GDP Rises 0.2%
The Canadian economy grew 0.2% in September after edging down 0.1% in August, according to Statistics Canada. The increase beat economists’ expectations. On an annualized basis, GDP improved 1.7% in the third quarter, exceeding forecasts for an increase of 1.6%. The second quarter estimate was revised down to 4.3% from the previously reported 4.5% increase.
Bank of Canada Holds Rates at 1%
The Bank of Canada held its target interest rate steady at 1% at the end of October after surprising markets by raising rates to 1% in early September. Analysts said that the pause in rate increases came amid uncertainty over North American Free Trade Agreement (NAFTA) negotiations and the potential impact of increases on home owners who are “buried” in debt. The bank noted they are still optimistic about Canada’s economy but growth is slowing from the strong pace set earlier this year. Many observers are now ruling out another rate hike from the central bank this year, rather than predicting another increase in December, and say it may be March or April before the bank raises rates again. The Canadian dollar has been drifting down against the U.S. dollar, and has lost ground since peaking in early September.
Unemployment Falls to 5.9%
The unemployment rate fell by 0.4% to 5.9% in November, the lowest rate since February 2008. Employment increased in Canada for the second consecutive month, rising by 80,000 in November. In the 12 months to November, employment was up by 390,000 (+2.1%), with all the gains attributable to full-time work (+441,000 or +3.0%) as part-time employment was down slightly. Over the same period, total hours worked grew by 1.0%. The unemployment rate trended downwards in the 12 months to November, falling 0.9% over this period. The employment increase in November was largely among private sector employees, including the construction industry, as both public sector employment and the number of self-employed were little changed.
Consumer Confidence Rises to 55.37
Consumer Confidence in Canada increased to 55.37 in November from 55 in October of 2017, according to the Conference Board of Canada. Consumer Confidence in Canada averaged 53.21 from 2010 until 2017, reaching an all-time high of 56.40 in August of 2014 and a record low of 46.80 in February of 2016. National confidence remains significantly above the level at the beginning of 2017. 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 1.4%
The Consumer Price Index (CPI) rose 1.4% on a year-over-year basis in October after rising 1.6% in September. On a seasonally adjusted monthly basis, the CPI was up 0.2% in October, matching September’s increase. Prices were up in seven of the eight major CPI components in the 12 months to October, with the transportation and shelter indexes contributing the most to the increase. The clothing and footwear index declined on a year-over-year basis.
NAFTA Talks Bog Down
What Canadian media refers to as the “shredding” of NAFTA would reportedly reduce Canada’s GDP growth by 1% over five to 10 years. The Royal Bank of Canada estimates that doing away with NAFTA would result in a 4% increase in tariffs for Canadian exports to the U.S. It would also lead to lower profits for companies and higher prices for consumers. In a Wall Street Journal survey, private-sector economists estimated that there is a 26% chance that the U.S. will withdraw from NAFTA. If the U.S. did withdraw, 85% of economists surveyed said it would damage GDP growth, with 7% of those saying it would push the Canadian economy into recession. The Bank of Montreal estimates that ending NAFTA would reduce U.S. GDP by 0.2% and trim 1% from Canada’s GDP. An agreement needs to be reached by the end of March 2018.
Canada Litigates Over U.S. Softwood Lumber Duties
The Canadian government is launching litigation via the World Trade Organization over anti-dumping and countervailing duties the U.S. Department of Commerce has set on softwood lumber imports from Canada, calling the move “deeply troubling.” The U.S. government claimed that exporters from Canada sold softwood lumber in the U.S. market at 3.20% to 8.89% less than fair value. The Commerce Department also said Canada is providing unfair subsidies to its producers of softwood lumber at rates from 3.34% to 18.19%.
Housing and Construction News
Housing starts rose to 216,770 units in October after falling to 215,153 units in September, according to Canada Mortgage and Housing Corporation (CMHC). This trend measure is a six-month moving average of the monthly seasonally adjusted annual rates (SAAR) of housing starts. CMCH says that new home construction remains very strong, and the seasonally adjusted number of starts has been above 200,000 units in nine of ten months so far this year. CMHC uses the trend measure as a complement to the monthly SAAR of housing starts to account for considerable swings in monthly estimates and obtain a more complete picture of Canada’s housing market. The standalone monthly SAAR of housing starts for all areas in Canada was 222,771 units in October, up from 219,293 units in September. The SAAR of urban starts increased by 2.5% in October to 205,935 units. Multiple urban starts increased by 12.5% to 149,593 units in October. Single-detached urban starts decreased by 17.1%, to 56,342 units. Rural starts were estimated at a seasonally adjusted annual rate of 16,836 units.
Building permits rose in September for the first time in three months, with strength in non-residential making up for some weakness in the residential sector. Canadian municipalities issued $7.9 billion worth of building permits in September, up 3.8% from August. A 1.7% decrease in the residential sector was more than offset by a 13.9% increase in the non-residential sector.
Mortgage rates on a fixed 5-year closed mortgage dropped to an average of 3.39% at the end of November from 3.51% at the end of October.
Retail Sales Rise 0.1%
Retail sales edged up just 0.1% to $49.1 billion in September after unexpectedly dropping 0.3% in August. Higher sales at gasoline stations, primarily due to higher prices, were the main contributor to the small gain. Excluding gasoline sales, retail sales actually fell 0.2%. The drop in sales was widespread. In Canada, retail sales account for about half of all consumer spending, and are considered a proxy for overall consumer spending.
The Canadian retail sector as a whole can expect to see strong sales growth this year, according to The Conference Board of Canada’s Canadian Industrial Profile: Autumn 2017. Robust employment gains across the country and the 'wealth effect' created by elevated house prices have provided a boost to consumer spending in Canada this year. Sales are expected to rise by as much as 11% in home improvement stores in 2017. However, the Conference Board noted that starting next year record levels of household debt will weigh on consumer budgets, limiting their spending and slowing retail growth.
The elevated housing prices are keeping some consumers from purchasing a new home, and instead they are choosing to renovate, driving up spending at home improvement stores.
Canada Retail Notes
At their annual analysts’ meeting Grainger CEO DG Macpherson told attendees that they are looking at a significant business model reset in Canada that should increase profitability in a shorter time frame, with their single-channel businesses continuing strong revenue growth while expanding operating margins.
Amazon is finally making their Echo line of voice-controlled speakers powered by Alexa available in Canada. They’ll be sold at retailers including the Source and Best Buy. Amazon says Alexa will include a new English voice with a “Canadian accent.” Amazon is also opening the Alexa Skills Kit and Alexa Voice Service for local developers and hardware makers to create integrations build on Alexa for the Canadian market. Amazon Prime Music streaming is now also available to Prime members in Canada.
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