Canada November 2018

Interest Rates Rise to 1.75%
As expected, the Bank of Canada (BoC) raised interest rates to 1.75% from 1.5% at its meeting in late October and signaled that further rate increases could be on the way sooner than expected due to the resilience of the Canadian economy and an unemployment rate that is hovering near four-decade lows. The increase was the fifth since the summer of 2017 and left rates at their highest level in nearly ten years. The latest increase followed the first policy meeting since Canada reached a new trade agreement with the US and Mexico. The BoC has pegged the neutral rate at between 2.5% and 3.5%, so several more increases will be on the way in order to prevent the economy from overheating.
 
Unemployment Falls to 5.8%
The unemployment rate fell to 5.8% in October after dropping to 5.9% in September as fewer people searched for work, according to the latest labour force survey. Since November 2017, the unemployment rate has ranged from 5.8% to 6.0%. In the 12 months to October, the number of employed people grew by 206,000 or 1.1%, with the bulk of the gains in full-time work (+173,000). Over the same period, total hours worked rose by 0.7%. Employment rose slightly in Saskatchewan, but there was little change in other provinces.
 
Consumer Confidence Declines
The Index of Consumer Confidence in Canada decreased to 55.25 in October after dropping to 55.77 in September. Consumer Confidence in Canada averaged 53.41 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.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 2.2%
The Consumer Price Index (CPI) rose 2.2% on a year-over-year basis in September, following a 2.8% increase in August, according to Statistics Canada. The increase was below expectations of a 2.7% gain. On a seasonally-adjusted monthly basis, the CPI declined 0.1% in September. The Bank of Canada’s preferred gauges measuring underlying inflation also weakened in September, with core-inflation prices rising an average of 2.0%, down from 2.1% in August. Gasoline prices climbed 12% in September after jumping nearly 20% in August; commentary noted that surging prices were due to supply disruptions caused by Hurricane Harvey.
 
GDP Rises 0.1%
Canada’s GDP rose 0.1% in August after rising 0.2% in July and being essentially flat in June. The increase was concentrated in just eight sectors, including oil and gas extraction and finance and insurance; 12 out of 20 sectors declined. The output of services producing industries edged up 0.1%; output was essentially flat for goods producing industries. The construction sector fell 0.4% in August, making it the fourth time in five months construction has contracted. Following declines of 0.4% in June and 2.6% in July, residential construction decreased a further 1.6% in August as the construction of single, semi-detached and row houses declined. August's level of activity reflects the largest decline in residential construction over a three-month period since the beginning of 2009. Nonresidential construction was essentially unchanged as growth in industrial and commercial construction was offset by a decline in public construction. Repair construction declined 0.3% while engineering and other construction activities rose 0.5%. Retail trade dropped 0.2% in August after falling 0.1% in July as seven of twelve subsectors contracted.
 
GDP Projections
The Bank of Canada (BoC) expects Canada’s GDP to expand 2.1% in 2019, down from its July projection of 2.2%. The BoC expects the economy to expand 1.9% in 2020. The growth projection for this year has been increased to 2.1% from 2.0%.
 
Housing and Construction News
Housing starts fell to 188,683 units in September from a downwardly revised 198,843 units in August, according to Canada Mortgage and Housing Corp. It was the lowest level of starts in two years, and the third consecutive month that starts declined. The pace of urban starts fell by 5.9% to 175,653 units, dragged down by an 8.9% drop in urban multiunit projects. Single detached urban starts rose by 2% to 52,997. Rural starts were estimated at a seasonally adjusted annual rate of 13,030 units, and the six-month moving average of the monthly seasonally adjusted annual rates was 207,768 for September, down from 213,966 in August. The slowdown comes amid rising interest rates and more restrictive mortgage rules. Demand is being supported by the fastest population growth in 27 years and new households being formed by millennials.
 
Home sales fell 0.4% in September compared to August and were down 8.9% compared to September 2017, according to the Canadian Real Estate Association (CREA). It was the first month-over-month decline since April. Home sales moved lower in more than half of all local markets.
 
Retail Sales Fall 0.1%
Retail sales dropped 0.1% in August to $50.8 billion after increasing 0.2% in July. Sales were down in 7 of 11 subsectors in August, representing 52% of retail trade. Sales at gasoline stations fell 2.0%, more than offsetting gains at motor vehicle and parts dealers. Excluding motor vehicle and parts dealers, retail sales declined 0.4%. In volume terms, retail sales decreased 0.3%. Sales at building material and garden equipment and supplies dealers dropped 1.1%, the second consecutive month of declines. Retail sales were down in four provinces in August. Quebec posted the largest decrease in dollar terms, followed by Saskatchewan and British Columbia.  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 13.9%, while total unadjusted retail sales increased 3.7%. In Canada, retail sales account for about half of all consumer spending, and are considered a proxy for overall consumer spending.
 
Retail Notes
Amazon Canada kicked off the 2018 holiday shopping season with a Countdown to Black Friday Deals store which offers special deals across every category leading up to Black Friday.
 
Amazon says that Canadian French language support is coming soon for AI voice Alexa. Amazon introduced Alexa with French language support to France in early June and plans to ask some of their customers to teach Alexa Canadian French.
 
Canadian Tire earned the number two spot on for corporate responsibility on the latest survey from the Reputation Institute, in partnership with Argyle Public Relationships. The CR RepTrak reflects public perceptions of corporate performance across three key dimensions: citizenship, workplace and governance. The results show which companies Canadians admire most. Argyle noted that social responsibility is becoming more important to consumers, and helps companies build bonds with their stakeholders. Corporate communication needs to speak to a company’s purpose; those who lead with responsibility reap the greatest reputational benefits. The companies with the best CR reputations often have CEOs who are seen as activists and whose words and actions deliver positive social change.

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