afford it. Tort reform would do wonders for lowering the cost of medical care, however, as would legal action against entrenched monopolies. But let me quote Milton Friedman on health care: “Two simple observations are key to explaining both the high level of spending on medical care and the dissatisfaction with that spending. The first is that most payments to physicians or hospitals or other caregivers for medical care are made not by the patient but by a third party - an insurance company or employer or governmental body. The second is that nobody spends somebody else’s money as wisely or as frugally as he spends his own”, taken from “How to Cure Health Care” in The Public Interest, winter 2001. My point is that there are serious market distortions in the provision of “entitlements” that do nothing other than raise the costs thereof.)

One last comment on fiscal policy! Bernie

Sanders is a very likeable individual, undoubtedly; but his fiscal policies (with which most Canadians are already well versed) will absolutely worsen the economic malaise that now grips the US economy. Canada, in its good fortune, has had the benefit of periodic commodity cycles to “hide” its governments’ destructive fiscal policies (at both federal and provincial levels), but Canada’s lack of a credible military force, with credible military equipment, is an obvious sign of rot in the fiscal system. Europe is worse; its entitlement structure is gigantic and it must accordingly depend upon the US for defense. Were it not for the US entrepreneurial class’ massive contribution to economic well-being the US, too, would find itself unable to maintain its military expenditures at current levels. US infrastructural spending is, of course, already woefully inadequate. Exchange Rate Policy

Few economists think of “exchange rate policy”, though Canadian economist more than most. (Some of the more famous “international” economists were Canadian!) In my opinion, Canada has the ideal exchange rate policy: the Canadian dollar floats … freely. When demand for Canadian resources threatens to balloon domestic inflation the rise in the dollar helps to moderate the pressure. Currently, a weaker dollar helps to (1) keep inflation near 2% and (2) contain unemployment levels as the economy shifts from resource production to the production of other goods and services. And the Bank of Canada has been spared from adopting negative interest rates.

The US dollar “floats”, though not freely; its exchange value is set by other central banks – those that manage their currencies closely. This has always been a problem for the US; it has no direct control over its currency’s value. (This was understood and accepted by the US, but was weighed against the advantage of issuing the world’s reserve currency.) Accordingly, there have been periods in recent history when the US has had to force dollar devaluation onto the global system. (The natural tendency of most countries

ECONOMIC MONITOR


is to manipulate their currencies lower against the US dollar – which then has to be corrected.)

From an economic point of view, the US dollar is seriously overvalued today. This has led to massive downward pressure on US inflation, employment and growth – which the Fed has acknowledged many times in recent years. Some of the US economic malaise is therefore due to the dollar’s overvaluation against the RMB (other SE Asian currencies), the yen, and the euro.

A weaker dollar would also help address the structural problems of China and Japan. China needs to orient its production to domestic consumption – not foreign consumption; but it won’t thank the US in the event the US was able to devalue the dollar against the RMB. Europe has massive structural problems, some of which are alleviated by the massively undervalued euro. But this too comes at a significant cost in US growth and employment.

In short, there are a number of structural problems that underlie the dollar’s overvaluation – and we have said nothing about the structural “problem” of excessive US consumption (which would be corrected with consumption taxes and a flat income tax). These structural problems all feed into the underperformance of the US economy.

So what is to be done? Republicans appear intent upon redressing the situation. I have said elsewhere that a Donald Trump administration will devalue the dollar – one way or another. One way is with another Plaza Accord. (“The Plaza Accord or Plaza Agreement was an agreement between the governments of France, West Germany, Japan, the United States, and the United Kingdom, to depreciate the U.S. dollar in relation to the Japanese yen and German Deutsche Mark by intervening in currency markets. The five governments signed the accord on September

22, 1985 at the Plaza Hotel in New York City”, Wikipedia.) It is doubtful that China, Japan and the EU would agree to such an accord today however.

The other way to devalue the dollar is with import tariffs/duties/taxes! This doesn’t help US exporters, but it certainly helps import-competing firms. It also puts other countries on notice that if they want access to US consumers they have to adopt “fair trade” practices.

(“Fair trade” is often a euphemism for protectionism, but one can also think of it as reciprocal-trade fairness: “Do unto trade partners what they do to you”. It’s a slippery slope and the US has been loath to adopt many of the trade policies widely used abroad, but redressing an inherent unfairness in international trade is important when the overriding concern in the US is “secular stagnation”.) Conclusion

Without some important shifts in fiscal and exchange rate policies western economies face a lengthy period of weak, quasi-recessionary growth. We do not think a global recession is highly probable, nor a US economic recession, in the next several years. But a better set of policies would reduce the probability of recession and most certainly lead to better economic outcomes. The need for a major cutback in the “entitlement” system, which now overrules expenditures in the more traditional (if not also more important) areas of infrastructural and defense expenditures, is of paramount importance, in our opinion. So are the aforementioned tax policy changes. And the global system has to come to some agreement on currency realignment, if not also a system of penalties to refrain currencies from becoming seriously over/undervalued. Prolonged currency misalignment breeds protectionism – in its worst forms.


MONTHLY REVIEW ►CANADA – ECONOMIC GROWTH

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13 Q1 13-Q2 13-Q3 13-Q4 14-Q1 14-Q2 14-Q3 14-Q4 15-Q1 15-Q2 15-Q3 15-Q4

ConsumptionInvestmentGovernmentNet Exports

CONTRIBUTION TO GDP IN RECENT QUARTERS0.8%3.3% -0.8% -0.4%3.9% 0.5% 3.7% 2.1%4.1% 1.8% 2.8% GDP

Contributionto GDP %

** Average of last 12 quarters: 2.02%Source: Statistics Canada

2.5%

-10

-8

-6

-4

-2

0

2

4

6

8

90 92 94 96 98 00 02 04 06 08 10 12 14 16

CANADA GROSS DOMESTIC PRODUCT

Annualized growth rate Last quarter: 2015 Q4


-1.6-1.4-1.2

-1.0-0.8-0.6-0.4

-0.20.00.20.4

0.60.81.0

2008 2009 2010 2011 2012 2013 2014 2015 2016

CANADA MONTHLY GDP

Last month: December 2015Percent change month-to-month


The Canadian economy grew at 0.8% (annualized) in the fourth quarter and averaged 0.5% for

the four quarters of 2015.

Monthly GDP also advanced 0.3% in November and December.

Our GDP forecast calls for 1.0% growth in 2016, which is

an improvement over 2015.


ECONOMIC MONITOR

Net-exports made the largest contribution to GDP in 2015-Q4.

Business investment continued to be a major drag on GDP growth.


