Growth 2016 Market Returns Business performance – Canada – Profit Canadian Manufacturing Sales Business performance – USA - Profit Federal Government Performance Canada Issues World Issues Cap and Trade Other Links

1. 2016 – Economic and Business
Performance – Canada and the
World – June 19, 2016
By: Paul Young, CPA, CGA

2. • This presentation is on perspective when it comes Business and
Economic results for 1st Quarter 2016

3. Paul Young - Presenter
Bio
• CPA/CGA
• 25 years of experience in Academia, Industry and Financial solutions
• Youtube Channel -
https://www.youtube.com/channel/UCAArky1bAXPSuV2NLtUnyLg

4. Agenda
• Growth 2016
• Market Returns
• Business performance – Canada – Profit
• Canadian Manufacturing Sales
• Business performance – USA - Profit
• Federal Government Performance
• Canada Issues
• World Issues
• Cap and Trade
• Other Links

5. Global Forecast

6. • Source – BMO Economics
Weekly – Round – June 17, 2016

7. Business Performance – 1Q16 – Canada
• Canadian corporations earned $73.1 billion in
operating profits in the first quarter, down 4.6%
from the previous quarter. The decrease was
attributable to a $2.8 billion drop in profits in the
energy sector. (The energy sector comprises oil
and gas extraction and support activities and
petroleum and coal products manufacturers.)
Profits for financial enterprises fell $1.7 billion.
Slight profit gains in other industries were not
enough to offset these declines. Overall,
operating profits were down
in 11 of 22 industries
• Operating Revenue grew less than 1% for 1St
Quarter 2016

8. Earnings Announcement
• First quarter earnings are expected to decline 5.0% from Q1 2015. Of the
499 companies in the S&P 500 that have reported earnings to date for Q1
2016, 73% have reported earnings above analyst expectations. This is above
the long-term average of 63% and above the average over the past four
quarters of 68%.
• 53% of companies have reported Q1 2016 revenue above analyst
expectations. This is below the longterm average of 60% and above the
average over the past four quarters of 46%.
• For Q2 2016, there have been 80 negative EPS preannouncements issued by
S&P 500 corporations compared to 31 positive EPS preannouncements. By
dividing 80 by 31, one arrives at an N/P ratio of 2.6 for the S&P 500 Index.
• The forward four-quarter (2Q16 – 1Q17) P/E ratio for the S&P 500 is 17.2.
During the week of June 13, 1 S&P 500 company is expected to report Q1
2016 earnings and 3 companies are expected to report Q2 2016 earnings.

9. Canadian Manufacturing / Sales

10. Summary
• Canadian manufacturing sales were better than expected for April at +1% m/m in nominal terms and +1.4% m/m in volume terms as prices fell by 0.5%
m/m.
• There was some very good news in the number. New orders surged by 5.8% m/m in real terms and 7.8% m/m in nominal terms. The real manufacturing
orders number is by no means a post crisis high (orders were higher in real terms as recently as January 2016) but at least the number reflects some type
of momentum and pick up in the manufacturing sector.
• The number leaves constant dollar manufacturing sales tracking at +2.3% q/q annualized to start Q2. This is a pretty good start given the March drop-off in
sales of -0.9% m/m, and lends some hope that Q2, which is widely expected to be a soft quarter in Canada due to a drop-off in exports and the
implications of the Alberta fire, might at least continue to exhibit some positives in terms of underlying manufacturing sector momentum.
• Canadian industries operated at 81.4% of their production capacity in the first quarter, up from 80.9% in the previous quarter. The mining, quarrying, and
oil and gas extraction industries were the main source of this increase.
• The sectoral outcomes were extremely mixed. It was a pretty peculiar print with some sectors posting big gains
• petroleum and coal products at +8.3% m/m a
• air and rail at +6.3% m/m and +39.5% m/m respectively)
• 11 of 21 sectors representing 45% of industry reported contractions. T
• sectors included food manufacturing (-0.3% m/m),
• beverages (-0.6% m/m), textiles and clothing (-4.4% m/m on the latter), paper (-0.6% m/m),
• plastics and rubber (-2.1%m/m), machinery (-0.9% m/m),
• electrical equipment (-3.3% m/m), and motor vehicle parts (-1.1% m/m).
• The implication is that some of the sectors that showed unexpected strength could well edge down as the quarter progresses, particularly
petroleum and coal products.

