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  • US Economy
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  • Power Tool Industry
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  • Canada
  • Market Trends
  • PDF

 

Canada

Canada October 2018

10/8/2018

 
Interest Rates Steady
As expected, the Bank of Canada (BoC) left interest rates alone at 1.5% at its meeting in early September, but many market watchers predict another increase could come as soon as October. The BoC’s statement noted that more increases should be expected due to encouraging numbers for business investment and exports and evidence that households are adjusting to higher borrowing costs. The bank also made a point of noting that it was closely watching NAFTA negotiations and other trade developments that could have negative impacts on the Canadian economy and trigger inflation.
 
Unemployment Falls to 5.9%
The unemployment rate fell to 5.9% in September after rising to 6.0% in August and the economy added 63,000 new jobs, according to Statistics Canada’s latest labour force survey. Employment was up 1.2%, or 122,000 jobs, from September 2017. The increase was entirely the result of gains in full-time employment. Employment increased in Ontario and British Columbia and was little changed in the other provinces. Employment increased by 28,000 jobs in construction and was up 2.4% from September 2017. 
 
Consumer Confidence Drops 
The Index of Consumer Confidence declined in September as Canadians became more pessimistic about both their current and future finances. Throughout the first half of the year, strong wage growth was able to offset the higher debt costs that came with rising interest rates. However, with wage growth beginning to weaken and the expectation that interest rates will continue to rise, Canadian households are becoming less confident.
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 2.8% on a year-over-year basis in August, following a 3.0% increase in July, according to Statistics Canada. Excluding gasoline, the CPI increased 2.2%, matching the gain in July. Prices were up across all eight major components. On a seasonally adjusted monthly basis, the CPI rose 0.1% in August after rising 0.5% in July, with the CPI for seven out of eight components rising. The increase indicates that the economy is operating close to capacity, as recent wage growth has begun to lift prices, and higher fuel prices are being felt across the board.
 
GDP Grows 0.2% in July

Canada’s GDP rose 0.2% in July after being essentially flat in June and was up 2.4% from July 2017. Growth was slightly ahead of expectations. GDP grew 2.9% in the second quarter, up from 1.3% growth in the first quarter. The increase was concentrated in 12 out of 20 sectors. Home resale activity increased in the majority of Canadian markets, led by growth in Ontario. This was the third increase in four months, following a 13.5% decline in the first quarter of 2018. The construction sector declined for the third time in four months, with a 0.6% decrease in July. Residential construction was down 1.5%, the largest decline since a strike-influenced decrease in May 2017, because of lower construction of most types of structures along with a decline in home alterations and improvements. Non-residential construction declined 0.5% as public and commercial construction contracted. The decline in repair construction (-0.3%) was fully offset by growth in engineering and other construction (+0.2%). Retail trade edged down 0.1% in July as the decline in three subsectors more than offset growth in the remaining nine. 
 
Canada/ US Trade Updates

Softwood lumber is still in limbo. In an effort spearheaded by the US National Association of Homebuilders (NAHB), a dozen Republican and Democratic members of the US Senate sent a joint letter to the Trump administration calling on the US to resume softwood lumber trade negotiations with Canada and stating that tariffs being imposed of 20% or more have caused lumber prices to skyrocket.
 
Housing and Construction News
Housing starts fell to 200,986 units in August, down from 205,751 units in July, according to Canada Mortgage and Housing Corp. Economists had expected starts to rise to 210,300. The decrease came as the annual pace of urban starts fell 2.5% to 184,925 units. Starts of urban multiple-unit projects such as condos, apartments and townhouses fell 2.4% to 132,700 units in August while single-detached urban starts fell 2.6% to 52,225 units. Rural starts were estimated at a seasonally adjusted annual rate of 16,061 units. CMHC says the six-month trend for housing starts was 214,598 units in August, down from 219,656 in July and continuing to trend down from the historic peak recorded in March 2018. Canadian home sales have slowed over the past year due to a tougher rules around obtaining a mortgage which were implemented to restrict growth in household debt and measures to curb foreign investment in Toronto and Vancouver.
 
Home sales rose 0.9% in August to 39,038 units after rising 1.9% in July, according to the Canadian Real Estate Association (CREA). It was the fourth consecutive monthly increase in home sales. However, year-over-year sales dropped 3.8%. CREA attributed the annual drop in sales to major declines in British Columbia and stricter mortgage regulations that took effect at the beginning of the year. Sales increased 7.6% in Greater Toronto, where sales are regarded as fairly normal. After this latest report CREA is now forecasting that home sales this year will drop 9.8% to 462,900 homes.
 
Retail Sales Rise 0.3%

Retail sales rose 0.3% to $50.9 billion in July on higher sales at food and beverage stores and gasoline stations. Excluding the lower sales at motor vehicle and parts dealers, retail sales increased 0.9%. Sales were up in 8 of 11 subsectors, representing 54.8% of total retail sales. After removing the effects of price changes, retail sales in volume terms decreased 0.1%. Sales rose in eight provinces but fell in British Columbia for the third consecutive month. On an unadjusted basis, retail ecommerce sales totaled $1.3 billion, accounting for 2.5% of total retail trade. On a year-over-year basis, retail ecommerce rose 9.4%, while total unadjusted retail sales increased 3.8%. In Canada, retail sales account for about half of all consumer spending, and are considered a proxy for overall consumer spending.
 
Retail Notes

Rona offered to buy the Canadian operations of Lowe’s years before Lowe’s decided to convert Rona stores to Lowe’s stores. According to Rona’s former CEO Robert Dutton, he first offered to buy Lowe’s Canadian stores in July 2011, and after he determined that Lowe’s was really interested in a hostile takeover, he approached several large Rona shareholders and blocked Lowe’s bid in 2012.
 
Walmart Canada is teaming up with American company Instacart as they look to expand delivery capabilities. They’ll be offering the service in Toronto and Winnipeg, the first time shoppers in either area will have access to same-day delivery options. Instacart, while a US company, does not currently work with Walmart’s US operations.
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