Equity Strategy - Consumer Staples

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Canadian Economic & Financial Weekly
No longer a staple of our
strategy
Downgrading consumer staples to neutral
We have maintained an overweight in the consumer staples sector of the TSX for
several quarters now, attracted to its defensive characteristics and its leverage to
a healthy-looking Canadian consumer. We’re not sure either of those attractions
applies any longer, and with this publication we downgrade the sector to neutral.
Earnings and valuations the staples of our concern
We initially preferred the consumer staples space because of its solid cash flow,
robust balance sheet, low beta and steady earnings stream, qualities which fit our
defense-oriented investment strategy. However, some of those characteristics have
lost their lustre in recent months; for instance, forward earnings estimates have
broadly declined and the sector’s beta has risen. Furthermore, valuation metrics for
the sector seem a bit frothy. On a forward P/E basis, the sector currently trades at
an 18.2x multiple versus the 14.9x commanded by the TSX. This spread itself isn’t
surprising, as the sector has historically traded at a slight premium to the broad
market (after all, investors have traditionally paid up for stable earnings growth). But
what is concerning, in our view, is that the sector’s premium to the TSX has widened
to a 15-month high despite declining earnings estimates and an increasingly
gloomier sector profile. In our view, weaker fundamentals combined with rising
competition from the US (most notably Wal-Mart) suggest that the sector should no
longer command the premium it historically has. On balance, our fundamental
research team concurs with this assessment, as they have buy ratings on only two
out of the eight staples companies they cover. They remain bullish on Shoppers
Drug Mart (YSC, B-1-7, $52.92) and Couche Tard (YATDB, C-1-7, $25.30).
Canadian consumer spending decelerating
The second reason why we were originally attracted to the staples sector was its
leverage to the Canadian consumer. Since 2005, consumer spending growth has
remained robust, averaging about 4.0% over the last seven quarters. However,
that strength has essentially disappeared of late as evidenced in the retail sales
data. Using our 0.8% point estimate for December retail sales (ex-autos), our
tracking suggests that Q4 ex-autos sales (a cleaner metric for the staples sector)
contracted 3.7% q/q saar, the steepest decline on record and the first negative
print in 21 quarters. Moreover, with average hourly earnings of permanent
employees (the BoC’s preferred wage inflation measure) at a 42-month low of
2.0% y/y, consumers don’t seem to be getting pay raises to boost spending either
(though this does help partially explain some of the recent weakness in spending).
Putting it all together, these results imply that retailers can expect a more sluggish
consumer spending environment ahead, and we indeed anticipate a more
lethargic performance from the staples sector.
Note to readers: Due to travel schedules, the next edition of the Canadian
Economic & Financial Weekly will be published Monday, February 26. Data
through that date are discussed in this edition’s Week Ahead section. We
apologize for any inconvenience this may cause.
Investment Strategy
Economics | Canada
16 February 2007
David D. Wolf +1 416 369 8764
Economist & Strategist
Merrill Lynch (Canada)
d_wolf@ml.com
Kevin Cheng +1 416 369-8741
Economist & Strategist
Merrill Lynch (Canada)
kevin_cheng@ml.com
Highlights:
On balance, we see upside risk to next
week’s key data. On the two top-tier data
reports, we see headline CPI increasing
1.1% y/y and CPIX rising 2.1% y/y, in line
with the consensus. Meanwhile, we see
retail sales and ex-auto sales increasing
1.2%/0.8%, respectively. Additionally, we
expect the international securities
transaction data to show a small inflow of
C$3.0bn (vs C$3.4bn consensus).
Upside surprises were seen in this week’s
international trade and manufacturing data.
The December trade surplus was better
than expected at C$5.0bn (vs consensus of
C$4.7bn), while manufacturing shipments
rose 1.7%, doubling the 0.7% gain
expected by consensus (please see Charts
of the Week).
Another strong week for the TSX as it rose
0.8% to a new record of 13,288. Telecom
services (+2.7%), materials (+2.6%) and
industrials (+2.5%) all showed strong
performances, while info tech (-0.3%) and
energy (-0.5%) were the only sectors in
the red.