-1.0

-0.5

0.0

0.5

1.0

1.5

13 Q1 13-Q2 13-Q3 13-Q4 14-Q1 14-Q2 14-Q3 14-Q4 15-Q1 15-Q2 15-Q3 15-Q4

Durable GoodsNondurable GoodsServices

C: HOUSEHOLD CONSUMPTION0.5%1.4% 0.3% 1.2%1.4% 0.4% 2.4% 1.6%1.2% 1.8% 1.5% C**



1.2%

-3

-2

-1

0

1

2

3

4

13 Q1 13 Q2 13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4

NonresidentialResidentialInventories

I: INVESTMENT-2.5%2.1% -1.7% -2.7%0.7% -0.7% -2.0% -0.6%2.4% -0.8% 1.9% I**


** Average of last 12 quarters: -0.56%Source: Statistics Canada

-2.8%

-1.0

-0.5

0.0

0.5

1.0

1.5

13 Q1 13 Q2 13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4

Consumption Expenditure

Fixed Capital Formation

G:GOVERNMENT0.1%0.2% 0.8% 0.6%0.3% 0.8% 0.1%-0.4%-0.9% 0.2% G**


** Average of last 12 quarters: 0.12%

-0.4%

-4

-2

0

2

4

6

8

13 Q1 13 Q2 13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4

Exports

Imports

Net

X-M: FOREIGN BALANCE2.4%-0.2% -0.3% 0.5%1.6% 0.7% 2.9% 0.6%1.0% 1.6% -0.9% X-M**





0.0%

4.1%

-10

-8

-6

-4

-2

0

2

4

6

8

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADA GDP FORECAST


Forecastthrough

2016

Source: Statistics Canada, Dundee Economics

-4

-3

-2

-1

0

1

2

3

4

5

13 Q1 13-Q2 13-Q3 13-Q4 14-Q1 14-Q2 14-Q3 14-Q4 15-Q1 15-Q2 15-Q3 15-Q4


CONTRIBUTION TO GDP IN RECENT QUARTERS0.8%3.3% -0.8% -0.4%3.9% 0.5% 3.7% 2.1%4.1% 1.8% 2.8% GDP



2.5%

-1.0

-0.5

0.0

0.5

1.0

1.5

13 Q1 13-Q2 13-Q3 13-Q4 14-Q1 14-Q2 14-Q3 14-Q4 15-Q1 15-Q2 15-Q3 15-Q4


C: HOUSEHOLD CONSUMPTION0.5%1.4% 0.3% 1.2%1.4% 0.4% 2.4% 1.6%1.2% 1.8% 1.5% C**



1.2%

-3

-2

-1

0

1

2

3

4

13 Q1 13 Q2 13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4


I: INVESTMENT-2.5%2.1% -1.7% -2.7%0.7% -0.7% -2.0% -0.6%2.4% -0.8% 1.9% I**


** Average of last 12 quarters: -0.56%Source: Statistics Canada

-2.8%

-1.0

-0.5

0.0

0.5

1.0

1.5

13 Q1 13 Q2 13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4

Consumption Expenditure

Fixed Capital Formation

G:GOVERNMENT0.1%0.2% 0.8% 0.6%0.3% 0.8% 0.1%-0.4%-0.9% 0.2% G**



-0.4%

-4

-2

0

2

4

6

8

13 Q1 13 Q2 13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4

Exports

Imports

Net

X-M: FOREIGN BALANCE2.4%-0.2% -0.3% 0.5%1.6% 0.7% 2.9% 0.6%1.0% 1.6% -0.9% X-M**





0.0%

4.1%


-16

-12

-8

-4

0

4

8

12

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADA INDUSTRIAL PRODUCTION

Last month: December 2015Percent change year-over-year


69

72

75

78

81

84

87

90

87 90 93 96 99 02 05 08 11 14

CANADA CAPACITY UTILIZATION

Last Quarter: 2015-Q3

Percent


Average 1968 to date 81.8


-8

-6

-4

-2

0

2

4

6

8

10

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADA RETAIL SALES


Includes price changes


1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

1.60

1.65

1.70

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADA INVENTORY-TO-SHIPMENTS RATIO

Last month: November 2015


-16

-12

-8

-4

0

4

8

12

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADA INDUSTRIAL PRODUCTION



69

72

75

78

81

84

87

90

87 90 93 96 99 02 05 08 11 14

CANADA CAPACITY UTILIZATION

Last Quarter: 2015-Q3

Percent



Industrial production has been negative year-over-year for the last four months and is likely to remain depressed for some time to come.

Capacity utilization will likely also decline somewhat further in 2016.

The growth in retail sales has averaged a modest 2.3%

for the last six months.


ECONOMIC MONITOR


-30

-25

-20

-15

-10

-5

0

5

10

15

20

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADA MANUFACTURING SHIPMENTS



-40

-30

-20

-10

0

10

20

30

40

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADA MANUFACTURING NEW ORDERS



-30

-25

-20

-15

-10

-5

0

5

10

15

20

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADA MANUFACTURING SHIPMENTS



-40

-30

-20

-10

0

10

20

30

40

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADA MANUFACTURING NEW ORDERS



... and new orders have averaged a negative 4.0% for the last 12-months.

... shipments have averaged a negative 1.5% for the last

12-months (year-over-year) ...

The manufacturing sector remains weak.

The inventory ratio continues to trend upwards ...

-8

-6

-4

-2

0

2

4

6

8

10

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADA RETAIL SALES


Includes price changes


1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

1.60

1.65

1.70

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADA INVENTORY-TO-SHIPMENTS RATIO

Last month: November 2015



-120

-100

-80

-60

-40

-20

0

20

40

60

80

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADA JOB CREATION

Last month: January 2016000s, 3-month moving average


5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADA UNEMPLOYMENT RATE

Last month: January 2016Percent


MONTHLY REVIEW ►CANADA – LABOUR MARKET

64.0

64.5

65.0

65.5

66.0

66.5

67.0

67.5

68.0

90 92 94 96 98 00 02 04 06 08 10 12 14 16

CANADA LABOUR FORCE PARTICIPATION RATE

Last month: January 2016


% of non-institutional population 16 and over in the labor force

CANADA AVERAGE WEEKLY EARNINGS

-4

-2

0

2

4

6

8

10

12

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16


Total

Public Administration


-120

-100

-80

-60

-40

-20

0

20

40

60

80

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADA JOB CREATION

Last month: January 2016000s, 3-month moving average


5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADA UNEMPLOYMENT RATE



... and the labour force participation rate remains below 66%.

... the unemployment rate ticked up to 7.2% in January (from 7.1% in December) ...

Canada’s labour market remains weak.

Job creation was negative in January ...


ECONOMIC MONITOR

CANADA INDUSTRIAL PRODUCT PRICE INFLATION

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Last month: January 2016Percent change year-over-year


-2

-1

0

1

2

3

4

5

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Headline CPICore CPI

CANADA CONSUMER PRICE INFLATION

Target band



0

2

4

6

8

10

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Difference (inflation expectation)Long term bondReal Return Bonds

CANADA INFLATION EXPECTATIONS


Source: Bank of Canada, Dundee Economics

100

120

140

160

180

200

220

240

260

280

300

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADA HOUSING STARTS


000s, total, all areas

Source: Canada Mortgage & Housing Corporation

Headline CPI increased to 2.0% in January from 1.6% in December

on the back of higher food prices, however inflation expectations

declined further in February. We do not expect inflation to be an

issue for the Bank of Canada in 2016.

64.0

64.5

65.0

65.5

66.0

66.5

67.0

67.5

68.0

90 92 94 96 98 00 02 04 06 08 10 12 14 16

CANADA LABOUR FORCE PARTICIPATION RATE




CANADA AVERAGE WEEKLY EARNINGS

-4

-2

0

2

4

6

8

10

12

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16


Total

Public Administration


MONTHLY REVIEW ►CANADA – INFLATION

CANADA INDUSTRIAL PRODUCT PRICE INFLATION

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16



-2

-1

0

1

2

3

4

5

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Headline CPICore CPI

CANADA CONSUMER PRICE INFLATION

Target band




... with Vancouver and Toronto driving the increase in house prices.

... but new house prices continue to increase at a 1.5% rate ...

0

2

4

6

8

10

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Difference (inflation expectation)Long term bondReal Return Bonds

CANADA INFLATION EXPECTATIONS


Source: Bank of Canada, Dundee Economics

100

120

140

160

180

200

220

240

260

280

300

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADA HOUSING STARTS


000s, total, all areas

Source: Canada Mortgage & Housing Corporation

CANADA NEW HOUSE PRICES

40

50

60

70

80

90

100

110

120

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15-12

-8

-4

0

4

8

12

16

20


Index, 2007=100

Last month: December 2015

Percent change year-over-year

-2 -1 0 1 2 3 4 5

St. John'sHalifax

Fredericton

MontrealOttawa-Hull

Toronto

KitchenerWinnipeg

Regina

SaskatoonCalgary

Edmonton

VancouverVictoria


December 2015




40

50

60

70

80

90

100

110

120

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15-12

-8

-4

0

4

8

12

16

20


Index, 2007=100



-2 -1 0 1 2 3 4 5

St. John'sHalifax

Fredericton

MontrealOttawa-Hull

Toronto

KitchenerWinnipeg

Regina

SaskatoonCalgary

Edmonton

VancouverVictoria


December 2015



Canada’s housing market is mixed.

Housing starts declined sharply in December and January ...

MONTHLY REVIEW ►CANADA – HOUSING MARKET


ECONOMIC MONITOR

CANADA – TERANET HOUSE PRICE INDEX

50

75

100

125

150

175

200

00 02 04 06 08 10 12 14 16-8

-4

0

4

8

12

16

Source: Teranet (National Bank)

Composite 11 City Index



TORONTO – TERANET HOUSE PRICE INDEX

60

80

100

120

140

160

180

200

00 02 04 06 08 10 12 14 16-8

-4

0

4

8

12

16

20


IndexPercent change

year-over-year


VANCOUVER – TERANET HOUSE PRICE INDEX

60

80

100

120

140

160

180

200

220

00 02 04 06 08 10 12 14 16-15

-10

-5

0

5

10

15

20

25


IndexPercent change

year-over-year

CALGARY – TERANET HOUSE PRICE INDEX

60

80

100

120

140

160

180

200

00 02 04 06 08 10 12 14 16-20

-10

0

10

20

30

40

50


Index




CANADA – TERANET HOUSE PRICE INDEX

50

75

100

125

150

175

200

00 02 04 06 08 10 12 14 16-8

-4

0

4

8

12

16


Composite 11 City Index



TORONTO – TERANET HOUSE PRICE INDEX

60

80

100

120

140

160

180

200

00 02 04 06 08 10 12 14 16-8

-4

0

4

8

12

16

20


IndexPercent change

year-over-year


MONTREAL – TERANET HOUSE PRICE INDEX

40

60

80

100

120

140

160

00 02 04 06 08 10 12 14 16-3

0

3

6

9

12

15


Index


OTTAWA – TERANET HOUSE PRICE INDEX

60

80

100

120

140

160

00 02 04 06 08 10 12 14 16-3

0

3

6

9

12


Index




VANCOUVER – TERANET HOUSE PRICE INDEX

60

80

100

120

140

160

180

200

220

00 02 04 06 08 10 12 14 16-15

-10

-5

0

5

10

15

20

25


IndexPercent change

year-over-year

CALGARY – TERANET HOUSE PRICE INDEX

60

80

100

120

140

160

180

200

00 02 04 06 08 10 12 14 16-20

-10

0

10

20

30

40

50


Index




MONTHLY REVIEW ►CANADA – HOUSING MARKET

According to the Teranet 11 city composite house price index, existing house prices continued to increase by over 6% in January (year-over-year). House prices in Calgary are looking increasingly depressed however.