11. Summary / Key Sector

12. Manufacturing Sales / Sector
Key points
• Commodity sensitive
business
• Oil and Gas
• Food Production
• Machinery & Equipment
• Less capital investment
• Transportation sector
carrying manufacturing
• Aerospace
• Automotive
• Transit (Trains an
buses)
• Shipbuilding (New
frigate contract)

13. Capital Spending / USA
• U.S. real capital spending growth has slowed in
recent years. Indeed, it has risen by only about
1.5% annually in the last two years. This modest
business spending cycle has helped shape the
recent character of the / Financial markets.
Commodity prices have trended mostly lower, yield
spreads have widened, and the stock market has
struggled while being led predominately by
defensive consumer sectors. Several indicators
currently suggest the capital spending cycle may
soon accelerate.
• U.S. demand has been rising faster than supply for
some time and this may cause companies to
engage in catch-up spending as the commodity
crisis ends, the capacity utilization rate is poised to
soon turn upward which has often led to a
revitalization in capital spending, and / nally private
consensus expectations suggest stronger global
growth during the next few years.
Source: https://www.wellscap.com

14. Federal Government – Fiscal Monitor
Revenues in March 2016 totalled $24.1 billion, down $5.0 billion from March 2015.
• Personal income tax revenues were down $1.1 billion, or 9.4 per cent.
• Corporate income tax revenues were down $2.1 billion, or 37.3 per cent. Corporations are generally
required to remit monthly instalment payments for the current year based on either their previous
year’s actual tax liability or their current year’s projected tax liability. This practice can introduce a
lag in the impact of economic events on monthly corporate income tax revenues, which only
unwinds near the end of the fiscal year.
• Non-resident income tax revenues were down $0.2 billion, or 24.8 per cent.
• Excise taxes and duties were up $0.5 billion, or 15.0 per cent. Goods and Services Tax (GST)
revenues increased by $0.4 billion, energy taxes and customs import duties each increased by $0.1
billion, and other excise taxes and duties decreased by $30 million.
• EI premium revenues were down $0.1 billion, or 3.8 per cent.
• Other revenues, consisting of net profits from enterprise Crown corporations, revenues of
consolidated Crown corporations, revenues from sales of goods and services, returns on
investments, net foreign exchange revenues and miscellaneous revenues, were down $2.0 billion, or
36.7 per cent. This decline is largely the result of a significant increase in Crown corporation
revenues in March 2015, which did not reoccur in 2016.

15. Canada - Issues
• Internal Trade Barriers
• Provincial issues
• Hydro Rates
• Corporation Tax hikes
• CPP
• Enhancement to CPP
• Carbon Pricing
• Ontario – early 2017
• Alberta – new carbon levy

16. World Wide Issues
• USA Election
• Brazil Recession
• UK Brexit
• Venezuela / social unrest
• Low Commodity Prices
• High Debt (Household, Government and Business)

17. Issues with Cap and Trade
• China / Emissions
• China’s greenhouse gas emissions represent a quarter of the global total. For this reason
alone, any tangible progress on Chinese climate action is encouraging. However, what is more
promising is what a Chinese emissions trading scheme could mean for the world.
• To date we have only seen pockets of emissions trading across the globe; most notably the
EU has had a scheme since 2004 and a Californian system has been operating since 2013.
Despite concerted efforts, there has been very little headway in linking regional emissions
trading schemes. This is because carbon credits would become fungible.
• Market Failures
• This month’s quarterly auction of carbon dioxide emission allowances, which was supposed
to generate more than a half-billion dollars for politicians to spend, brought in a paltry $10
million as the Air Resources Board sold a tiny fraction of the allowances it was offering.

18. Other Source
• Trade Barriers - http://www.slideshare.net/paulyoungcga/internal-trade-canada
• Manufacturing - http://www.slideshare.net/paulyoungcga/manufacturing-canada-
analysis-and-trends-april-2016
• Trade - http://www.slideshare.net/paulyoungcga/merchandise-trade-for-canada-
april-2016
• Housing - http://www.slideshare.net/paulyoungcga/real-estate-market-north-
america-june-2016
• Retail Sales - http://www.slideshare.net/paulyoungcga/retail-sales-for-north-
america-march-2016-and-april-2016
• Competitiveness - http://www.slideshare.net/paulyoungcga/competitiveness-
alberta-june-2016-62916680 or http://www.slideshare.net/paulyoungcga/canada-
competitiveness-2015-analysis