16 February 2007
2
Charts of the Week
Canada's trade surplus came in at C$5.0bn in December,
above the C$4.7bn expected, and the best result since
February 2006. Exports jumped 3.8% m/m, while imports
increased 3.6%. In Q4, real exports grew an annualized 5.1%
against a 0.5% decline in real imports, essentially ensuring
that overall trade contributed to GDP growth in the quarter
for the first time since mid-2005. That contribution,
estimated at close to two percentage points, is slightly
larger than what we’d been penciling in. This improvement
in real net exports relative to our expectations came despite
much stronger results on the real import side, which in turn
reflects a bit more favourably on domestic demand. As a
result, we have revised up our call for Q4 GDP growth from
0.5% to 0.8%, and for Q1 GDP growth from 2.0% to 2.3%.
Chart 1: December trade surplus surprises to the upside
0
1
2
3
4
5
6
7
8
9
03 04 05 06
C$bn
Source: Haver Analytics, Merrill Lynch
Manufacturing shipments rose 1.7% m/m in December, well
above the 0.7% consensus but not a big surprise given the
much stronger than expected trade figures. Details were
solid across the board – real shipments rose a strong 1.4%,
both new and unfilled orders rose 2.1%, and inventories
dropped 0.6% to bring the I/S ratio down three ticks to a
five-month low of 1.27. Auto shipments grew rapidly for the
second consecutive month (+7.2%, with new car models
likely an upside catalyst), which lifted the transport sector
into positive territory (on a y/y basis) for the first time in
nine months. Putting recent results into context, the
November and December manufacturing data were about as
good as the prior three months’ worth were bad (see below
for more details).
Chart 2: Manufacturing shipments jump in December...
-8
-6
-4
-2
0
2
4
6
8
03 04 05 06
m/m%
Just as it is now clear that the Canadian manufacturing
sector was not outright imploding the way the data through
the fall made out, we believe it will become equally clear
ahead that Canada is just going through the same transitory
‘hard patch’ of better activity the US did a couple of months
ago. As evidence, the latest Business Conditions Survey
suggests that Canadian manufacturers are continuing to look
to cut production in Q1 (particularly in transports). We also
know that US motor vehicle production fell 6.0% in January,
the largest decline in nearly a decade, unwinding all of the
sector’s impressive November & December gains – suggesting
that the Canadian side of the industry might see a similar
result. Overall, we continue to see a soft manufacturing
sector weighing on GDP growth in the quarters ahead.
Chart 3: ... but strength in transports likely to dissipate in January
-80
-60
-40
-20
0
20
40
60
80
100
97 98 99 00 01 02 03 04 05 06 07
BCS transports production prospects, balance (%)
BCS production prospects, balance (%)

16 February 2007
3
Week Ahead Preview
The risk on next week’s numbers looks largely to the upside, as Canada looks to
be hitting its own ‘hard patch’ of data to match better recent US results.
The most important report will, in our view, be Tuesday’s CPI for January. The
core CPIX inflation rate fell unexpectedly in each of the past two months, coming
back down to the BoC’s 2.0% target earlier than anticipated. The fall in inflation
was driven largely by softer auto and clothing prices, refuting the notion that
minor recent weakness in the CAD would have an immediate inflationary impact.
Those areas are likely to stabilize in January, but other components can be
expected take over the disinflationary initiative. Specifically, we know that new
house prices (the ‘house’ part of the NHPI) fell last month for the first time in more
than eight years, a result which will slot directly into the January CPI, cooling what
had been the fastest area of services price inflation. As well, measured travel
tour prices commonly fall 8% to 14% this month; we imagine the decline may be
even larger this year, as warm weather in Central Canada surely mitigated
vacation demand. Offsetting these disinflationary influences should be minor
service price increases (particularly those that mark up on January 1), and
unfavourable base effects (CPIX was flat last January). Pulling it all together, we
expect a modest tick up in the CPIX rate to 2.1% y/y, in line with the consensus,
but with the balance of risks tilted modestly to the downside.
On the headline CPI rate, we expect an unchanged monthly result leading the y/y
rate to fall from 1.6% to 1.1%, largely due to the comparison between January’s
5% gas price decline and last January’s similar-sized increase.