MONTREAL – TERANET HOUSE PRICE INDEX

40

60

80

100

120

140

160

00 02 04 06 08 10 12 14 16-3

0

3

6

9

12

15


Index


OTTAWA – TERANET HOUSE PRICE INDEX

60

80

100

120

140

160

00 02 04 06 08 10 12 14 16-3

0

3

6

9

12


Index





0

2

4

6

8

10

12

14

16

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16



CANADA CONSUMER CREDIT GROWTH

Source: Bank of Canada

250

300

350

400

450

500

550

600

07 08 09 10 11 12 13 14 15 16


$ volume, billions

CANADA CONSUMER CREDIT

Source: Bank of Canada0

2

4

6

8

10

12

14

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16


CANADA RESIDENTIAL MORTGAGE CREDIT GROWTH


500

600

700

800

900

1000

1100

1200

1300

1400

07 08 09 10 11 12 13 14 15 16


$ volume, billions

CANADA RESIDENTIAL MORTGAGE CREDIT


-2

-1

0

1

2

3

4

5

6

7

8

9

10

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16


CANADA TOTAL BUSINESS CREDIT GROWTH


1000

1100

1200

1300

1400

1500

1600

1700

1800

07 08 09 10 11 12 13 14 15 16


$ volume, billions

CANADA TOTAL BUSINESS CREDIT


MONTHLY REVIEW ►CANADA – CREDIT AND DEBT

0

2

4

6

8

10

12

14

16

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16



CANADA CONSUMER CREDIT GROWTH


250

300

350

400

450

500

550

600

07 08 09 10 11 12 13 14 15 16


$ volume, billions

CANADA CONSUMER CREDIT

Source: Bank of Canada0

2

4

6

8

10

12

14

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16


CANADA RESIDENTIAL MORTGAGE CREDIT GROWTH


500

600

700

800

900

1000

1100

1200

1300

1400

07 08 09 10 11 12 13 14 15 16


$ volume, billions

CANADA RESIDENTIAL MORTGAGE CREDIT

Source: Bank of Canada-2

-1

0

1

2

3

4

5

6

7

8

9

10

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16


CANADA TOTAL BUSINESS CREDIT GROWTH


1000

1100

1200

1300

1400

1500

1600

1700

1800

07 08 09 10 11 12 13 14 15 16


$ volume, billions

CANADA TOTAL BUSINESS CREDIT


Consumer credit growth appears to be stabilizing around 3%; mortgage credit and total business credit growth are both in excess of 6% however.


ECONOMIC MONITOR

4000

6000

8000

10000

12000

14000

16000

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

S&P/TSX COMOSITE

Index

Weekly, Friday dataLast date: February 26, 2016

Source: Thomson Reuters DataStream

55

60

65

70

75

80

85

90

95

100

105

110

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADIAN DOLLAR

Source: Wall Street Journal

US Cents

WeeklyLast date: February 26, 2016

4000

6000

8000

10000

12000

14000

16000

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

S&P/TSX COMOSITE

Index


Source: Thomson Reuters DataStream

55

60

65

70

75

80

85

90

95

100

105

110

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADIAN DOLLAR


US Cents


0

20

40

60

80

100

120

140

160

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

OIL PRICENYMEX

Weekly, Friday dataLast date: February 26, 2016US$/bbl


0

1

2

3

4

5

6

7

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADA GOVERNMENT BONDS

T-bills

10-year bond

Percent



The S&P/TSX composite index remains volatile, and is still down

from its April 2015 highs.

... on the back of a modest rise in oil prices.

The Canadian dollar increased somewhat in February (see page 3 for Canadian dollar commentary) ...

MONTHLY REVIEW ►CANADA – ASSET PRICES


-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

06 07 08 09 10 11 12 13 14 15 16

CANADA-US LONG TERM YIELD DIFFERENTIALS


10-Year

30-Year

Source: Bank of Canada, Federal Reserve

3

4

5

6

7

8

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADA LONG-TERM CORPORATE BOND YEILDS Percent

Source: Thomson Reuters Datastream


-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

06 07 08 09 10 11 12 13 14 15 16

CANADA-US LONG TERM YIELD DIFFERENTIALS


10-Year

30-Year

Source: Bank of Canada, Federal Reserve

3

4

5

6

7

8

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADA LONG-TERM CORPORATE BOND YEILDS Percent



0

20

40

60

80

100

120

140

160

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

OIL PRICENYMEX

Weekly, Friday dataLast date: February 26, 2016US$/bbl


0

1

2

3

4

5

6

7

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

CANADA GOVERNMENT BONDS

T-bills

10-year bond

Percent



Government bond yields declined in February ...

... and Canada‘s long-term corporate bond yields have also come down

somewhat in recent weeks.

... Canadian long-term rates remain significantly below

US long-term rates ...

MONTHLY REVIEW ►CANADA – INTEREST RATES


ECONOMIC MONITOR

-6

-4

-2

0

2

4

6

8

10

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16


$ volume, billions

CANADA TRADE BALANCE


-6

-4

-2

0

2

4

6

00 03 06 09 12 15

Last quarter: 2015-Q4

Percent of GDP

CANADA CURRENT ACCOUNT BALANCE


-6

-4

-2

0

2

4

6

8

10

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16


$ volume, billions

CANADA TRADE BALANCE


-6

-4

-2

0

2

4

6

00 03 06 09 12 15


Percent of GDP

CANADA CURRENT ACCOUNT BALANCE


Export and import growth are near zero of late.

Canada’s trade deficit declined in December, but is likely

to remain elevated.

The current account balance is just over 3% of GDP, and is not expected to improve

significantly in the near-term.

-40

-30

-20

-10

0

10

20

30

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16



CANADA IMPORT/EXPORT GROWTH


Imports

Exports

MONTHLY REVIEW ►CANADA – CURRENT ACCOUNT AND TRADE BALANCE


Not a good sign, the leading indicator was negative in both

December and January.

Growth in 2016 is forecast to average around 2.0%.

US GDP growth was revised to 1.0% from 0.7% (s.a.a.r) in 2015-Q4.

US GROSS DOMESTIC PRODUCT

-10

-8

-6

-4

-2

0

2

4

6

8

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Annualized growth rate Last quarter: 2015-Q4

Source: US Bureau of Economic Analysis

-10

-8

-6

-4

-2

0

2

4

6

8

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US GDP FORECAST


Source: US Bureau of Economic Analysis, Dundee Economics

Forecastthrough

2016

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

US LEADING INDICATOR

Last month: January 2016Percent change month-to-month

Source: The Conference Board

-2

-1

0

1

2

3

4

13 Q1 13 Q2 13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15-Q3 15-Q4


CONTRUBTION TO GDP IN RECENTQUARTERS1.0%1.9% 0.6% 3.9% 2.0%-0.9% 4.6% 4.3% 2.1%1.1% 3.0% 3.8% GDP

Contribution to GDP %

** Average of last 12 quarters: 2.3%Source: US Bureau of Economic Analysis

US GROSS DOMESTIC PRODUCT

-10

-8

-6

-4

-2

0

2

4

6

8

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Annualized growth rate Last quarter: 2015-Q4


