Canada February 2019
Interest Rates Fall
The Bank of Canada (BoC) left interest rates unchanged at 1.75% at its meeting in early January, as was widely expected by analysts. The BoC said that it will keep a close eye on the evolution of several recent developments while considering the timing of the next rate hike. The BoC has pegged the neutral rate at between 2.5% and 3.5%, so several more increases will eventually be on the way in order to prevent the economy from overheating unless a real downturn develops. Analysts expect the BoC to pause until oil prices recover and speculate the next increase might not come until March.
Unemployment Rate Unchanged at 5.6%
Employment held steady in January for the second consecutive month and the unemployment rate was unchanged at 5.6%, according to the latest Labour Force Survey. In the 12 months to December, employment increased by 163,000 (+0.9%), entirely driven by gains in full-time work (+185,000 or +1.2%). Over the same period, total hours worked rose 0.9%. In December, employment increased in Newfoundland and Labrador, while it fell in Alberta, New Brunswick and Prince Edward Island. There was little change in the other provinces. While employment held steady overall, increases were recorded in manufacturing, transportation and warehousing, as well as in health care and social assistance. At the same time, there were declines in wholesale and retail trade as well as in public administration. The number of employees was little changed in the public and private sectors, while self-employment increased. Over the course of 2018, the unemployment rate fell 0.2% to 5.6%, the lowest rate since comparable data became available in January 1976. Full-time employment continued on an upward trend in 2018, growing by 185,000, or 1.2%, while part-time employment was little changed.
Consumer Confidence Falls
Consumer Confidence in Canada fell 5.4 points to 52.43 in December from 57.05 in November. Consumer Confidence in Canada averaged 53.43 from 2010 until 2018, reaching an all-time high of 57.05 in November of 2018 and a record low of 46.80 in February of 2016. Rising interest rates and weaker wage growth have started to take their toll on confidence across the country, as all but one region saw a decline in its index. With interest charges starting to take a bite out of Canadian wallets and weakening wage growth offering little reprieve,
Canadians have become much less willing to make major purchases and more disgruntled with the state of their finances. The monthly Index of Consumer Confidence is constructed from responses to four attitudinal questions posed to a random sample of Canadian households.
Consumer Prices Rise 2.0%
The Consumer Price Index (CPI) rose 2.0% in December after falling 1.7% in November, according to Statistics Canada. Lower energy prices were offset by higher prices for various services. Excluding gasoline, the CPI rose 2.5% in December. All eight major components recorded year-over-year increases in December, with the largest increase coming from the shelter index, which rose 2.4%. Consumer prices for services were up 3.5% year over year. On a seasonally adjusted monthly basis, the CPI rose 0.2% in December after falling 0.1% in November. Prices for food, healthcare and personal care increased the most.
GDP Falls 0.1%
Canada’s GDP fell 0.1% in November to a seasonally adjusted 1.94 trillion Canadian dollars after rising 0.3% in October. GDP was up 1.7% from November 2017. Results were in line with economists’ expectations. Wholesale trade dropped 1.1% and was the biggest reason for the decline, which was partially offset by Increases in services. The construction sector declined for the sixth consecutive month in November, contracting 0.3% to fall to its lowest level since the middle of 2017. Residential construction fell 1.0% while multifamily construction rose. Non-residential construction was down 0.7%.
2019 GDP Forecast
The Bank of Canada (BoC) now expects the Canadian economy to grow just 1.7% this year, down from its previous forecast of 2.1% and the estimated 2% pace for 2018. Economists estimate that Alberta’s oil production cuts will trim 0.2% off Canada’s real GDP in 2019, which had been forecast at about 2%. Research notes issued by several of Canada’s big banks all concur, saying that recently announced oil cuts will take a bite out of overall economic output. The BoC also noted that the US-China trade war is “weighing on” the global economy and depressing prices for many of the commodities that dominate Canadian exports. Housing activity has also been weaker than expected as home buyers adjust to tougher mortgage rules, new restrictions on foreign buyers and previous mortgage rate hikes.
Housing and Construction News
The annual pace of housing starts dropped to 213,419 units in December after rising to an upwardly revised 224,349 in November. The results beat analysts’ expectations of 205,000 starts. Canada Mortgage and Housing Corp (CMHC) says that preliminary figures for the year show that there were a total of 214,020 housing starts in 2018 compared to 219,763 in 2017, above their previous estimate for 2018. Demand is being supported by the fastest population growth in 27 years and new households being formed by millennials.
Home sales fell 2.5% in December to 36,759 on a seasonally adjusted basis, according to the Canadian Real Estate Association. Sales were down 19% from December 2017, partially due to the fact that December 2017 saw a rush of buyers anxious to close deals before tighter mortgage rules went into effect in January 2018. December was the fourth consecutive month sales declined, making 2018 the weakest year for home sales since 2012. Sales were down in about 60% of all local markets in December, led by Greater Vancouver, Vancouver Island, Ottawa, London and St. Thomas and Halifax-Dartmouth. CREA says the national average price for homes sold in December was down 4.9% year-over-year to $472,000. Excluding Greater Vancouver and the Greater Toronto Area, two of Canada's most active and expensive markets, the average sales price was just under $375,000.
The CREA projects that home sales in Canada will fall double-digits this year to their lowest level in the past five years. Analysts noted that the markets are a long way from the highs seen in 2016 and early 2017 and expect a prolonged period of “calm” in the housing market.
Total investment in building construction decreased 2.0% from October to $13.7 billion in November. Both the residential (-2.2% to $9.4 billion) and non-residential (-1.6% to $4.3 billion) sectors declined. The decrease in total residential investment in November was largely due to declines in Alberta (-$152 million), Ontario (-$72 million) and Quebec (-$56 million), which were partially offset by increased investment in British Columbia (+$81 million). In the residential sector, investment in single dwelling construction was down 2.0% to $4.9 billion, while investment in multiple dwelling construction (which includes doubles, row homes and apartments) declined 2.5% to $4.5 billion.
Retail Sales Drop 0.9%
Retail sales dropped 0.9% in November to $50.4 billion after rising 0.3% to $51.0 billion in October. Excluding gasoline stations and motor vehicle and parts dealers retail sales increased 0.2%. After removing the effects of price changes, retail sales in volume terms fell 0.4% after being unchanged in October. Sales were down in six subsectors and eight provinces. On an unadjusted basis, retail ecommerce sales reached $2.3 billion in November, accounting for 4.2% of total retail trade. On a year-over-year basis, retail ecommerce increased 20.1%, while total unadjusted retail sales rose 1.1%. In Canada, retail sales account for about half of all consumer spending and are considered a proxy for overall consumer spending.
Walmart Canada committed to reducing their use of non-recyclable plastics. They plan to reduce the use of plastic bags at checkout by an additional 25% by 2025, which would take about one billion check-out bags out of circulation. Walmart also committed to eliminating single-use plastic straws and replacing them with paper alternatives by 2020, which will take about 35 million single-use plastic straws out of circulation annually. They also committed to achieving 100% recyclable, reusable or compostable packaging for their own private label products by 2025 and will eliminate hard to recycle PVC and expanded polystyrene packaging from all of their private label products by 2025. Walmart Canada says they will be the first Canadian retailer to publicly commit to using How2Recycle labelling on all of their own private label packaging by 2025.
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