The other top-tier release of the week will be Wednesday’s retail sales report for
December. The data have been awful of late. September sales were expected to
be bad, and they were (-1.1%/-0.8% headline/ex-autos). October sales were
expected to be much better, and they weren’t (-0.8%/-0.8%). November sales
were expected to make up for both, and they didn’t for either (+0.2%/+0.1%).
Fourth time’s the charm? The 5.6% jump in auto sales says yes, retail warnings
of very slow-moving winter items say no. We expect a strong holiday result, but
note that an increase even beyond our above-consensus +1.2% estimate would
be necessary just to get the level of sales back up to the cyclical peak (August).
Regardless of the outcome, this number should do little to change the fact that
real consumer spending barely rose in Q4 after four straight 3.5%+ quarters.
The other link in the distributive chain – wholesale trade – has shown a similarly
poor recent sales profile. And as with the retail sector (perhaps even more so), a
solid bounce looks likely in December. Autos are likely to be a particular sector of
strength – we’ve seen the bounces in exports, imports, shipments and the like,
but not yet in wholesales. Our call is for a 1.5% rise, double the consensus call.
As important as the sales result, however, will be the inventories data; the
wholesale I/S ratio rose for the fourth straight month in November to a 38-month
high of 1.29, contributing to our inventory correction concerns.
The leading indicator rounds out the list of activity-related figures this week, and
also looks likely to bounce, with most components improving for the January add-
up (particularly in manufacturing) after the prior month’s weakness. We expect a
0.5% m/m LI rise in January, from 0.3% in December, from 0.5% in November,
from 0.3% in October… that saw-toothed recent pattern usefully reflects the more
general uncertainty over the near-term path of growth in Canada.
Table 1: 2005/2006 BoC Fixed Action Dates
Date
Overnight
Target Rate Change
Tuesday, 24 January 2006 3.50% +25 bps
Tuesday, 7 March 2006 3.75% +25 bps
Tuesday, 25 April 2006 4.00% +25 bps
Wednesday, 24 May 2006 4.25% +25 bps
Tuesday, 11 July 2006 4.25% 0 bps
Wednesday, 6 September 2006 4.25% 0 bps
Tuesday, 17 October 2006 4.25% 0 bps
Tuesday, 5 December 2006 4.25% 0 bps
Tuesday, 16 January 2007 4.25% 0 bps
Tuesday, 6 March 2007
Tuesday, 24 April 2007
Tuesday, 29 May 2007
Tuesday, 10 July 2007
Wednesday, 5 September 2007
Tuesday, 16 October 2007
Tuesday, 4 December 2007
Source: Bank of Canada

16 February 2007
4
On their face, the November international securities transactions figures were
entirely at odds with our view of an adverse shift in Canadian capital flows.
StatsCan measured C$11.0bn of foreign net buying of Canadian securities in
November, while Canadian net purchases of foreign securities ebbed to C$5.3bn,
leaving Canada with a surplus on portfolio capital transactions after 17 months of
(generally rising) deficits. Heavy bond issuance by Canadian banks in non-CAD
currencies seemed to explain much of this, however (both the strength in inflows
and weakness in outflows); we don’t believe these data signal a shift in investor
attitudes towards Canadian vs foreign opportunities. Still, we will be comforted to
see these data revert to ‘trend’ in Monday’s release for December, expecting a
small inflow to contrast with a large outflow as per most of 2006.
Friday’s little-watched Quarterly Financial Statistics for Enterprises should show a
marked deceleration in Canadian corporate operating profits in Q4, based on
both slower volume growth and narrower margins (the latter driven by lower
commodity prices). The 1.0% q/q profit growth we expect would still leave the y/y
growth rate to fall to 2.5%, lowest since Q2 2002. Where this number goes, the
TSX trailing 12-month EPS growth figure (currently at 23%) generally follows.
BoC Deputy Governor Kennedy will be speaking on “Adjusting to Economic
Change” at the Greater Saskatoon Chamber of Commerce Thursday afternoon.
With the BoC both confused at recently divergent data and content with the
current stance of policy, we expect to hear nothing new on the policy front.