-10

-8

-6

-4

-2

0

2

4

6

8

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US GDP FORECAST


Source: US Bureau of Economic Analysis, Dundee Economics

Forecastthrough

2016

MONTHLY REVIEW ►UNITED STATES – ECONOMIC GROWTH


ECONOMIC MONITOR


-0.5

0.0

0.5

1.0

1.5

2.0

2.5

13 Q1 13 Q2 13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4


C: HOUSEHOLD CONSUMPTION1.4%1.7% 1.2% 2.4% 2.0%0.9% 2.6% 2.3% 2.9%1.0% 1.2% 2.4% C**



-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

13 Q1 13 Q2 13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4


I: INVESTMENT-0.1%1.1% 1.4% 0.9% -0.1%-0.4% 2.0% 1.2% 0.4%0.8% 2.1% 0.7% I**




-1.0

-0.5

0.0

0.5

1.0

1.5

13 Q1 13 Q2 13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4

Federal

State/Local

G:GOVERNMENT0.0%-0.9% 0.0% 0.5% 0.3%0.0% 0.3% -0.3%-0.4% -0.4% -0.5% G**


** Average of last 12 quarters: -0.1%

0.2%

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

13 Q1 13 Q2 13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4

ExportsImportsNet

X-M: FOREIGN BALANCE-0.3%-0.9% -1.9% 0.2%1.3% -1.4% -0.2% 0.4%0.0% -0.2% 0.2% X-M**


** Average of last 12 quarters: -0.3%Source: US Bureau of Economic Analysis


-0.3%

Net exports and business investment subtracted from GDP growth in

2015-Q4. The largest contribution to growth came from the households

consumption of services.

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

US LEADING INDICATOR

Last month: January 2016Percent change month-to-month

Source: The Conference Board

-2

-1

0

1

2

3

4

13 Q1 13 Q2 13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15-Q3 15-Q4


CONTRUBTION TO GDP IN RECENTQUARTERS1.0%1.9% 0.6% 3.9% 2.0%-0.9% 4.6% 4.3% 2.1%1.1% 3.0% 3.8% GDP



-0.5

0.0

0.5

1.0

1.5

2.0

2.5

13 Q1 13 Q2 13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4


C: HOUSEHOLD CONSUMPTION1.4%1.7% 1.2% 2.4% 2.0%0.9% 2.6% 2.3% 2.9%1.0% 1.2% 2.4% C**



-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

13 Q1 13 Q2 13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4


I: INVESTMENT-0.1%1.1% 1.4% 0.9% -0.1%-0.4% 2.0% 1.2% 0.4%0.8% 2.1% 0.7% I**




-1.0

-0.5

0.0

0.5

1.0

1.5

13 Q1 13 Q2 13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4

Federal

State/Local

G:GOVERNMENT0.0%-0.9% 0.0% 0.5% 0.3%0.0% 0.3% -0.3%-0.4% -0.4% -0.5% G**


** Average of last 12 quarters: -0.1%

0.2%

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

13 Q1 13 Q2 13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4

ExportsImportsNet

X-M: FOREIGN BALANCE-0.3%-0.9% -1.9% 0.2%1.3% -1.4% -0.2% 0.4%0.0% -0.2% 0.2% X-M**


** Average of last 12 quarters: -0.3%Source: US Bureau of Economic Analysis


-0.3%


30

35

40

45

50

55

60

65

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Last month: February 2016Index

Below 50 indicates contraction

US ISM MANUFACTURING INDEX

Source: Institute for Supply Management

-15

-10

-5

0

5

10

15

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US RETAIL SALES


Nominal

Source: US Census Bureau

The retail sales picked up in January year-over-year ...

... while the ISM service sector index declined for the last three months,

but it remains well above 50.

... but the ISM manufacturing index remained below 50 for the fourth month in February

(indicative of contraction) ...30

35

40

45

50

55

60

65

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Last month: February 2016Index


US ISM MANUFACTURING INDEX


-15

-10

-5

0

5

10

15

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US RETAIL SALES


Nominal


30

35

40

45

50

55

60

65

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Last month: January 2016Index


US ISM SERVICE SECTOR INDEX


-18

-15

-12

-9

-6

-3

0

3

6

9

12

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US INDUSTRIAL PRODUCTIONPercent change year-over-year





ECONOMIC MONITOR

Durable goods orders increased in January, a good sign.

... but industrial capacity utilization increased in January (though

remains below historical norms).

Industrial production has been negative year-over-year for

the last three months ...

66

68

70

72

74

76

78

80

82

84

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US INDUSTRIAL CAPACITY UTILIZATION



Percent


US DURABLE GOODS ORDERS

200

210

220

230

240

250

260

270

280

290

300

310

12 13 14 15 16

Last month: January 2016$ US Billions


66

68

70

72

74

76

78

80

82

84

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US INDUSTRIAL CAPACITY UTILIZATION



Percent


US DURABLE GOODS ORDERS

200

210

220

230

240

250

260

270

280

290

300

310

12 13 14 15 16

Last month: January 2016$ US Billions



30

35

40

45

50

55

60

65

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Last month: January 2016Index


US ISM SERVICE SECTOR INDEX


-18

-15

-12

-9

-6

-3

0

3

6

9

12

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US INDUSTRIAL PRODUCTIONPercent change year-over-year




The Case-Shiller Home Price Index continues to advance at around 5.5% (year-over-year).

New home sales declined in January, but existing home

sales increased slightly.


50

70

90

110

130

150

170

190

210

230

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-20

-15

-10

-5

0

5

10

15

20

25CASE-SHILLER HOME PRICE INDEX

Case-Shiller Index, s.a.



Jan 2000 = 100

-800-700-600-500-400-300-200-100

0100200300400500

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Last month: January 2016000s, monthly change3-month moving average

Source: US Bureau of Labor Statistics

US JOB CREATION

0.3

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US HOUSING STARTS

Last month: January 2016Millions of dwelling units


0

200

400

600

800

1000

1200

1400

1600

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 163000

3600

4200

4800

5400

6000

6600

7200

7800

New home salesExisting home sales

US NEW AND EXISTING SINGLE FAMILY HOME SALES


000s 000s

Source: US Census Bureau, National Association of Realtors

0.3

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US HOUSING STARTS

Last month: January 2016Millions of dwelling units


0

200

400

600

800

1000

1200

1400

1600

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 163000

3600

4200

4800

5400

6000

6600

7200

7800

New home salesExisting home sales

US NEW AND EXISTING SINGLE FAMILY HOME SALES


000s 000s

Source: US Census Bureau, National Association of Realtors

The US housing market appears to be stable.

Housing starts appear to be leveling off at just over 1.1 million units.

MONTHLY REVIEW ►UNITED STATES – HOUSING MARKET


ECONOMIC MONITOR

MONTHLY REVIEW ►UNITED STATES – LABOUR MARKET


50

70

90

110

130

150

170

190

210

230

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-20

-15

-10

-5

0

5

10

15

20

25CASE-SHILLER HOME PRICE INDEX

Case-Shiller Index, s.a.



Jan 2000 = 100

-800-700-600-500-400-300-200-100

0100200300400500

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Last month: January 2016000s, monthly change3-month moving average


US JOB CREATION

3

4

5

6

7

8

9

10

11

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US UNEMPLOYMENT RATE



4

5

6

7

8

9

10

11

12

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US BROADER UNDEREMPLOYMENT RATE (U6)



Unemployment rate plus workers that are discouraged, marginally attached and those

working part-time (for economic reasons).

3

4

5

6

7

8

9

10

11

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US UNEMPLOYMENT RATE



4

5

6

7

8

9

10

11

12

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US BROADER UNDEREMPLOYMENT RATE (U6)



Unemployment rate plus workers that are discouraged, marginally attached and those

working part-time (for economic reasons).

62

63

64

65

66

67

68

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US LABOUR FORCE PARTICIPATION RATE




0

10

20

30

40

50

60

70

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US REASONS FOR UNEMPLOYMENT


*Includes persons who completed temporary jobsSource: US Bureau of Labor Statistics

Percent of unemployed

Job losers*

Reentrants

Job Leavers

New Entrants

62

63

64

65

66

67

68

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US LABOUR FORCE PARTICIPATION RATE




0

10

20

30

40

50

60

70

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US REASONS FOR UNEMPLOYMENT


*Includes persons who completed temporary jobsSource: US Bureau of Labor Statistics


Job losers*

Reentrants

Job Leavers

New Entrants 5

10

15

20

25

30

35

40

45

50

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US LENGTH OF UNEMPLOYMENT


*Source: US Bureau of Labor Statistics


Less than 5 weeks

5 to 14 weeks

27 weeks or longer

15 to 26 weeks


1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

90 92 94 96 98 00 02 04 06 08 10 12 14 16

US HOURLY EARNINGS


Seasonally adjusted

Production and nonsupervisory employees

All Employees

The US labour market continues to gain strength – the unemployment rate has ticked down in recent months and the labour force participation rate has ticked up in recent months.



