Interest Rate Projections
The Bank of Canada (BoC) left interest rates unchanged in May, reinforcing the Bank’s view that the slowdown that began in late 2018 was temporary. The central bank forecast that GDP expanded 1.3% in the April-to-June period; that may be on the low side. Other indicators also point to an economy on the mend. The rate is currently 1.75%, below the neutral range of 2.25% to 3.25%, the rate at which monetary policy supposedly neither stimulates nor restrains growth. Canada’s economy slowed from 3% growth in 2017 to 2% in 2018 and is expected to slow even further this year. The bank is not forecasting a recession. The BoC echoed US financial analysts’ comments that the recent inversion in the yield curve is not an indicator of recession, but instead is caused in part by the fact that rates are so low throughout the economy.
Unemployment Rises to 5.5%
The unemployment rate ticked up to 5.5% in June after falling to 5.6% in May and the economy added 132,000 new jobs, almost all full-time positions. Employment was up 2.3% year over year with a net gain of 421,000 new jobs. Employment increased in Alberta and Saskatchewan and decreased in Manitoba, Newfoundland and Labrador. Employment was little changed in the remaining provinces.
Consumer Confidence Falls to 119.3
Consumer Confidence in Canada fell one point to 119.3 in June after rising in May. Only the Ontario and Saskatchewan–Manitoba indexes rose in June; all other regions posted declines. The monthly Index of Consumer Confidence is constructed from responses to four attitudinal questions posed to a random sample of Canadian households.
The Consumer Price Index (CPI) rose 2.4% on a year-over-year basis in May, following a 2.0% increase in April, according to Statistics Canada. On a seasonally adjusted monthly basis, the CPI rose 0.4% in May after rising 0.3% in April. Stable to slightly higher inflation and generally improving domestic data should allow the BoC to remain patient on interest rates.
GDP Rises 0.3%
GDP rose 0.3% in April to a seasonally adjusted 1.959 trillion Canadian dollars after rising 0.4% in March, according to Statistics Canada. Market analysts had expected GDP to grow 0.1%. Output in April was fueled by energy production, mining and wholesale trade. The Canadian economy grew 1.5% year over year in April. Many economists believe the worst is over for the Canadian economy and expect growth to accelerate over the rest of the year. Household spending grew 0.9% in the first quarter, spending on durable goods rose 1.2% and business investment rebounded, growing 3.2% after dropping 2.5% during the fourth quarter. Housing investment fell 1.6%, the fifth consecutive quarterly decline for the sector.
Strengthening Canadian Dollar
The loonie is up 3.8% against the US dollar this year, boosted by a recent spike in oil prices, better-than-expected domestic wholesale trade numbers and increasing speculation that the US Fed will cut interest rates in July. Canada’s forestry industry, which is struggling with slumping lumber prices, derives most of its earnings from the US. A stronger loonie could cause shipping costs to spike as well.
Housing and Construction News
The annual pace of housing starts slipped 13.3% to a seasonally adjusted annual rate of 202,337 units in May, down from 233,410 units in April. Results were below expectations of 205,000 starts. The annualized pace of urban multi-unit projects fell 18.5% to 141,851 in May and single-detached urban starts rose 1.8% to 45,095. Rural starts were estimated at 15,391 units. The six-month moving average of the monthly seasonally adjusted annual rates was 201,983 in May compared to 205,717 in April.
Home sales rose 1.9% in May 2019 after rising 3.6% in April. May sales were up 6.7% compared to May 2018, according to the Canadian Real Estate Association (CREA). The CREA also revised their forecast for sales for the year, which are now projected to rise 1.2% to 463,000 units compared to their previous forecast of a 1.6% decline in sales this year. The Bank of Montreal noted that falling long-term rates and the fastest population gains in decades were fueling the market. The increase for May was driven by the greater Toronto area, which accounted for close to half of the overall increase. Regionally, sales are forecast to rise 10.6% in New Brunswick, 7.7% in Quebec and 3.9% in Ontario. Sales are expected to drop 13.3% in B.C. and 0.9% in Alberta. The national average home price is expected to edge down 0.6% this year to around $485,000 after falling 4.1% in 2018.
The Canadian Real Estate Association (CREA) upgraded their forecast for 2019, and now expects sales to improve slightly compared to last year. The outlook was upgraded as CREA reported that sales in May rose 6.7% compared to May 2018, the largest year-over-year increase since 2016. The improvement in sales was driven by the Greater Toronto area, which accounted for nearly half of the overall increase. The national average price of a home sold in May was up 1.8% from a year ago to $508,000. Excluding the Greater Vancouver and Greater Toronto areas, two of the country’s most expensive markets, the average price was just under $397,000. Analysts said that markets have had a chance to adjust to tougher mortgage qualification rules and federal and provincial policy measures. CREA also said that the overall level of home sales is expected to remain below the recent norm and the 10-year average.
Retail sales increased for the third consecutive month, edging up 0.1% to $51.5 billion in April after rising 1.1% to $51.3 billion in March. Sales were higher in 7 of 11 subsectors, representing 74% of retail trade. Sales were higher in four provinces but fell in B.C. and Quebec. Higher sales at gasoline stations were responsible for much of the increase, which was due to higher prices at the pump, as volume actually dropped. Sales at building material and garden equipment and supplies dealers fell 2.6% after rising in March. In volume terms, core retail sales fell 0.2%. On an unadjusted basis, retail ecommerce sales reached $1.6 billion in April, accounting for 3.0% of total retail trade, compared with 2.0% of total retail trade in April 2016, the year when official monthly stats for ecommerce were first published. Compared with April 2018, retail ecommerce increased 14.9% in April 2019, while total unadjusted retail sales increased 5.0%.
Amazon Canada and Mastercard released the Amazon Rewards Mastercard. Amazon Prime members will get 2.5% cash back when they make purchases at Amazon.ca or Whole Foods Market stores. In addition, Prime members will also get 2.5% cash back on foreign currency purchases and 1% on all other eligible purchases. Customers who are not Prime members will still get 1.5% back on amazon.ca and Whole Foods purchases and 1% back on all other qualifying purchases. Amazon also expanded Prime free same-day delivery to Calgary, Alberta, making it the third Canadian city to enjoy the benefits of Prime free same-day delivery seven days a week. About a million items are eligible for same-day delivery in Calgary.
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