Finally, we hope that the establishment survey of employment due out on Monday
the 26th
will clear up some of the outstanding puzzles in the Canadian labour
market data. The lagging establishment results have thus far generally been
consistent with the stronger headline employment results, with October and
November showing a combined 62K increase in payrolls (not far from the LFS’
76K). It will be important for December’s establishment figure to ratify the further
52K growth in employment shown in the LFS. The wage data in the
establishment survey have, like those in the household (LFS) survey, been
surprisingly soft given apparently strong job growth. Average weekly earnings
growth stood at 2.6% y/y in November, barely half January’s peak (4.9%), though
wage inflation has come off of September’s 1.9% trough.
Table 2: The Week Ahead
Economic Event Period ML Forecast Consensus Previous
Monday, Feb 19
International Securities Transactions Dec C$3.0bn C$3.4bn C$11.0bn
Wholesale Trade Dec 1.5% 0.8% 0.1%
Tuesday, Feb 20
CPI (7:00) Jan 0.0% 0.1% 0.2%
CPI y/y (7:00) Jan 1.1% 1.1% 1.6%
CPIX m/m – BoC definition (7:00) Jan 0.1% 0.1% -0.2%
CPIX y/y – BoC definition (7:00) Jan 2.1% 2.1% 2.0%
Leading Indicator Jan 0.5% 0.4% 0.3%
Wednesday, Feb 21
Retail Sales Dec 1.2% 1.0% 0.2%
Retail Sales Ex-Autos Dec 0.8% 0.6% 0.1%
Thursday, Feb 22
Operating Profits Q4 1.0% - 2.8%
Deputy Governor Sheryl Kennedy speaks (13:35)
Monday, Feb 26
Payroll Employment Dec 25K - 60K
Average Weekly Earnings y/y Dec 2.7% - 2.6%
Source: Bloomberg, Merrill Lynch. Events are 8:30ET unless otherwise noted.

16 February 2007
5
Canadian Equity Factsheet
Table 3:
TSX Sectors Feb 15/07 1-wk ch. 4-wk ch. YTD ch. Div. Yld TSX Weight
Energy 3114 -0.5 4.8 -1.6 3.1 28.4
Equipment & Services 1800 0.6 2.1 1.0 4.6 1.2
Oil & Gas 3238 -0.5 4.9 -1.7 3.0 27.2
Materials 2569 2.6 11.1 6.8 1.1 15.2
Chemicals 2630 3.0 8.3 11.4 0.6 1.9
Construction Materials 1876 0.1 1.3 0.1 1.9 0.0
Containers & Packaging 2004 0.9 3.5 13.9 1.3 0.1
Metals & Mining 2968 2.7 12.1 5.8 1.1 12.4
Paper & Forest Products 801 0.3 3.9 10.9 2.2 0.8
Industrials 1273 2.5 7.5 10.3 1.6 4.6
Aerospace & Defense 279 4.1 13.0 17.7 0.1 0.6
Construction & Engineering 4602 0.6 7.8 12.6 0.6 0.4
Machinery 1252 -2.1 5.2 3.6 1.1 0.1
Commercial Services & Supplies 1641 0.9 7.4 7.1 4.1 0.3
Airlines 741 4.0 8.0 14.6 0.1 0.2
Road & Rail 3476 2.6 3.7 8.7 1.4 2.4
Consumer Discretionary 1354 0.3 1.4 6.4 2.0 6.5
Auto Components 1519 0.6 -0.8 0.4 1.8 0.7
