Canada’s economy started the year on a soft note and will likely pick up modestly as the year progresses, with GDP growing 2.0% this year, according to the RBC Economic Outlook. Recent US tariffs have had a relatively small impact, as steel and aluminum production account for just 0.5% of Canadian GDP and jobs. Business fixed investment grew at a 10.9% annualized rate in the first quarter, but tariffs could depress further growth. According to RBC, the Canadian dollar is likely to hover in its current trading range in 2018. All ten provinces will likely see the pace of growth slow compared to last year, with BC, Alberta and Saskatchewan expected to lead with 2.4% growth. Ontario should be about average, and Quebec slightly above average.
Unemployment Rises to 6.0%
Canada’s economy added 31,800 jobs in June and the unemployment rate rose to 6.0% from 5.8% in May, according to Statistics Canada’s latest labour force survey. Many analysts read the higher jobless rate as an encouraging sign because the influx of nearly 76,000 job seekers back into the labour market suggests that more people are optimistic they can find work thanks to the hotter economy. Average hourly wage growth, which is closely watched by the Bank of Canada ahead of its rate decisions, remained firm in June at 3.6% after reaching a nine-year high of 3.9% in May.
Consumer Confidence Rises to 55.83
Consumer Confidence in Canada rose to 55.83 in June after dropping to 53.94 in May, according to The Conference Board of Canada’s Index of Consumer Confidence. Consumer confidence in Canada averaged 53.27 from 2010 until 2018, reaching an all-time high of 56.40 in August of 2014 and a record low of 46.80 in February of 2016. 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 0.1%
The consumer price index (CPI) rose 0.1% in May after rising 0.3% in April and was up 2.2% year over year, according to Statistics Canada. The increase was well below economists’ expectations of a 0.4% increase. Excluding food and energy, core prices rose 0.1% month over month and 1.7% annually.
Canada U.S. Trade Updates
Talks about the North American Free Trade Agreement (NAFTA), are reportedly due to resume within weeks. Negotiators from Canada, Mexico, and the United States were unable to meet an informal deadline for modernizing at their last meeting in May. No exact date has been agreed upon. Trade officials from the US and Canada have said that they intend to continue negotiating over the coming months but did not indicate whether they would try to clinch an agreement in principle this year. The three parties missed an informal May 17 deadline for reaching such an accord.
Housing and Construction News
The pace of new housing construction slowed in May as the number of multiunit projects in urban areas fell in the double digits after several months of above-average activity. The seasonally adjusted rate of starts for all of Canada fell to 195,613 units in May from 216,775 in April. Regionally, there were big declines in Ontario and Quebec, but there were increases in British Columbia and the Prairies. May is typically a relatively weak month for new residential construction. Starts were up 1.0% year over year.
Home sales are likely to drop 11% this year to 459,000 units, according to the latest forecast from The Canadian Real Estate Association (CREA). The forecast was up from the 7.1% decline forecast in March. Rising mortgage rates and new regulations that require more than a 20% downpayment are dampening activity. Despite the double-digit decline, analysts say it was a better than expected report and supports the belief that markets are now stabilizing after the expected volatility at the beginning of the year.
More than half of Canadians under 35 years old said they are spending less because of recent increases in interest rates, according to a survey by Nanos Research. The Bank of Canada (BoC) says that higher interest rates are impacting consumer spending. Nanos Research reported that 30% of respondents under 35 say negative rates are having a negative impact on spending; another 23% say it is somewhat negative. Among respondents of all ages, 41% reported at least a somewhat negative effect. Nanos conducted the research on behalf of Bloomberg.
Retail Sales Drop 1.2%
Retail sales declined 1.2% to $49.5 billion in April after three consecutive monthly increases. The decrease was primarily due to lower sales at motor vehicle and parts dealers. Inclement weather in many parts of Canada may have contributed to the overall decline in April. Excluding sales at motor vehicle and parts dealers, retail sales were down 0.1% in April. Sales were down in 8 of 11 subsectors, representing 65% of retail trade. Removing the effect of price changes, retail sales in volume terms declined 1.4%. Six provinces reported lower sales in April, with the bulk of the decline concentrated in Ontario and Quebec. Sales increased in British Columbia for the third consecutive month and were up in Saskatchewan for the first time since October 2017. 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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