Canada September 2018

Interest Rates
Most economists predict that rates will be increased in October, rather than at the next Bank of Canada (BoC) rate announcement in September. The central bank raised rates for the fourth time in a year in July and has indicated that more rate increases are coming as they attempt to keep the economy from overheating, but the latest GDP report showed that the economy was growing but not overheating.
 
Unemployment Rises to 6.0%
The unemployment rate rose to 6.0% in August after falling to 5.8% in July and the economy lost 52,000 jobs, according to Statistics Canada’s latest labour force survey. Employment was up 0.9%, or 172,000 jobs, from August 2017. Employment declined in Ontario and rose in Alberta and Manitoba. Employment was little changed in other provinces. Construction lost 16,000 jobs, but construction employment was little changed from August 2017. Employment in building, business and support services rose by 10,000, bringing year-over-year gains to 26,000 or 3.4%.
 
Consumer Confidence Drops to 54.21
Consumer Confidence in Canada decreased to 54.21 in July after rising to 55.83 in June. Consumer Confidence in Canada averaged 53.34 from 2010 until 2018, reaching an all-time high of 56.43 in April 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 3.0%
The consumer price index (CPI) rose 3.0% in July after rising at an annual pace of 2.5% in June, according to Statistics Canada. All eight components rose in July, but the biggest contributor to the increase was the 8.1% increase in the transportation sector. It was the fastest pace of acceleration since 2012, and about twice the median forecast from economists.  On a seasonally adjusted monthly basis, the CPI rose 0.5% in July after rising 0.2% in June.
 
GDP
Canada’s GDP rose 2.9% in the second quarter, up from 1.3% growth in the first quarter. It was the fastest pace of growth in a year, and analysts said should end speculation that Bank of Canada (BoC) might raise interest rates in early September, as GDP met the bank’s expectations. Exports surged 2.9% from the first quarter. Household spending was the second largest contributor to growth, suggesting that strong employment is bolstering domestic demand. Business investment fell, however, with business investment in non-residential structures and machinery and equipment growing only 0.5% after expanding at least 1.5% in each of the previous five quarters. The BoC expects business investment to drive growth, so the slowdown could be troublesome.
 
Canada/ US Trade Updates
If NAFTA is fully revoked, a study by the Bank for International Settlements (BIS) a group comprised of the world’s central banks, found that scrapping NAFTA would cause Canada’s GDP to decline 2.2%, or US$37 billion, compared with declines of 1.8% (US$22 billion) for Mexico and 0.22% (US$40 billion) for the US. Canada’s vulnerability in the auto sector was cited as the main reason for the big difference.  The BIS urged resolution, stating that revoking NAFTA would create only losers, with resulting wage gains in domestic industries being more than offset by the damaging effects of reduced export opportunities and the increased cost of imported inputs for manufacturing firms.
 
The US and Mexico struck a tentative deal to create their own trade agreement near the end of August, pressuring Canada to negotiate more rigorously.
 
Ontario's new government is scrapping the province's basic income pilot program, which began in April 2017 and was set to last three years, calling it expensive and unsustainable. The decision brings an end to North America's trial of the concept of providing everyone with a government-backed basic income. 
 
Canada's government is scaling back elements of its planned carbon tax program to address worries from the business community about global competition, according to the Wall Street Journal. Under the changes, industrial companies would now have 20% of emissions subject to the levy versus the original 30%. The carbon tax takes effect next year, and starts at C$10 a metric ton and rises gradually to C$50 by 2022.
 
Saudi Arabia severed all new business and investment transactions with Canada after the government in Ottawa expressed concern over recent arrests of social and women’s rights activists in the kingdom. It also gave the Canadian ambassador 24 hours to leave the country and recalled its own ambassador to Canada, saying it retained "its rights to take further action."
 
Housing and Construction News
Canada’s housing starts dropped more than expected in July, falling to a seasonally adjusted annual rate of 206,314 units in July after rising to totaled 248,138 units in June. The seasonally adjusted six-month moving trend for Canadian housing starts dropped to 219,988 units in July, down from 221,738 units in June. Canada Mortgage and Housing Corp (CMHC) noted that despite the decrease in July the trend remains well above historic averages, reflecting elevated levels of multi-unit starts in most markets. Housing inventories are well below their long-term average as demand absorbs supply. Building permits for residential properties have been trending higher, and analysts say the forecast for 208,000 units for the year will likely be revised up.
 
Home sales rose 1.9% in July after rising 4.1% in June, according to the Canadian Real Estate Association. The Greater Toronto Area led the increase in July, but more than half of all local housing markets reported rising sales. Sales were down 1.3% from July 2017 due to fewer sales in major urban centres in British Columbia. The national average price for homes sold in July was up 1% to $481,500, significantly higher than the average home price in the US. However, some of that high price tag comes from hot markets in British Columbia and Ontario; excluding them, the national average price was just under $383,000. Both BC and Ontario have introduced a foreign-buyers tax.
 
Retail Sales Fall 0.2%
Retail sales fell 0.2% in June to $50.7 billion after increasing an upwardly revised 2.2% in May. Sales were down in six of 11 subsectors, representing 52% of retail trade. Sales were also down in six provinces, but rose in Ontario, Manitoba, Toronto and Saskatchewan. After removing the effects of price changes, retail sales dropped 0.3%. On a quarterly basis, retail sales were up 1.0% in the second quarter after dropping 0.5% in the first quarter. In volume terms retail sales rose 0.9% during the second quarter. On an unadjusted basis, retail ecommerce sales totaled $1.4 billion, representing 2.6% of total retail trade. On a year-over-year basis, retail ecommerce rose 18.0%, while total unadjusted retail sales increased 4.2%. 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 second quarter revenue rose 3.2% to $3.48 billion, but April weather caused second quarter profits to drop by about 20% compared to second quarter 2017. Many of Canadian Tire’s products are highly seasonal. Executives also said they would be closely watching tariffs Canada placed on some good being imported from the US.
 
Lowe’s announced that Canada and Rona has been very positive for them and the overall integration is happening well. The introduction of unique and different categories like appliances has been very well received by customers, and they feel very good about the overall business.
 
Walmart reached agreements to sell their banking operations in Walmart Canada and Walmart Chile.
 
Amazon Canada introduced a monthly option for Amazon Prime members. People can choose to pay $7.99 per month or $79 annually. Both subscription fees are lower than Amazon’s $12.99 monthly and $119 annual subscription fee for US customers.

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