Household Durables 1298 0.4 2.2 11.4 0.0 0.1
Textiles & Apparel 4129 -1.5 1.5 13.2 0.0 0.2
Hotels Restaurants & Leisure 1174 -2.1 -1.1 5.4 0.3 0.7
Media 1131 0.5 1.3 7.9 3.0 3.9
Multiline Retail 2643 4.1 6.0 5.7 0.8 0.5
Specialty Retail 1316 -1.2 6.6 8.2 0.6 0.3
Consumer Staples 1732 0.7 -0.7 2.1 1.5 3.5
Food & Drug Retailing 1730 0.5 -1.5 1.7 1.1 2.9
Beverages 1526 1.7 3.2 3.1 0.0 0.1
Food Products 1437 1.6 3.8 7.6 2.8 0.4
Tobacco 2366 1.8 1.0 -3.4 5.7 0.1
Health Care 523 0.5 -0.5 -0.8 2.3 0.8
Providers & Services 1309 2.6 -3.6 3.7 6.8 0.1
Biotechnology 295 -1.9 -7.5 -7.7 0.0 0.1
Pharmaceuticals 490 1.8 2.2 3.1 3.3 0.3
Financials 2003 0.5 3.3 2.8 2.6 32.3
Banks 2043 0.3 1.5 0.5 2.9 15.5
Capital Markets 2190 1.2 4.6 2.7 4.2 1.2
Diversified Financials 1953 -1.8 2.8 4.9 2.4 0.5
Insurance 1644 0.1 4.8 4.3 2.0 11.3
REITS 1420 1.9 6.4 9.8 4.7 1.4
Real Estate Mgmt 2941 4.3 10.3 12.5 1.3 2.4
Information Technology 287 -0.3 9.0 7.9 0.0 3.5
Internet Software & Services 227 20.7 22.1 16.0 0.0 0.1
IT Consulting & Services 1348 2.5 15.5 16.6 0.0 0.2
Software 995 -2.0 -2.2 2.6 0.0 0.4
Communications Equipment 193 -0.8 11.5 9.2 0.0 2.8
Electronic Equipment & Instruments 218 -0.1 -19.0 -17.4 0.0 0.1
Telecommunication Services 904 2.7 6.1 5.8 2.7 3.8
Diversified Telecom Services 822 2.2 6.8 4.0 3.6 2.6
Wireless Telecom Services 642 4.0 4.2 10.9 0.2 1.2
Utilities 1760 1.0 -1.6 -5.3 4.6 1.3
Electric Utilities 1745 2.6 -1.4 -4.6 3.2 0.3
Gas Utilities 659 -5.1 0.3 -4.9 7.7 0.1
Multi-Utilities 1576 -0.4 2.5 -6.8 2.6 0.4
TSX Composite 13288 0.8 5.1 2.9 2.3 100.0
Source: Bloomberg, Merrill Lynch

16 February 2007
6
Canadian Fixed Income Factsheet
Chart 4: GoC Yield Curve
(%)
2.25
2.75
3.25
3.75
4.25
4.75
5.25
3-month 2-y r 5-y r 10-y r 30-y r
6-month forw ard
6-months ago
Current
Source: Datastream, Merrill Lynch
Chart 5: Breakeven Inflation Rate
30-year GoC yield minus RRB yield (%)
1.50
1.70
1.90
2.10
2.30
2.50
2.70
2.90
3.10
3.30
Jan/02 Jul/02 Jan/03 Jul/03 Jan/04 Jul/04 Jan/05 Jul/05 Jan/06 Jul/06 Jan/07
Chart 6: Canada/U.S. 2-Year Spread
(bp)
-150
-100
-50
0
50
100
150
200
250
Chart 7: Canada/U.S. 10-Year Spread
(bp)
-100
-50
0
50
100
150
Table 4: Canadian Broad Market Index Total Return by Sector
(% change: as of Feb 15, 2007)
Total Return
ML Ticker 1-month 3-month 6-month Year-to-date
Government Bonds Total G0C0 0.5 0.4 3.4 0.3
1-5 yrs GVC0 0.3 0.7 2.3 0.4
5-10 yrs G6C0 0.5 0.3 3.2 0.3
15+ yrs G8C0 0.6 0.0 4.9 0.2
Corporates Total F0C0 0.6 0.9 3.9 0.6
Provincials and Municipals Total G0CP 0.6 0.5 4.1 0.5
