Canada’s Ivey Index Jumps in January

Canada's Ivy index move sharply higher to 60.1 in January from 49.3 in December. The manufacturing index moved up to 51 from 49.2. The employment diffusion index moved up to 60.5 from 59.5. Delivery speeds lengthened, indicating some increase in activity rising to 52.3 from 49.1. Inventories, however, grew at a slower pace on a diffusion reading of 52.7, down from 53.9 in December. Inflation expanded more slowly with the diffusion reading for prices of 63.6 in January compared to 67.5 in December.

Over broader periods, three-months, six-months, and 12-months changes show that the overall Ivey index has moved up significantly, rising by 3.1 points over six months and by an even stronger 7.3 points over three months. In contrast, the manufacturing reading has eased, slipping to show a weaker gain over six months, falling back by 1.5 points while the diffusion index for manufacturing rose by 2.1 points over three months. The diffusion index at 51.0 (above 50) for January still shows bare-bones manufacturing expansion.

The employment diffusion index, while remaining well above 50, the point that indicates hiring neutrality, is lower by less than one point over 12 months but higher by 1.1 points over six months and by 5.9 points over three months. Delivery speeds have slowed considerably compared to 12-months ago. They are now nearly 25 diffusion points higher than they were 12 months ago; they're also 11.4 points higher than they were six months ago and 1.5 points higher than they were three months ago. Inventory diffusion is weaker on all three horizons, indicating that inventory building has steadily slowed. On the other hand, price diffusion is lower by 14.5 diffusion points over 12 months, by 12.3 diffusion points over six months and by 8 diffusion points over three months. The step back for inflation is impressive.

Meanwhile, the broader inflation metrics in the economy at the consumer level for consumer prices, for core consumer prices (excluding food & energy), and for the CPIx (a reading that excludes volatile items) all show inflation stepping down from 12-months to 6-months to 3-months.

The data on ranking allow us to look at the levels of these PMI readings and the pace of inflation across a broader period back to early-2009 and put today's performance in historic profile by looking at the queue standings (or ranking standings) that position each variable in a queue of historic values. The overall Ivey index has a 71.4 percentile standing, indicating that it's been higher than this a little less than 30% of the time. After the jump this month, the Ivey index is at a relatively firm standing. Manufacturing is a different ball game with a 34.7 percentile standing; it has been lower than its current value only about one-third of the time. The median readings on these rank variables occur at the 50% mark so any reading above 50 is above its median on this timeline any reading below 50 is below its reading on this timeline. The employment reading in January has a diffusion value of 60.5 and paired with a 92.3 percentile standing, indicating extreme strength for employment. Employment has been higher than the current level, less than 8% of the time. Delivery speeds have a high-ranking, indicating that the lags for deliveries are getting longer and that conditions are still relatively tight and have been tighter only about 8% of the time. Inventories, at a 52.7 diffusion reading in January, have a 48.2 percentile standing just slightly below their median. Prices have seen their diffusion values slide consistently. The 63.6 diffusion reading for January has a 57.1 percentile standing which puts it above its historic median on data back to 2009. But a reading at the 57th percentile is not as ominous for inflation.

The rankings for inflation itself showed that inflation at the consumer price level has rarely been higher than the year-over-year gains that are being posted in December. The headline CPI is at 6.5%; CPI less food & energy the gain is at 5.5%; on the CPIx the gain is at 5.4%. Consumer prices have a percentile standing of 94, indicating they have been higher only about 6% of the time; less food & energy prices have been higher on this timeline barely more than 1% of the time; the CPIx that excludes the volatile items has been higher about 6% of the time. Inflation remains high by historical standards on all these measures. In fact, it's breaking the lowest in the Ivey survey based on the diffusion measure for January. However, since inflation has rather substantially in January, we can compare the ranking of the Ivey PMI price index of 67.5 (from December) to its historic legacy and on the same timeline as the CPI data. On that a ranking at the 73 percentile emerges instead of at the 57th percentile and that's slightly more comparable to what we're seeing from the CPI data which are also up to date through December. Still, Ivey is pointing to ongoing deceleration ahead.

On balance, the Ivey report showed a sharp pickup in the PMI index in January. This is somewhat in sympathy with the unexpected pickup we've seen in Canada's main trade partner south of the border, the United States where the gain in jobs in January simply stunned markets. Canada shows that inflation forces are continuing to wither although the levels of inflation remain high. The ranking as well as the topical data show us that inflation progress is being made in the headline more than in the core. That raises questions about how sustainable the decline is going to be, especially with energy prices starting to creep back up.