Interest Rate Projections
The Bank of Canada (BoC) announced that it would leave the key interest rate unchanged and gave no indication they saw any need to move rates either up or down any time soon. They did note they see some reasons to be encouraged about the domestic economy and also see some risks looming on the horizon, particularly at the global level. BoC Governor Stephen Poloz also told the Senate banking committee that high levels of personal debt mean the Canadian economy is more sensitive to interest rates now than ever. The rate is currently 1.75%, below the neutral range of 2.25% to 3.25%, the rate at which monetary policy supposedly neither stimulates nor restrains growth. Canada’s economy slowed from 3% growth in 2017 to 2% in 2018 and is expected to slow even further 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 5.4%
The unemployment rate dropped to 5.4% in May after holding steady at 5.8% for past three consecutive months. It was the lowest rate of unemployment since 1976. Employment was up 2.4% from May 2018, an increase of 453,000 jobs, with significant gains in both full-time and part-time work. Employment rose in Ontario, British Columbia, Nova Scotia and New Brunswick, fell in Newfoundland and Labrador and in Prince Edward Island and was little changed in the remaining provinces.
Consumer Confidence Rises to 53.71
Consumer Confidence in Canada rose to 53.71 in May after dropping to 50.76 in April. 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 2.0%
The Consumer Price Index (CPI) rose 2.0% on a year-over-year basis in April, following a 1.9% increase in March, according to Statistics Canada. Gasoline prices fell 1.6% year over year after dropping 4.4% in March. Excluding gasoline, the CPI rose 2.3% year over year. Prices increased in seven out of eight major components, with housing rising 2.7%. Consumer prices rose in six provinces, with British Columbia seeing the greatest increase. On a seasonally adjusted monthly basis, the CPI rose 0.3% in April, following a 0.4% increase in March.
GDP Rises 0.4%
Q1 GDP rose 0.4% to 2.066 trillion Canadian dollars after rising 0.3% in the fourth quarter of 2018, according to Statistics Canada. Market analysts had expected GDP to grow 0.9%. Monthly GDP rose 0.5% in March after falling a downwardly revised 0.2% in February. Many economists believe the worst is over for the Canadian economy and expect growth to accelerate over the rest of the year. Household spending grew 0.9% in the first quarter, spending on durable goods rose 1.2% and business investment rebounded, growing 3.2% after dropping 2.5% during the fourth quarter. Housing investment fell 1.6%, the fifth consecutive quarterly decline for the sector.
Housing and Construction News
The annual pace of housing starts in April rose 22.6% from March to 235,460 units. The increase was well above analysts’ expectations. Single-detached urban starts increased 6% to 44,565 after rising to 42,139 units in March and rural starts rose to a seasonally adjusted annual rate of 15,073 after rising to an estimated 14,494 units in March. Signs of stabilization in at least some major resale markets continue and suggest the housing sector is shifting to a more neutral force in Canada’s economy after being a sizable drag last year, according to a senior economist at Royal Bank of Canada. The six-month moving average of the monthly seasonally adjusted annual rate rose to 206,103 in April from 202,420 in March. The growth in starts was helped by the strength of starts of multiunit projects in Ontario, B.C. and Alberta.
Home sales rose 3.6% in April after rising 0.9% in March and were up 4.2% compared to April 2018, according to the Canadian Real Estate Association (CREA). The Bank of Montreal noted that Canadian housing activity appears to be broadly stabilizing and fundamentals look better than they did earlier in the year. Canadian home sales softened in the wake of new mortgage stress test rules introduced last year and a rise in mortgage rates. Rates have started to come back down as markets expect interest rates to hold steady. The number of newly listed homes rose 2.7% in April after rising 3.4% in March.
Building activity is expected to drop by as much as $8 billion this year, according to a new study from Mortgage Professionals Canada. The study reports there has been an 8% drop in residential construction investment in the first quarter of the year, with the low-rise housing sector being hardest hit. The housing economist who authored the report said there is no fundamental economic reason for house construction to be tumbling, as the economy is strong, and Canada’s population is growing at the fastest rate in a generation. Many economists point to Canada’s recently enacted mortgage stress test as the culprit. The test requires home buyers to prove they could still afford their mortgages even if interest rates were significantly higher than the rate they negotiated with their lenders.
Retail Sales Rise 1.1%
Retail sales increased for the second consecutive month, rising 1.1% to $51.3 billion in March. Sales were higher in 7 of 11 subsectors, representing 39% of retail trade. Higher sales at gasoline stations and building material and garden equipment and supplies dealers were the main contributors to the increase. In volume terms, core retail sales were up 0.3%. For the first quarter, retail sales edged up 0.1% following a 0.5% decrease in the fourth quarter. In volume terms, retail sales edged down 0.1% in the first quarter. Sales were up in nine provinces. Retail ecommerce sales were $1.6 billion in March, 3.1% of total retail trade. Ecommerce sales were up 20.0% year over year, while total unadjusted retail sales were up 1.9%.
Canadian Tire saw revenues rise 2.8% in the first quarter to C$2.89 billion, while comp store sales rose 6.1%.
Canadian Tire is at the forefront of computerized warehouses. They built their first computerized warehouse in 1974; at the time it was North America’s second largest distribution facility, and the first to use computer to computer communications and automatic storage and retrieval vehicles.
Amazon Canada announced record sales for Canadian small and medium-sized businesses. Sales in Amazon Canada’s online stores exceeded $900 million in 2018 and also accounted for more than $2 billion in sales to Amazon customers outside of Canada.
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