-12

-9

-6

-3

0

3

6

9

12

15

18

90 92 94 96 98 00 02 04 06 08 10 12 14 16

US MANUFACTURING UNIT LABOUR COSTS




1

2

3

4

5

6

90 92 94 96 98 00 02 04 06 08 10 12 14 16

US EMPLOYMENT COST INDEX - TOTAL


Total – Includes BenefitsPercent change year-over-year

MONTHLY REVIEW ►UNITED STATES – WAGE INFLATION


-2

0

2

4

6

8

10

90 92 94 96 98 00 02 04 06 08 10 12 14 16

US HOURLY WAGE COMPENSATION INDEX




-6

-4

-2

0

2

4

6

90 92 94 96 98 00 02 04 06 08 10 12 14 16

US BUSINESS UNIT LABOUR COSTS




-3

-2

-1

0

1

2

3

4

5

6

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

TotalCore

US CONSUMER PRICE INFLATION

Last month February 2016Percent change year-over-year

Seasonally adjusted


1

2

3

4

5

6

90 92 94 96 98 00 02 04 06 08 10 12 14 16

US EMPLOYMENT COST INDEX - PARTIAL


Partial – Wages and Salaries onlyPercent change year-over-year


-12

-9

-6

-3

0

3

6

9

12

15

18

90 92 94 96 98 00 02 04 06 08 10 12 14 16

US MANUFACTURING UNIT LABOUR COSTS




1

2

3

4

5

6

90 92 94 96 98 00 02 04 06 08 10 12 14 16

US EMPLOYMENT COST INDEX - TOTAL


Total – Includes BenefitsPercent change year-over-year

5

10

15

20

25

30

35

40

45

50

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US LENGTH OF UNEMPLOYMENT


*Source: US Bureau of Labor Statistics


Less than 5 weeks

5 to 14 weeks

27 weeks or longer

15 to 26 weeks


1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

90 92 94 96 98 00 02 04 06 08 10 12 14 16

US HOURLY EARNINGS


Seasonally adjusted

Production and nonsupervisory employees

All Employees


-2

0

2

4

6

8

10

90 92 94 96 98 00 02 04 06 08 10 12 14 16

US HOURLY WAGE COMPENSATION INDEX




-6

-4

-2

0

2

4

6

90 92 94 96 98 00 02 04 06 08 10 12 14 16

US BUSINESS UNIT LABOUR COSTS



However, remaining slack in the labour market will help keep the pressure on wage increases at bay.


ECONOMIC MONITOR

MONTHLY REVIEW ►UNITED STATES – INFLATION

-8

-6

-4

-2

0

2

4

6

8

10

12

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Finished Goods (disc.)Finished Goods core (disc.)Final Demand (new)Final Demand Core (new)

US PRODUCER PRICE INFLATION



-2

-1

0

1

2

3

4

5

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

TotalCore



Fed’s Target

US PERSONAL CONSUMPTION EXPENDITURE INFLATION

Source: US Bureau Economic Analysis

-1

0

1

2

3

4

5

6

7

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

DifferenceLong-term Bond30-yr Inflation-Protected Bonds

US INFLATION EXPECTATIONS


The “difference” is a measure of inflation expectations!

Percent

Source: Federal Reserve, Dundee Economics

-9

-6

-3

0

3

6

9

12

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

IMPORT PRICES FROM EUROPE

US CPI

Europe




-3

-2

-1

0

1

2

3

4

5

6

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

TotalCore

US CONSUMER PRICE INFLATION

Last month February 2016Percent change year-over-year

Seasonally adjusted


1

2

3

4

5

6

90 92 94 96 98 00 02 04 06 08 10 12 14 16

US EMPLOYMENT COST INDEX - PARTIAL


Partial – Wages and Salaries onlyPercent change year-over-year

-8

-6

-4

-2

0

2

4

6

8

10

12

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Finished Goods (disc.)Finished Goods core (disc.)Final Demand (new)Final Demand Core (new)

US PRODUCER PRICE INFLATION



-2

-1

0

1

2

3

4

5

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

TotalCore



Fed’s Target

US PERSONAL CONSUMPTION EXPENDITURE INFLATION

Source: US Bureau Economic Analysis

Headline inflation is likely to remain below the Fed’s 2% target in 2016, despite the less negative contribution from energy price ... ... and US inflation expectations

have declined somewhat in recent months.


-20

-15

-10-5

0

5

10

1520

25

30

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-4

-3

-2-1

0

1

2

34

5

6IMPORT PRICES – ALL IMPORTS

US CPI

All Imports




-4

-3

-2

-1

0

1

2

3

4

5

6

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

IMPORT PRICES FROM CHINA

US CPI

China



MONTHLY REVIEW ►UNITED STATES – INFLATION

Negative import prices will continue to put downward pressure on US inflation.

-20

-15

-10-5

0

5

10

1520

25

30

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-4

-3

-2-1

0

1

2

34

5

6IMPORT PRICES – ALL IMPORTS

US CPI

All Imports




-4

-3

-2

-1

0

1

2

3

4

5

6

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

IMPORT PRICES FROM CHINA

US CPI

China



-1

0

1

2

3

4

5

6

7

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

DifferenceLong-term Bond30-yr Inflation-Protected Bonds

US INFLATION EXPECTATIONS


The “difference” is a measure of inflation expectations!

Percent

Source: Federal Reserve, Dundee Economics

-9

-6

-3

0

3

6

9

12

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

IMPORT PRICES FROM EUROPE

US CPI

Europe



-4

-3

-2

-1

0

1

2

3

4

5

6

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

IMPORT PRICES FROM JAPAN

US CPI

JapanLast month: January 2016



-7

-6

-5

-4

-3

-2

-1

0

1

79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 1560

70

80

90

100

110

120

130

140US CURRENT ACCOUNT BALANCE

US$ index (EFXR0)

Current account as percent of GDP

Source: US Census Bureau, WSJ, Dundee Economics



ECONOMIC MONITOR

... despite the sharp decline in US petroleum imports.

The US trade deficit with the world remains large ...

The US current account deficit is rising again, which we expect will

eventually undermine the US dollar.

US Trade Balance With World

-90

-80

-70

-60

-50

-40

-30

-20

-10

0

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-900

-800

-700

-600

-500

-400

-300

-200

-100

0

Monthly Trade Balance Goods

12 mo moving total Goods

Last date: December 2015 12 mo. moving total, bn$


billion$


-90

-80

-70

-60

-50

-40

-30

-20

-10

0

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Petroleum Balance

Non-Petroleum Balance

Last date: December 2015


billion$


-90

-80

-70

-60

-50

-40

-30

-20

-10

0

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-900

-800

-700

-600

-500

-400

-300

-200

-100

0

Monthly Trade Balance Goods

12 mo moving total Goods

Last date: December 2015 12 mo. moving total, bn$


billion$


-90

-80

-70

-60

-50

-40

-30

-20

-10

0

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Petroleum Balance

Non-Petroleum Balance



billion$

-4

-3

-2

-1

0

1

2

3

4

5

6

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

IMPORT PRICES FROM JAPAN

US CPI

JapanLast month: January 2016



-7

-6

-5

-4

-3

-2

-1

0

1

79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 1560

70

80

90

100

110

120

130

140US CURRENT ACCOUNT BALANCE

US$ index (EFXR0)

Current account as percent of GDP

Source: US Census Bureau, WSJ, Dundee Economics


MONTHLY REVIEW ►UNITED STATES – CURRENT ACCOUNT AND TRADE BALANCE


The rising trade deficit is a hot topic for Republican Presidential Candidate

Donald Trump – he proposes to “renegotiate” US trade relationships

under threat of import taxes.