Real Return Bonds G0CI 0.3 -2.8 -1.6 -0.4
Source: Merrill Lynch

16 February 2007
7
Key Economic & Financial Forecasts
Table 5:
06Q1 06Q2 06Q3 06Q4 07Q1 07Q2 07Q3 07Q4 2005 2006 2007 2008
Economy (q/q% saar)
GDP 3.8 2.0 1.7 0.8 2.3 1.2 2.3 3.6 2.9 2.7 1.8 3.5
Consumption 4.8 3.8 4.2 1.2 3.0 2.9 3.2 3.4 3.9 4.1 3.0 3.3
Government 3.8 4.7 0.6 2.3 3.6 4.0 4.4 4.4 3.2 3.7 3.3 4.2
Housing Investment 14.2 -4.8 -8.2 3.0 -1.0 -2.0 -2.0 -2.0 3.2 2.5 -1.7 -2.0
Business Investment 8.1 5.4 7.0 5.3 6.7 6.0 6.3 7.3 9.4 8.6 6.4 7.4
Exports -3.8 -1.7 3.6 5.0 4.0 0.0 3.0 3.5 2.1 1.5 2.8 4.0
Imports -2.0 8.6 4.1 0.0 5.0 3.0 4.0 6.0 7.1 5.0 3.7 6.2
Inventory (C$bn) 11.5 18.6 15.3 5.5 3.0 0.0 -3.0 -1.0 15.5 12.6 -0.3 5.5
Nominal GDP 3.7 1.6 2.3 0.2 2.3 2.3 3.4 4.9 6.2 4.7 2.2 4.7
Trade (C$bn)
Merchandise Trade Balance 66.5 51.6 49.0 51.9 44.4 40.7 39.0 36.5 64.9 54.7 40.1 30.4
Current Account Balance 42.0 18.7 20.3 23.7 16.7 13.5 12.3 10.4 32.0 26.2 13.2 5.5
(% of GDP) 2.9 1.3 1.4 1.6 1.2 0.9 0.8 0.7 2.3 1.8 0.9 0.4
Inflation (yr/yr% change)
Consumer Price Index 2.4 2.6 1.7 1.3 1.6 1.0 1.4 1.9 2.2 2.0 1.5 1.8
CPI-X** 1.7 1.8 2.1 2.2 2.2 2.1 1.8 1.7 1.6 1.9 2.0 1.7
GDP Deflator 3.7 3.0 1.4 -0.1 -0.1 0.3 0.4 0.9 3.2 2.0 0.4 1.2
Financial (End of period, %)
Overnight Rate 3.75 4.25 4.25 4.25 4.25 4.25 3.75 3.75 3.25 4.25 3.75 4.50
3-mth 3.86 4.30 4.16 4.15 4.25 4.25 3.75 3.75 3.39 4.15 3.75 4.50
2-yr 3.99 4.40 3.91 4.02 3.90 3.75 3.60 3.80 3.85 4.02 3.80 4.60
5-yr 4.15 4.47 3.90 3.99 3.90 3.75 3.75 4.10 3.92 3.99 4.10 4.70
10-yr 4.26 4.58 4.00 4.08 4.00 3.95 4.05 4.20 3.98 4.08 4.20 4.80
30-yr 4.26 4.61 4.09 4.14 4.10 4.05 4.20 4.35 4.05 4.14 4.35 4.90
TSX Composite 11,272 12,908 12,300 13,200
TSX Calendar Oper. Earnings 603 750 705 790
% change 13.3 24.4 -6.0 12.1
C$/US$* 1.17 1.12 1.12 1.17 1.15 1.17 1.20 1.18 1.16 1.17 1.18 1.12
Other Indicators
Employment (q/q ann. % ch.) 1.6 3.1 0.4 2.2 1.3 0.2 1.3 2.4 1.4 1.9 1.2 2.0
Unemployment Rate (%) 6.4 6.2 6.4 6.2 6.5 6.8 6.9 6.8 6.8 6.3 6.8 6.6
Housing Starts (000s) 247.6 229.1 219.6 222.0 220.0 215.0 210.0 205.0 224.3 228.4 212.5 192.5
Source: Merrill Lynch
*ML FX Strategy team, **excludes indirect taxes
Shaded regions represent ML forecasts

16 February 2007
8
Canadian Economic & Financial Data
Table 6
Jan-07 Dec-06 Nov-06 Oct-06 Sep-06 Aug-06 Jul-06
Financial Indicators
Yields (mth-end, %)
Call Loan Rate 4.25 4.25 4.25 4.25 4.25 4.25 4.25
3-mth T-bill 4.17 4.15 4.17 4.17 4.16 4.11 4.15
2-yr 4.10 4.02 3.87 3.97 3.91 3.99 4.12
