Canada March 2019

Interest Rates Steady
After leaving interest rates unchanged at 1.75% at its meeting in early January, in February the Bank of Canada (BoC) commented that the latest economic data poses problems for getting rates back to the estimated neutral range of 2.5% to 3.5%. A neutral rate is the level at which interest rates neither heat up the economy nor slow it down. The bank comments suggest that further increases in rates are not likely until later this year. The bank has raised the key rate five times since 2017.
 
Unemployment Steady
The unemployment rate was unchanged at 5.8% in February although the economy added 56,000 new jobs overall, according to the latest Labour Force Survey. In the 12 months to February, employment increased by 369,000 jobs or 2.0%, reflecting an increase of 266,000 in full-time jobs and 103,000 in part-time work. Over the same period, total hours worked were virtually unchanged. Ontario was the only province with significant job gains in February.
 
Consumer Confidence Drops to 54.12
Consumer Confidence in Canada decreased to 54.12 in February from 54.17 in January of 2019. Consumer Confidence has fallen for three consecutive months. Consumer Confidence in Canada averaged 53.44 from 2010 until 2019, reaching an all-time high of 57.05 in November 2018 and a record low of 46.80 in February 2016. 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 1.4%
The Consumer Price Index (CPI) rose 1.4% in January after rising 2.0% in December, according to Statistics Canada. The rise was in line with market expectations. Gasoline prices dropped sharply in January, plunging 14.2%. Excluding gasoline, the CPI was up 2.1% year over year. Core inflation held firm at 1.9%. Services prices increased 2.7% in January after rising 3.5% in December. The data is unlikely to cause the Bank of Canada to consider raising rates from their current level of 1.75%. The BOC expects the consumer price index to be below 2% for much of 2019, primarily due to lower gas prices. Prices increased in seven of eight major components, with the transportation sector showing the only decline. On a seasonally adjusted monthly basis, the CPI declined 0.1% in January, following a 0.2% increase in December.
 
GDP Rises 0.4%
Canada’s GDP rose 0.4% in the fourth quarter to $2.068 trillion, its worst performance in more than two years, according to Statistics Canada. The increase was well below expectations for 1.0% growth. GDP was up 1.8% for all of 2018, down markedly from 3.0% growth in 2017. Housing investment fell 3.9% as the market continued to soften, with the largest decrease in new construction (-5.5%), followed by renovations (-2.7%) and ownership transfer costs (-2.6%). Business investment fell 2.7% for the quarter on a nonannualized basis, as investment in nonresidential buildings, engineering structures, machinery and equipment declined. Exports and imports both fell as well. Monthly GDP fell 0.1% in December on widespread weakness in goods-producing industries. It was the third monthly decline in four months.
 
Housing and Construction News
After recent declines, the national trend in housing starts held steady in January and remained above the historical average. A drop in single-detached starts was offset by an uptick in multi-unit dwellings in urban centres. The trend in housing starts was 208,131 units in January 2019, compared to 207,171 units in December 2018, according to Canada Mortgage and Housing Corporation (CMHC). This trend measure is a six-month moving average of the monthly seasonally adjusted annual rates (SAAR) of housing starts. The standalone monthly SAAR of housing starts for all areas in Canada was 207,968 units in January, down from 213,630 units in December. The SAAR of urban starts decreased by 2.1% in January to 190,912 units. Multiple urban starts increased by 0.7% to 146,353 units in January while single-detached urban starts decreased by 10.4% to 44,559 units. Rural starts were estimated at a seasonally adjusted annual rate of 17,056 units.
 
Home sales rose 3.6% in January after falling 2.5% in December, the strongest monthly gain since June 2018, according to the Canadian Real Estate Association (CREA). Sales were higher in half of local markets, led by Montreal (+7.1%), Ottawa (+21.7%) and Winnipeg (+15.4%). In contrast to sales, the average home price fell 2.9% month-on-month in January and has now dropped in four of the past five months. Prices were sharply lower in B.C. (-3.0%), Saskatchewan (-2.8%) and New Brunswick (-4.0%) in January.
 
Retail Sales Drop 0.1%
Retail sales edged down 0.1% to $50.4 billion in December. Excluding gasoline stations, retail sales increased 0.4%. After removing the effects of price changes, retail sales in volume terms increased 0.2%. Retail sales declined 0.5% in the fourth quarter of 2018, following a 0.7% increase in the third quarter. In volume terms, retail sales were relatively unchanged in the fourth quarter. Retail sales rose 2.7% to $605 billion in 2018.
Building materials and garden equipment and supplies dealers (+3.1%) reported their first increase in six months. Sales were down in Ontario, metro Toronto and Quebec. Sales were up in Nova Scotia and Manitoba. On an unadjusted basis, retail e-commerce sales were $2.0 billion in December, accounting for 3.7% of total retail trade. On a year-over-year basis, retail ecommerce increased 4.6% in December, while total unadjusted retail sales decreased 0.4%.
 
Canadian store retailers generated sales of $605 billion in 2018, up 2.7% from 2017. The increase was largely attributable to higher prices, as sales in volume terms were up 0.7%. Provincially, retail sales were up in eight provinces, with Ontario (+3.9%) leading the way. Following declines in 2015 and 2016, retail sales in Alberta (+1.7%) rose for the second year in a row. Retail ecommerce, including sales from both store and non-store retailers, rose 14.7% to $18.0 billion in 2018. Retail ecommerce represented 2.9% of total retail sales, compared with 2.6% in 2017. During the November and December holiday shopping season, retail ecommerce accounted for 3.9% of total retail sales, up from 3.5% in 2017, in part due to strong retail ecommerce sales in November 2018. Approximately one-quarter of retail ecommerce sales took place during the 2018 holiday shopping season. In Canada, retail sales account for about half of all consumer spending and are considered a proxy for overall consumer spending.
 
Retail Notes
Canadian Tire’s Q4 revenue rose 5.5% to $4.1 billion and full-year revenue rose 5.9% to $14.1 billion. Excluding petroleum, Q4 revenue was up 6.5% and full-year revenue was up 5.1%. Consolidated comp sales rose 0.8% in Q4 and were up 2.2% for the full year.
 
Retail segment revenue increased 5.3% to $192.4 million. Excluding Petroleum, retail segment revenue increased 6.4%. Canadian Tire Retail saw retail sales increase 0.6% and comparable sales were up 0.2%. Retail and comparable sales at SportChek were up 1.9% and 2.5% respectively.
 
Canadian Tire CFO Dean McCann will be retiring at the end of 2019. McCann was named CFO of the year in 2015.
 
Lowe’s reported that Canada posted negative comp sales for the fourth quarter as a weaker Canadian Halloween market combined with the ongoing integration of Rona pressured the business. They anticipate weakness in the Canadian housing market, which is pressuring their outlook for the business over the near term. They remain confident in the long-term potential of the Canadian business.

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