Canada May 2019
Interest Rates Steady
The Bank of Canada (BoC) once again left interest rates unchanged at 1.75% at its meeting in April, bringing the bank in line with the Federal Reserve and other major industrial central banks. Policymakers dropped a reference to future increases that had been in every rate statement since the end of 2017. The slowdown in the global economy and the sluggish housing and oil sectors contributed to the weaker outlook. Canada’s economy slowed from 3% growth in 2017 to 2% in 2018 and is expected to slow even further this year. The BoC also quieted rumours that a rate cut might be in the works, and says the bank remains confident that Canada’s exports and business investment will return to positive growth later this year. The bank is not forecasting a recession. The BoC echoed US financial analysts’ comments that the recent inversion in the yield curve is not an indicator of recession, but instead is caused in part by the fact that rates are so low throughout the economy.
Unemployment Rate Drops to 5.7%
The unemployment rate dropped to 5.7% in April after remaining at 5.8% in March, and the economy added 107,000 new jobs. Employment was up 2.3% from April 2018, an increase of 426,000 jobs, with significant gains in both full-time and part-time work. Employment increased in Ontario, Quebec, Alberta and Prince Edward Island. Employment declined in New Brunswick and was little changed in the other provinces. Employment was up by 32,000 in wholesale and retail trade in April, driven by increases in Quebec and Alberta. Compared with 12 months earlier, retail and wholesale employment was up 2.7%, with all of the gains coming since the beginning of 2019. Following four months of little change, employment in construction increased by 29,000 in April. Gains were concentrated in Ontario and British Columbia. On a year-over-year basis, construction employment was up 2.2%, or 32,000 jobs.
Consumer Confidence Drops to 50.76
Consumer Confidence in Canada decreased to 50.76 in April from 55.08 in March of 2019. Consumer Confidence in Canada averaged 53.43 from 2010 until 2019, reaching an all-time high of 57.05 in November of 2018 and a record low of 46.80 in February of 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 1.9%
The Consumer Price Index (CPI) rose 1.9% in March after rising 1.5% in February, according to Statistics Canada. Prices increased year over year in all eight major components. Prices for durable goods rose 1.2% in the 12 months to March, led by a 3.0% increase in the purchase of passenger vehicles. Prices for services rose 2.2% year over year after being up 2.3% in February. On a seasonally adjusted monthly basis, the CPI rose 0.3% in March following an upwardly revised increase of 0.4% in February.
GDP Falls 0.1% in February
Real GDP fell 0.1% in February to a seasonally adjusted $1.946 trillion Canadian dollars after growing 0.3% in January, according to Statistics Canada. GDP was up 1.1% year over year. Market analysts had expected GDP to be flat. About half of the industrial sectors posted gains and construction expanded 0.2%. Retail trade edged up 0.2%, partly offsetting the previous month's decline, as 5 of 12 subsectors grew. The largest gains were in general merchandise stores (+3.6%) and motor vehicle and parts dealers (+0.8%) but building materials and garden equipment and supplies dealers fell 1.9%.
Housing and Construction News
The annual pace of housing starts rose to 192,527 units in March after slowing to 166,290 units in February. The increase was still below analysts’ expectations. Single-detached urban starts rose 12.1% to 42,139 units and rural starts were estimated at a seasonally adjusted annual rate of 14,494 units. Statistics suggest that the downward trend in housing may be stabilizing. Analysts see starts hovering around or just above 200,000 this year. The six-month moving average was 202,279 in March, up slightly from 202,039 in February. Rising mortgage rates and tighter lending rules have weighed on home sales in recent months. Various programs are being explored that would make it easier for lower income households and first-time buyers to buy a home. However, a poll done for Royal Bank found that 56% of Canadians think it’s better to wait until next year to buy a home; 45% of those respondents say they are prepared to wait two or more years.
Home sales rose 0.9% in March after falling 4.4% in February, according to the Canadian Real Estate Association (CREA). Nevertheless, sales remain below historical averages. Sales activity remains at some of the lowest levels recorded in the last six years. Prices were down 0.5% from March 2018. The CREA expects annual home sales to fall 1.6% this year to 450,400 units, which would be the weakest annual sales since 2010. British Columbia and Alberta will account for much of the decline.
RBC lowered five-year mortgage rates from 3.89% to 3.74%; other banks are expected to follow its lead. Alternative lenders who compete with the big banks have been offering lower rates for several weeks. The move comes as the yield on five-year Government of Canada bonds has fallen sharply since November.
Retail Sales Rise 0.8%
Following three consecutive months of decline, retail sales rose 0.8% in February to $50.6 billion. Sales were up in 5 of 11 subsectors, representing 73% of retail trade. Higher sales at general merchandise stores and motor vehicle and parts dealers were the main contributors to the increase. Sales were up in seven provinces, but dropped 1.9% in British Columbia, largely due to lower sales at new car dealers as well as lower sales at building material and garden equipment and supplies dealers. Retail ecommerce sales were $1.4 billion in February, 3.3% of total retail trade. Ecommerce sales were up 23.8% year over year, while total unadjusted retail sales were up 2.1%.
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