July Unemployment Remains at 4.9%
Consumer Prices Rise 8.1%
The Consumer Price Index (CPI) rose 7.7% year over year in May after rising 7.7% in April, according to Statistics Canada. It was the largest year-over-year increase since January 1983. It was the sixth consecutive month the CPI has risen more than 5%. Several factors are driving the inflation run-up, including supply chain disruptions that have led to product shortages; much higher commodity prices, partly due to Russia’s invasion of Ukraine; and cheap borrowing rates that fueled a boom in home purchases. Statistics Canada said that there are tentative signs that consumer price growth is close to topping out. Crude oil, wheat and lumber are among several commodities that have tumbled in recent weeks. Shipping rates on major trade routes are sinking from record highs. Inflation has exceeded the Bank of Canada’s (BoC) target range of 1% to 3% for fourteen consecutive months.
Bank of Canada Raises Rates to 2.5%
The Bank of Canada (BoC) raised rates by a full percentage point in early July as part of their efforts to get inflation back under control. It was the most aggressive rate hike since 1998 and above market expectations. The BoC also raised rates in March, April and June after holding borrowing costs at record lows for the first two years of the pandemic. Another increase is expected in September. The bank now expects inflation to average 7.2% in 2022 and 4.6% in 2023, considerably higher than it forecast in April. It does not expect inflation to return to its 2% target until the end of 2024.Economic growth is expected to slow sharply in the second half of the year and into next year, as a combination of high inflation and tighter financial conditions erodes household spending and business investment. The annual rate of inflation hit 7.7% in May, the highest since 1983. However, the bank is not forecasting a recession in Canada in the next two years.
May GDP Unchanged at 0.3%
Real GDP was essentially unchanged in May, following a 0.3% expansion in April. Growth in services-producing industries (+0.4%) was offset by a decline in goods-producing industries, (-1.0%), as 14 of 20 industrial sectors increased in May.
The construction sector contracted for a second month in a row, down 1.6% in May. Many of Ontario's unionized construction workers were on strike during the month, causing delays in numerous construction projects.
Residential building construction was down for the second consecutive month, contracting 1.9% in May. Decreases in construction of new single-family detached houses and of apartments as well as in alterations and improvements contributed the most to the decline. Nevertheless, the level of activity in May was more than 11% above the February 2020 pre-pandemic level.
Engineering and other construction activities contracted 2.0% in May, ending uninterrupted growth that began in December 2020.
Repair construction (-1.4%) declined for a second month in a row in May, as both the residential and non-residential repair activities contracted. At the same time, non-residential building construction contracted 0.4%, the first decline in six months.
Housing and Construction News
Housing starts fell 3% to 273,841 units for June from 282,188 in May. The six-month moving average of the monthly seasonally adjusted annual rate of housing starts was 258,295 in June, up from 252,444 in May, according to Canada Mortgage and Housing Corporation (CMHC). The level of starts remains historically high and has been well above 200,000 units since 2020.
Home sales continued to fall in June, dropping 24% from June 2021 to 48,176 homes. On a seasonally adjusted basis, sales were down almost 6% from May. The Canadian Real Estate Association (CREA) noted that the monthly decline was not as large as the drop in April and May. They commented that prospective buyers are moving to the sidelines because of rising interest rates and high home prices. In typically heated markets like the Greater Toronto and Greater Vancouver Areas homes are staying on the market much longer than they normally would.
In June, CREA predicted the national average home price will rise by 10.8% on an annual basis to $762,386 in 2022. It forecast the largest price gains for Maritime provinces, followed by Ontario and Quebec. However the national average home price fell 2% from June 2021 and 4% from May, to $665,849. New listings are falling as the buying frenzy eases up, with new listings dropping nearly 9% from April and down 22% year over year to 53,720 homes.
Canada’s housing market slowed for the third straight month in June. The national home price index dropped 1.9% to $807,400 on a seasonally adjusted basis, according to CREA. The mortgage interest cost index was down 0.6% in June. Economists say that Canada’s housing market is cooling and predict that home prices will fall as much as 20% this year.
One of Canada's largest banks has downgraded the nation's housing outlook for the rest of this year and into 2023.TD Economics predicts sales will decline by 23% this year, led by Ontario, where sales are expected to drop nearly 32% from 2021. Alberta sales are expected to remain steady this year after increasing by nearly 54% in 2021 but are also expected to see the largest drop in sales among major markets. The decline in sales is expected to moderate nationally in 2023, dropping about 12% over 2022's activity. Average home prices are also expected to remain flat this year and fall by 8% nationwide next year. Prices jumped by nearly 23% from 2020.
Retail Sales Rise 2.2%
Retail sales increased 2.2% to $62.2 billion in May, the fifth consecutive increase. Sales were up in 8 of 11 subsectors, representing 86.8% of retail trade. Sales were led by higher sales at gasoline stations and motor vehicle and parts dealers. Core retail sales, which exclude gasoline stations and motor vehicle and parts dealers, increased 0.6%. In volume terms, retail sales were up 0.4% in May. Sales at building material and garden equipment and supplies dealers were down for a second consecutive month (-1.7%). Despite the decline in May, activity in this category remains high, with sales up 5.7% from May 2021.Sales were up in every province in May.
Retail Ecommerce Sales Fall 2.9%
On a seasonally adjusted basis, retail ecommerce sales were down 2.9% in May. On an unadjusted basis, retail ecommerce sales declined 23.5% year over year to $3.5 billion in May, accounting for 4.9% of total retail trade. The share of ecommerce sales out of total retail sales fell 2.5% compared with May 2021, when many retailers faced restrictions on in-person shopping related to the spread of COVID-19.
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