-18

-15

-12

-9

-6

-3

0

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-180

-150

-120

-90

-60

-30

0US TRADE BALANCE WITH EUROPEAN UNION


US TRADE BALANCE WITH JAPAN

-10

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-100

-90

-80

-70

-60

-50

-40

-30

-20

-10

0




12 mo. moving total, bn$billion$


-40

-35

-30

-25

-20

-15

-10

-5

0

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-400

-350

-300

-250

-200

-150

-100

-50

0US TRADE BALANCE WITH CHINA




US IMPORTS OF CRUDE OIL

-52-48-44-40-36-32-28-24-20-16-12-8-40

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-520-480-440-400-360-320-280-240-200-160-120-80-400

Crude Oil

Crude Oil, 12-mo moving total

Total Energy Related PetroleumProducts, 12- mo moving total

Last date: December 2015billion$ 12-mo. moving total, bn$


MONTHLY REVIEW ►UNITED STATES – TRADE BALANCE

US TRADE BALANCE WITH CANADA

-12

-10

-8

-6

-4

-2

0

2

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-90

-75

-60

-45

-30

-15

0

15




300

900

1500

2100

2700

3300

3900

4500

5100

08 09 10 11 12 13 14 15 16

FEDERAL RESERVE BALANCE SHEETTotal Assets in Billions

Last date: February 24, 2015

Other Assets

Currency Swap lines

Liquidity to Banks

Commercial Paper Market

Securitization Market (support for mortgages)

Agency Debt

US Treasuries

Other CreditExtensions


-40

-35

-30

-25

-20

-15

-10

-5

0

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-400

-350

-300

-250

-200

-150

-100

-50

0US TRADE BALANCE WITH CHINA




US IMPORTS OF CRUDE OIL

-52-48-44-40-36-32-28-24-20-16-12-8-40

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-520-480-440-400-360-320-280-240-200-160-120-80-400

Crude Oil

Crude Oil, 12-mo moving total

Total Energy Related PetroleumProducts, 12- mo moving total

Last date: December 2015billion$ 12-mo. moving total, bn$


-18

-15

-12

-9

-6

-3

0

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-180

-150

-120

-90

-60

-30

0US TRADE BALANCE WITH EUROPEAN UNION


US TRADE BALANCE WITH JAPAN

-10

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-100

-90

-80

-70

-60

-50

-40

-30

-20

-10

0







ECONOMIC MONITOR

The Fed’s balance sheet has stabilized at just over $4.5 trillion.

... but M2-velocity is still in a major downtrend.

M2 money supply continues to expand at around 6.0% ...

MONTHLY REVIEW ►UNITED STATES – MONETARY POLICY

US TRADE BALANCE WITH CANADA

-12

-10

-8

-6

-4

-2

0

2

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-90

-75

-60

-45

-30

-15

0

15




300

900

1500

2100

2700

3300

3900

4500

5100

08 09 10 11 12 13 14 15 16

FEDERAL RESERVE BALANCE SHEETTotal Assets in Billions

Last date: February 24, 2015

Other Assets

Currency Swap lines

Liquidity to Banks

Commercial Paper Market

Securitization Market (support for mortgages)

Agency Debt

US Treasuries

Other CreditExtensions


1.4

1.5

1.6

1.7

1.8

1.9

2.0

2.1

2.2

2.3

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US M2 VELOCITY Velocity (Nominal GDP/ M2)

Last date: 2015 Q4

Velocity measures the turnover rate of the money supply as it is used to purchase goods and services

Source: Federal Reserve, Bureau of Economic Analysis, Dundee Economics

6

7

8

9

10

11

12

13

2007 2008 2009 2010 2011 2012 2013 2014 2015 20160.0

1.5

3.0

4.5

6.0

7.5

9.0

10.5US M2 MONEY SUPPLY

M2 money supply trillions$



Source: Federal Reserve

1.4

1.5

1.6

1.7

1.8

1.9

2.0

2.1

2.2

2.3

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US M2 VELOCITY Velocity (Nominal GDP/ M2)

Last date: 2015 Q4

Velocity measures the turnover rate of the money supply as it is used to purchase goods and services

Source: Federal Reserve, Bureau of Economic Analysis, Dundee Economics

6

7

8

9

10

11

12

13

2007 2008 2009 2010 2011 2012 2013 2014 2015 20160.0

1.5

3.0

4.5

6.0

7.5

9.0

10.5US M2 MONEY SUPPLY

M2 money supply trillions$





MONTHLY REVIEW ►UNITED STATES – HOUSEHOLD DEBT

0.3

0.4

0.5

0.6

0.7

0.8

2005 2008 2011 2014-12

-6

0

6

12

18US HOME EQUITY REVOLVING DEBT

Percent change year-over-year$ Trillion


Last quarter: 2015 Q4

0.5

0.6

0.7

0.8

0.9

2005 2008 2011 2014-12

-6

0

6

12US CREDIT CARD DEBT




0

2

4

6

8

10

12

14

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

$ trillions


Mortgage

Home Equity

Credit Card Other


US TOTAL HOUSEHOLD DEBT

4

5

6

7

8

9

10

2005 2007 2009 2011 2013 2015-10

-5

0

5

10

15

20US MORTGAGE DEBT




0

2

4

6

8

10

12

14

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

$ trillions


Mortgage

Home Equity

Credit Card Other


US TOTAL HOUSEHOLD DEBT

4

5

6

7

8

9

10

2005 2007 2009 2011 2013 2015-10

-5

0

5

10

15

20US MORTGAGE DEBT




0.3

0.4

0.5

0.6

0.7

0.8

2005 2008 2011 2014-12

-6

0

6

12

18US HOME EQUITY REVOLVING DEBT




0.5

0.6

0.7

0.8

0.9

2005 2008 2011 2014-12

-6

0

6

12US CREDIT CARD DEBT




0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

2005 2008 2011 20143

6

9

12

15

18

21

24US STUDENT LOAN DEBT




0.5

0.6

0.7

0.8

0.9

1.0

1.1

2005 2008 2011 2014-15

-10

-5

0

5

10

15US AUTO LOAN DEBT



Last quarter: 2015 Q4 0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

2005 2008 2011 20143

6

9

12

15

18

21

24US STUDENT LOAN DEBT




0.5

0.6

0.7

0.8

0.9

1.0

1.1

2005 2008 2011 2014-15

-10

-5

0

5

10

15US AUTO LOAN DEBT




Total household debt is increasing at about 2.5% – with auto and student loans increasing the fastest.


ECONOMIC MONITOR

US savings as a percent of disposable income remained

at 5.2% in January.

US equity markets have recovered from lows set in January, but

remain well below recent highs.

Student loans and credit card loans have the highest default rates.

MONTHLY REVIEW ►UNITED STATES – WEALTH CREATION

600

800

1000

1200

1400

1600

1800

2000

2200

03 04 05 06 07 08 09 10 11 12 13 14 15 16

S&P 500



0

2

4

6

8

10

12

14

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

90+ DAYS DELINQUENT BY LOAN TYPEPercent of balance



Revolving Home Equity

AutoMortgage

Student Loans

Credit Card

600

800

1000

1200

1400

1600

1800

2000

2200

03 04 05 06 07 08 09 10 11 12 13 14 15 16

S&P 500



0

2

4

6

8

10

12

14

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

90+ DAYS DELINQUENT BY LOAN TYPEPercent of balance



Revolving Home Equity

AutoMortgage

Student Loans

Credit Card

0

2

4

6

8

10

12

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US PERSONAL SAVINGS RATE

Percent of personal disposable income Last month: January 2016


0

1

2

3

4

5

6

05 06 07 08 09 10 11 12 13 14 15 16

US INTEREST RATESWeekly dataLast Date: February 26, 2016

US Government 10-year yield

T-Bills

Percent




... but the yield on high yield bonds has increased significantly.

... the yield on AAA corporate bonds has stabilized around 4% ....

The yield on 10-year Treasuries has declined in the last two

months in spite of a Fed rate increase in December ...

0

2

4

6

8

10

12

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US PERSONAL SAVINGS RATE

Percent of personal disposable income Last month: January 2016


0

1

2

3

4

5

6

05 06 07 08 09 10 11 12 13 14 15 16

US INTEREST RATESWeekly dataLast Date: February 26, 2016

US Government 10-year yield

T-Bills

Percent



AAA CORPORATE BOND YIELDS

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

05 06 07 08 09 10 11 12 13 14 15 16

Percent Moody’s AAA Yield

4

8

12

16

20

24

05 06 07 08 09 10 11 12 13 14 15 16

HIGH YIELD BOND YIELDSPercent - Merrill Lynch High Yield Corporate Bond Yield



Weekly dataLast Date: February 26, 2016


AAA CORPORATE BOND YIELDS

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

05 06 07 08 09 10 11 12 13 14 15 16

Percent Moody’s AAA Yield

4

8

12

16

20

24

05 06 07 08 09 10 11 12 13 14 15 16

HIGH YIELD BOND YIELDSPercent - Merrill Lynch High Yield Corporate Bond Yield





MONTHLY REVIEW ►UNITED STATES – INTEREST RATES


ECONOMIC MONITOR

The US dollar declined against most currencies in February ... 75

80

85

90

95

100

105

110

115

120

125

13005 06 07 08 09 10 11 12 13 14 15 16 16

Units per US dollar

JAPANESE YEN


65

70

75

80

85

90

95

100

05 06 07 08 09 10 11 12 13 14 15 16

Weekly, last date: February 26, 2016

US DOLLAR INDEX - NEWEFXR


Euro, Yen, Pound, Rupee,Cdn$, Yuan, Swiss Franc, Aus$


75

80

85

90

95

100

105

110

115

120

125

13005 06 07 08 09 10 11 12 13 14 15 16 16

Units per US dollar

JAPANESE YEN


65

70

75

80

85

90

95

100

05 06 07 08 09 10 11 12 13 14 15 16


US DOLLAR INDEX - NEWEFXR


Euro, Yen, Pound, Rupee,Cdn$, Yuan, Swiss Franc, Aus$


5.5

6.0

6.5

7.0

7.5

8.0

8.505 06 07 08 09 10 11 12 13 14 15 16

CHINESE RENMINBI (YUAN)Units/US$Axis inverted

135

145

155

165

175

185

195

205

215

225

05 06 07 08 09 10 11 12 13 14 15 160.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

