Interest Rates Steady
The Bank of Canada (BoC) left interest rates unchanged at 1.75% at its meeting in early December, as was widely expected by analysts. The BoC said that it will keep a close eye on the evolution of several recent developments while considering the timing of the next rate hike. There has been a steep slide in oil prices that is expected to reduce activity in Canada’s energy sector. Trade uncertainty has also led to a drop in business investment. The BoC has pegged the neutral rate at between 2.5% and 3.5%, so several more increases will eventually be on the way in order to prevent the economy from overheating. Analysts expect the BoC to pause until oil prices recover, and speculate the next increase might not come until March 2019.
Unemployment Rate Unchanged at 5.6%
Employment held steady in December and the unemployment rate was unchanged at 5.6%, according to the latest Labour Force Survey. In the 12 months to December, employment increased by 163,000 (+0.9%), entirely driven by gains in full-time work (+185,000 or +1.2%). Over the same period, total hours worked rose 0.9%. In December, employment increased in Newfoundland and Labrador, while it fell in Alberta, New Brunswick and Prince Edward Island. There was little change in the other provinces. While employment held steady overall, increases were recorded in manufacturing, transportation and warehousing, as well as in health care and social assistance. At the same time, there were declines in wholesale and retail trade as well as in public administration. The number of employees was little changed in the public and private sectors, while self-employment increased. Over the course of 2018, the unemployment rate fell 0.2% to 5.6%, the lowest rate since comparable data became available in January 1976. Full-time employment continued on an upward trend in 2018, growing by 185,000, or 1.2%, while part-time employment was little changed.
Consumer Confidence Falls
Consumer Confidence in Canada fell 5.4 points to 52.43 in December from 57.05 in November of 2018. Consumer Confidence in Canada averaged 53.43 from 2010 until 2018, reaching an all-time high of 57.05 in November of 2018 and a record low of 46.80 in February of 2016. Rising interest rates and weaker wage growth have started to take their toll on confidence across the country, as all but one region saw a decline in its index. With interest charges starting to take a bite out of Canadian wallets and weakening wage growth offering little reprieve, Canadians have become much less willing to make major purchases and more disgruntled with the state of their finances. The monthly Index of Consumer Confidence is constructed from responses to four attitudinal questions posed to a random sample of Canadian households.
Consumer Prices Fall 1.7%
The Consumer Price Index (CPI) fell 1.7% in November after rising to 2.4% on a year-over-year basis in October, according to Statistics Canada. Cheaper gas prices contributed, as well as slowdowns in the cost of durable goods, traveler accommodations, digital computing equipment and devices and telephone services. The main upward drivers were higher costs for airline tickets, mortgage interest and fresh vegetables. Core inflation slowed slightly, falling to 1.9% in November from 2% in October.
Canada’s GDP resumed growing in October, rising 0.3% after edging down 0.1% in September, which interrupted seven consecutive months of growth. GDP was up 2.2% from October 2017. Growth exceeded analysts’ expectations. The main weak point was a 0.1% decline in construction, which fell for the fifth consecutive month. Goods-producing industries increased 0.3% after two monthly declines, while services-producing industries also grew 0.3%, their strongest showing since May.
2019 GDP Forecast
Economists estimate that Alberta’s oil production cuts will trim 0.2% off Canada’s real GDP in 2019, which had been forecast at about 2%. Research notes issued by several of Canada’s big banks all concur, saying that recently announced cuts will take a bite out of overall economic output. Alberta announced the government would impose temporary cuts of 325,000 barrels a day, or 8.7% of the province’s oil output, to help alleviate a supply glut that built up due to severe transportation backlogs. The oversupply situation has severely depressed prices for Alberta crude, which has been trading at deep discounts to benchmark US prices. Economists say the drag on growth will ease as the year progresses, and the Alberta government plans to reduce the size of the cutback significantly after three months. New rail cars should increase export capacity by the end of the year.
Housing and Construction News
Housing starts rose 4.4% to 215,941 units in November, up from an upwardly revised 206,753 in October, according to Canada Mortgage and Housing Corp. Results were well ahead of economists’ expectations and were led by gains in Vancouver. The pace of multi-unit urban starts rose 3.9% to 151,596 units, while single-detached starts fell 2.3% to 50,438. Rural starts were estimated at a seasonally adjusted annual rate of 13,887 units. The value of residential building permits rose 4.2% to $5.2 billion in October, with both multifamily and single-family permits showing gains. Increases in Ontario and British Columbia helped offset a decline in Quebec. Demand is being supported by the fastest population growth in 27 years and new households being formed by millennials.
Home sales fell 2.3% in November after dropping 1.6% in October and were down year over year in three-quarters of all local markets, according to the Canadian Real Estate Association (CREA). It marked the fourth consecutive month-over-month decline. New listings fell 3.3% in November after dropping 1.1% in October. Average home prices are also falling, dropping 2.9% to $488,000 compared to November 2017. Excluding Greater Toronto and Greater Vancouver, the average price of a sold home was just under $378,000. The CREA projects that home sales in Canada will fall double-digits this year to their lowest level in the past fiver years. Analysts noted that the markets are a long way from the highs seen in 2016 and early 2017 and expect a prolonged period of “calm” in the housing market.
Retail Sales Rise 0.3%
Retail sales increased 0.3% to $51.0 billion in October. Higher sales at motor vehicle and parts dealers and gasoline stations were the main contributors to the gain. Excluding these two subsectors, retail sales declined 0.4%. Sales were up in 5 of 11 subsectors, representing 69% of retail trade. After removing the effects of price changes, retail sales in volume terms were unchanged in October. Sales increased in five provinces, including Ontario, Quebec and British Columbia. Sales declined for the third consecutive month in Alberta. On an unadjusted basis, retail ecommerce sales were $1.6 billion in October, accounting for 3.0% of total retail trade. On a year-over-year basis, retail ecommerce increased 19.3%, while total unadjusted retail sales rose 2.6%. In Canada, retail sales account for about half of all consumer spending, and are considered a proxy for overall consumer spending.
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