5-yr 4.08 3.99 3.81 3.94 3.90 4.01 4.18
10-yr 4.17 4.08 3.90 4.02 4.01 4.11 4.34
30-yr 4.22 4.14 3.99 4.08 4.09 4.19 4.37
Canada/U.S Spreads (month-end, bps)
3-mth -84 -72 -71 -78 -60 -81 -80
2-yr -84 -80 -75 -74 -79 -80 -86
10-yr -66 -63 -56 -58 -63 -62 -65
30-yr -71 -68 -57 -64 -68 -69 -70
Gov't of Canada Securities Outstandings ($ blns)
Treasury Bills 119.0 124.7 127.9 119.7 121.0 117.8 120.5
Bonds 119.0 228.9 237.5 233.2 232.8 234.4 233.7
Canada Savings Bonds 119.0 15.6 15.7 17.0 17.0 17.1 17.1
Other Financial Indicators (month-end)
C$/US$ 1.177 1.165 1.141 1.123 1.118 1.104 1.132
TSE 300 13034 12908 12752 12345 11761 12074 11831
Bank of Canada Commodity Index (mth-avg) 186.7 195.1 195.3 186.1 185.4 204.2 200.9
Economic Indicators
Employment (m/m ch., 000s) 88.9 52.5 23.5 51.5 21.4 -6.3 -3.0
% change, year-ago 2.4 2.1 1.7 1.8 1.9 1.7 2.0
Unemployment Rate (%) 6.2 6.1 6.2 6.1 6.4 6.4 6.4
Retail Sales (m/m % ch.) na na 0.2 -0.8 -1.1 0.7 1.6
% change, year-ago na na 4.7 5.6 7.1 6.9 5.8
Mfg Shipments (m/m % ch.) na 1.7 2.4 -0.2 -3.1 -1.0 0.9
% change, year-ago na -0.8 -1.0 -5.3 -4.0 -0.9 2.8
New Orders (m/m % ch.) na 2.1 3.4 0.2 -2.6 -1.9 1.0
% change, year-ago na 1.6 -0.5 -5.9 -3.7 -3.1 2.0
Mfg Inventory-to-Shipment Ratio na 1.27 1.30 1.33 1.32 1.28 1.26
Merch. Trade Balance ($ blns) na 5.0 4.7 3.3 4.2 3.9 3.6
Housing Starts (000s) 248.5 212.6 229.1 224.9 207.9 214.7 236.0
% change, year-ago 0.7 -9.4 0.7 6.1 -11.4 2.3 -3.2
Real GDP at Basic Prices (m/m % ch.) na na 0.2 0.0 -0.4 0.3 0.2
% change, year-ago na na 1.6 1.7 1.9 2.3 2.5
Hours Worked (m/m % ch.) 0.2 -1.2 1.4 0.3 0.2 -0.3 0.1
% change, year-ago 1.1 1.5 3.0 1.6 1.7 1.0 1.8
Inflation Indicators (y/y % ch.)
Consumer Price Index na 1.6 1.4 0.9 0.7 2.1 2.4
Ex. Food & Energy na 1.5 1.5 1.8 1.6 1.4 1.4
Ex. Eight Most Volatile Components (BoC definition) na 2.0 2.2 2.3 2.2 2.0 2.0
Industrial Price Index na 3.6 2.0 1.2 1.4 3.6 4.6
Ex. Energy na 4.0 2.7 3.0 3.0 2.7 2.8
Raw Material Price Index na 11.7 4.7 2.2 4.0 9.6 19.1
Average hourly earnings for permanent workers 2.0 2.3 2.8 3.1 3.4 4.0 4.0
Monetary and Credit Aggregates (y/y % ch.)
M1++ na 8.9 8.6 7.7 7.9 8.2 7.6
M2 na 9.3 9.0 8.7 7.5 8.0 8.0
M3 na 10.2 9.4 8.7 7.5 7.0 6.7
Business Credit na 5.6 5.5 4.8 5.4 5.8 5.8
Consumer Credit na 7.7 7.9 8.2 8.4 8.0 8.3
Source: Datastream, Haver Analytics, Merrill Lynch

16 February 2007
9
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Equity Strategy - Consumer Staples

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