PoundEuro

Pound - UScents/Pound

POUND STERLING AND EUROEuro - US$/euro





MONTHLY REVIEW ►INTERNATIONAL – EXCHANGE RATES

5.5

6.0

6.5

7.0

7.5

8.0

8.505 06 07 08 09 10 11 12 13 14 15 16

CHINESE RENMINBI (YUAN)Units/US$Axis inverted

135

145

155

165

175

185

195

205

215

225

05 06 07 08 09 10 11 12 13 14 15 160.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

PoundEuro

Pound - UScents/Pound

POUND STERLING AND EUROEuro - US$/euro






... and Government bond yields also declined in February (note Japan’s

10-year rate is now negative).

1

2

3

4

5

6

05 06 07 08 09 10 11 12 13 14 15 16

US 10-YEAR BOND YIELD


1

2

3

4

5

6

05 06 07 08 09 10 11 12 13 14 15 16

UK 10-YEAR BOND YIELD


Weekly dataLast date: February 26, 2016


1

2

3

4

5

6

05 06 07 08 09 10 11 12 13 14 15 16

US 10-YEAR BOND YIELD


1

2

3

4

5

6

05 06 07 08 09 10 11 12 13 14 15 16

UK 10-YEAR BOND YIELD




0

1

2

3

4

5

05 06 07 08 09 10 11 12 13 14 15 16


GERMANY 10-YEAR BOND YIELD


-0.5

0.0

0.5

1.0

1.5

2.0

2.5

05 06 07 08 09 10 11 12 13 14 15 16

JAPAN 10-YEAR BOND YIELD



MONTHLY REVIEW ►INTERNATIONAL – BOND YIELDS

0

1

2

3

4

5

05 06 07 08 09 10 11 12 13 14 15 16


GERMANY 10-YEAR BOND YIELD


-0.5

0.0

0.5

1.0

1.5

2.0

2.5

05 06 07 08 09 10 11 12 13 14 15 16

JAPAN 10-YEAR BOND YIELD




ECONOMIC MONITOR

MONTHLY REVIEW ►INTERNATIONAL – LEADING INDICATORS

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-6.0

-4.5

-3.0

-1.5

0.0

1.5

3.0

4.5

6.0EUROZONE LEADING INDICATORS

Source: Thompson Reuters Datastream, OECD

% month-to-month

% year-over-year

-0.9

-0.6

-0.3

0.0

0.3

0.6

0.9

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-9

-6

-3

0

3

6

9OECD LEADING INDICATORS



% month-to-month

% year-over-year


-1.2

-0.9

-0.6

-0.3

0.0

0.3

0.6

0.9

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-12

-9

-6

-3

0

3

6

9BRIICS LEADING INDICATORS


% month-to-month

% year-over-year

-1.6

-1.2

-0.8

-0.4

0.0

0.4

0.8

1.2

1.6

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0CHINA LEADING INDICATORS


% month-to-month

% year-over-year



-0.3

-0.2

-0.1

0.0

0.1

0.2

0.3

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-3

-2

-1

0

1

2

3INDIA LEADING INDICATORS

% month-to-month

% year-over-year

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-4.8

-3.6

-2.4

-1.2

0.0

1.2

2.4

3.6JAPAN LEADING INDICATORS


% month-to-month

% year-over-year



-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-6.0

-4.5

-3.0

-1.5

0.0

1.5

3.0

4.5

6.0EUROZONE LEADING INDICATORS


% month-to-month

% year-over-year

-0.9

-0.6

-0.3

0.0

0.3

0.6

0.9

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-9

-6

-3

0

3

6

9OECD LEADING INDICATORS



% month-to-month

% year-over-year


-1.2

-0.9

-0.6

-0.3

0.0

0.3

0.6

0.9

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-12

-9

-6

-3

0

3

6

9BRIICS LEADING INDICATORS


% month-to-month

% year-over-year

-1.6

-1.2

-0.8

-0.4

0.0

0.4

0.8

1.2

1.6

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0CHINA LEADING INDICATORS


% month-to-month

% year-over-year



-0.3

-0.2

-0.1

0.0

0.1

0.2

0.3

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-3

-2

-1

0

1

2

3INDIA LEADING INDICATORS

% month-to-month

% year-over-year

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-4.8

-3.6

-2.4

-1.2

0.0

1.2

2.4

3.6JAPAN LEADING INDICATORS


% month-to-month

% year-over-year



Good news: China’s leading indicator was positive month-over-month in both December and January!

-0.9

-0.6

-0.3

0.0

0.3

0.6

0.9

1.2

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-6

-4

-2

0

2

4

6

8UK LEADING INDICATORS



% month-to-month

% year-over-year

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-6.0

-4.5

-3.0

-1.5

0.0

1.5

3.0

4.5

6.0CANADA LEADING INDICATORS


% month-to-month

% year-over-year

-0.9

-0.6

-0.3

0.0

0.3

0.6

0.9

1.2

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-6

-4

-2

0

2

4

6

8UK LEADING INDICATORS



% month-to-month

% year-over-year

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-6.0

-4.5

-3.0

-1.5

0.0

1.5

3.0

4.5

6.0CANADA LEADING INDICATORS


% month-to-month

% year-over-year

Source: Thomson Reuters Datastream, OECD


COMMODITY PRICES1. Bank of Canada Commodity Price Indices (Weekly data to February 26, 2016)

200

300

400

500

600

700

800

900

1000

06 07 08 09 10 11 12 13 14 15 16

TOTAL COMMODITYBank of Canada Commodity Price Index

250

275

300

325

350

375

400

425

450

06 07 08 09 10 11 12 13 14 15 16

TOTAL LESS ENERGY

Bank of Canada Commodity Price Index 250

500

750

1000

1250

1500

1750

2000

2250

2500

2750

3000

06 07 08 09 10 11 12 13 14 15 16

ENERGY

Bank of Canada Commodity Price Index

150

170

190

210

230

250

270

290

310

330

350

06 07 08 09 10 11 12 13 14 15 16

AGRICULTURE

Bank of Canada Commodity Price Index400

450

500

550

600

650

700

750

800

850

900

06 07 08 09 10 11 12 13 14 15 16

METALS AND MINERALS

Bank of Canada Commodity Price Index

250300350400450500550600650700750800850900

06 07 08 09 10 11 12 13 14 15 16

S&P GSCI COMMODITY

Energy weight: 75% 125150175200225250275300325350375400425450475

06 07 08 09 10 11 12 13 14 15 16

REUTERS/JEFFERIES CRB

Energy weight: 33%75

100

125

150

175

200

225

250

06 07 08 09 10 11 12 13 14 15 16

ECONOMIST COMMODITY PRICE

2. Other Indices (Weekly data to February 26, 2016)

Commodity prices increased slightly in February, not least because the US dollar weakened somewhat ...

Sources: Bank of Canada, Thomson Reuters Datastream, The Economist


ECONOMIC MONITOR

COMMODITY PRICES3. Metals (Weekly data to February 26, 2016)

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

55000

06 07 08 09 10 11 12 13 14 15 16

NICKELUS$/tonne

100

150

200

250

300

350

400

450

500

06 07 08 09 10 11 12 13 14 15 16

COPPERUS cents/lb

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

06 07 08 09 10 11 12 13 14 15 16

ZINCUS$/tonne

1200

1400

1600

1800

2000

2200

2400

2600

2800

3000

3200

3400

06 07 08 09 10 11 12 13 14 15 16

ALUMINUMUS$/tonne

500

1000

1500

2000

2500

3000

3500

4000

06 07 08 09 10 11 12 13 14 15 16

LEADUS$/tonne

300

500

700

900

1100

1300

1500

1700

1900

06 07 08 09 10 11 12 13 14 15 16

GOLDUS$/oz

600

800

1000

1200

1400

1600

1800

2000

2200

2400

06 07 08 09 10 11 12 13 14 15 16

PLATINUMUS$/oz

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

06 07 08 09 10 11 12 13 14 15 16

SILVERUS cents/oz

The gold price scored a technical breakout in February (see the Gold Monitor).

Sources: LME, LBMA, Wall Street Journal


COMMODITY PRICES4. Energy (Weekly data to February 26, 2016)

2030405060708090

100110120130140150

07 08 09 10 11 12 13 14 15 16

NY OilBrent Oil

SPOT OIL PRICESUS$/bbl

0

2

4

6

8

10

12

14

06 07 08 09 10 11 12 13 14 15 16

Henry Hub

NATURAL GASUS$/million BTU

7000

8000

9000

10000

11000

12000

13000

14000

15000

16000

06 07 08 09 10 11 12 13 14 15 16

TSX composite13 wk ma52 wk ma

S&P/TSX INDEX

600

800

1000

1200

1400

1600

1800

2000

2200

06 07 08 09 10 11 12 13 14 15 16

S&P 50013 wk ma52 wk ma

S&P500 INDEX

6000

7500

9000

10500

12000

13500

15000

16500

18000

19500

06 07 08 09 10 11 12 13 14 15 16

DJI13 wk ma52 wk ma

DOW JONES INDUSTRIALS

1000

1500

2000

2500

3000

3500

4000

4500

5000

5500

06 07 08 09 10 11 12 13 14 15 16

NASDAQ13 wk ma52 wk ma

NASDAQ INDEX

EQUITY MARKETS 5. North America (Weekly data to February 26, 2016)

Equity markets have been very volatile this year to date, on the back of uncertainty about the oil price outlook, the Chinese economy, and global growth.

Energy prices remain under pressure although a bottom of sorts may have been reached.Desperately needed is some agreement on production cutbacks, without which oversupply will remain an ongoing problem.



ECONOMIC MONITOR

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

22000

06 07 08 09 10 11 12 13 14 15 16

JAPAN

Nikkei0

100020003000400050006000700080009000

10000110001200013000

06 07 08 09 10 11 12 13 14 15 16

GERMANY

DAX0

3000

6000

9000

12000

15000

18000

21000

24000

27000

30000

06 07 08 09 10 11 12 13 14 15 16

INDIA

Bombay SENSEX

0500

100015002000250030003500400045005000550060006500

06 07 08 09 10 11 12 13 14 15 16

CHINA

Shanghai Composite0

200400600800

100012001400160018002000220024002600

06 07 08 09 10 11 12 13 14 15 16

RUSSIA

RTS-1

800

1000

1200

1400

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MSCI EAFE INDEX

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BRAZIL

Bovespa600700800900

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MSCI WORLD INDEX

EQUITY MARKETS 6. Around the world (Weekly data through February 26, 2016)

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Mexican IPC



Exchange Rates - Comparison of ScenariosActual Projected

15-II 15-III 15-IV 1-Mar Mar Apr May 16-II 16-III 16-IV 17-IUS Dollar incl Cdn$Scenario A 102.1 105.2 107.5 108.0 110.8 111.3 111.9Scenario B 94.68 97.26 98.50 97.82 98.45 99.09 98.75 98.64 98.03 98.30 98.11Scenario C 95.74 94.42 93.86 93.57 91.82 90.21 88.41Probability-Weighted 98.70 99.47 99.84 99.81 99.70 99.54 99.13

Canadian DollarScenario A 1.410 1.465 1.505 1.505 1.550 1.540 1.530Scenario B 1.229 1.310 1.335 1.341 1.365 1.380 1.380 1.385 1.395 1.400 1.390Scenario C 1.330 1.315 1.310 1.310 1.295 1.280 1.265Probability-Weighted 1.368 1.385 1.394 1.396 1.409 1.405 1.394

Japanese YenScenario A 118.5 122.0 124.0 124.0 128.0 129.5 131.0Scenario B 121.3 122.3 121.5 114.0 114.0 115.0 115.0 115.0 115.0 115.0 115.0Scenario C 111.0 110.0 110.0 110.0 108.5 107.0 105.0Probability-Weighted 114.4 115.5 116.0 116.0 116.6 116.6 116.5

British PoundScenario A 133.9 130.8 126.3 123.0 118.2 116.4 114.0Scenario B 153.3 155.1 151.8 139.5 140.6 141.7 144.1 145.4 151.6 152.6 153.4Scenario C 144.0 147.7 150.5 153.2 160.7 164.7 171.2Probability-Weighted 139.8 140.5 141.2 141.8 145.5 146.6 148.0

EuroScenario A 1.050 1.030 1.010 1.000 0.985 0.970 0.950Scenario B 1.105 1.119 1.095 1.087 1.090 1.090 1.100 1.110 1.140 1.130 1.120Scenario C 1.125 1.145 1.158 1.165 1.190 1.220 1.245Probability-Weighted 1.089 1.089 1.087 1.091 1.114 1.113 1.109

Australian DollarScenario A 70.21 67.24 65.12 65.12 62.58 62.34 62.09Scenario B 77.83 72.58 72.02 71.74 72.53 71.74 71.74 70.76 69.53 69.29 69.78Scenario C 74.81 75.89 76.34 76.34 77.61 79.30 81.03Probability-Weighted 72.52 71.65 71.23 70.74 69.81 70.05 70.67

Chinese Yuan/RmbScenario A 6.650 6.700 6.750 6.750 6.950 7.000 7.000Scenario B 6.120 6.264 6.389 6.552 6.550 6.570 6.590 6.580 6.600 6.600 6.600Scenario C 6.500 6.480 6.440 6.440 6.400 6.380 6.350Probability-Weighted 6.563 6.580 6.593 6.588 6.638 6.645 6.638

Indian RupeeScenario A 69.50 70.00 70.50 70.50 72.00 73.00 74.00Scenario B 63.47 64.98 65.92 67.60 68.50 68.50 68.20 68.20 67.60 67.30 67.00Scenario C 66.80 66.00 65.50 65.50 64.30 63.70 63.00Probability-Weighted 68.33 68.25 68.10 68.10 67.88 67.83 67.75

Source: WSJ, Thomson Reuters Datastream, Dundee Economics

ECONOMIC MONITOR


Interest Rates - Comparison of ScenariosActual Projected

15-II 15-III 15-IV 1-Mar Mar Apr May 16-II 16-III 16-IV 17-I

Canadian Interest RatesT-Bills (91-day)Scenario A 0.48 0.50 0.54 0.55 0.60 0.86 1.12Scenario B 0.63 0.41 0.44 0.46 0.45 0.43 0.41 0.42 0.40 0.40 0.40Scenario C 0.41 0.17 0.16 0.16 0.10 0.03 0.02Probability-Weighted 0.44 0.37 0.36 0.37 0.35 0.38 0.43

10-year BondsScenario A 1.62 1.70 1.80 1.80 2.10 2.35 2.60Scenario B 1.68 1.47 1.49 1.24 1.25 1.30 1.35 1.35 1.50 1.55 1.60Scenario C 1.00 0.90 0.80 0.80 0.65 0.55 0.47Probability-Weighted 1.25 1.26 1.28 1.28 1.37 1.41 1.46

Target Overnight RateScenario A 0.50 0.50 0.50 0.50 0.58 0.83 1.08Scenario B 0.75 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50Scenario C 0.50 0.25 0.25 0.25 0.18 0.05 0.05Probability-Weighted 0.50 0.43 0.43 0.43 0.42 0.43 0.48

US Interest RatesT-Bills (90-day)Scenario A 0.35 0.55 0.56 0.57 0.82 0.99 1.15Scenario B 0.02 0.04 0.13 0.31 0.35 0.35 0.35 0.38 0.46 0.65 0.65Scenario C 0.28 0.25 0.20 0.19 0.12 0.05 0.03Probability-Weighted 0.34 0.39 0.38 0.40 0.50 0.63 0.68

10-year BondsScenario A 2.30 2.40 2.50 2.50 2.85 3.15 3.40Scenario B 2.18 2.15 2.21 1.83 1.85 1.92 2.00 2.00 2.15 2.25 2.35Bonds - Scenario C 1.60 1.50 1.38 1.38 1.25 1.15 1.07Probability-Weighted 1.91 1.96 2.00 2.00 2.15 2.26 2.36

Fed Funds RateScenario A 0.45 0.65 0.65 0.65 0.90 1.07 1.23Scenario B 0.12 0.14 0.16 0.38 0.40 0.40 0.40 0.40 0.48 0.65 0.65Scenario C 0.36 0.34 0.32 0.32 0.24 0.15 0.13Probability-Weighted 0.40 0.45 0.45 0.45 0.54 0.66 0.69

Source: WSJ, Thomson Reuters Datastream, Dundee Economics


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