Canada June 2018

GDP Grows 1.3%
The Canadian economy grew 1.3% during the first quarter to 1.877 trillion Canadian dollars, after falling 0.1% in January, according to Statistics Canada. Results were below economists’ expectations. Household spending rose 0.3%, the slowest pace since the beginning of 2015. Consumers spent more on services but spending on goods was flat. Housing investment fell 1.9%, the biggest quarterly decline in nine years. Housing investment grew a robust 3.2% in the fourth quarter as households tried to get ahead of new mortgage-financing rules that took effect in January. Nonresidential investment expanded. The federal budget for 2018 projects 2.2% growth this year and 1.6% growth in 2019. Economists say there are a host of downside risks to the Canadian economy from abroad, particularly US trade and tax policy.
 
Unemployment Remains at 5.8%
Employment was little changed in May, leaving the unemployment rate at 5.8% for the fourth consecutive month. On a year-over-year basis, employment grew by 238,000 or 1.3%, due to gains in full-time work. Over the same period, total hours worked were up 2.0%. Employment increased in Prince Edward Island, while it decreased in British Columbia and Nova Scotia. There was little change in the other provinces. There were employment increases in four industries in May: accommodation and food services; professional, scientific and technical services; transportation and warehousing; and finance, insurance, real estate, rental and leasing. At the same time, employment declined in construction, manufacturing and other services.
 
Consumer Confidence Drops to 53.94
Consumer Confidence in Canada dropped 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 0.3% 
The consumer price index (CPI) rose 0.3% in April after rising 2.3% in March on a year-over-year basis, according to Statistics Canada. The increase was in line with economists’ expectations. Excluding food and energy, core prices slipped 0.1% month over month. In annual terms, the CPI rose 2.2% in April, below expectations. The CPI rose 2.3% in March.
 
Interest Rates Steady
The Bank of Canada kept its key interest rate target steady at 1.25% but hinted that rate hikes could be coming if the Canadian economy proved to be stronger than expected in the first quarter. The BOC’s statement noted that housing resale activity has been soft as the market adjusts to new mortgage guidelines and higher borrowing rates. The BOC also noted that recent development reinforced its view that higher rates will be warranted to keep inflation near target, but that it will take a gradual approach and be guided by economic data. Most economists had predicted the BOC would hold rates steady, but most likely increase them later in the year. The next scheduled interest rate decision is set for July 11. 
 
Canada U.S. Trade Updates
Despite reassurances that NAFTA talks were proceeding and that the US wanted to reach a workable agreement with Canada and Mexico, on the last day of May President Trump abruptly levied new tariffs on steel (25%) and aluminum (11%) exported by Canada, Mexico and the European Union to the US.  Canada promptly retaliated by levying tariffs on US goods being imported, including American metals, farm goods and other products. Mexico will levy tariffs on a variety of agricultural products as well as flat steel. While all three countries are major trading partners, steel and aluminum make up a tiny fraction of overall trade. In addition, analysts note that the US has actual little capacity to boost production at home and that rising prices for any imported products that use steel and aluminum will impact US consumers.
 
Housing and Construction News
The seasonally adjusted annual rate of new home construction fell to 214,739 units in April compared with 225,459 in March. The pace of starts in urban areas fell 4.7% to 198,090. The rate of single-detached urban starts fell 9.3% to 57,058. Rural starts were estimated at a seasonally adjusted annual rate of 16,289. The six-month moving average of the monthly seasonally adjusted annual rates dropped to 225,696 in April compared to 226,942 in March. The total investment in housing fell 1.9% during the first quarter, which was the largest decline since the first quarter of 2009.
 
Q1 Retail Sales Rise 3.9%
Retail sales rose 3.9% year over year in the first quarter, according to Statistics Canada, the lowest rate of growth in about eighteen months. Canadian ecommerce sales were up 14.8% year-over-year in Q1 2018 after rising 27.4% in 2017. While still high, it appears that e-commerce retail sales growth may be slowing down. Overall, ecommerce represented about 2.7% of total Canadian retail sales for the 12 months ending March 2018. Canadians’ purchases from foreign websites do not factor into ecommerce sales. In Canada, retail sales account for about half of all consumer spending, and are considered a proxy for overall consumer spending.
 
Canada Retail Notes
Canadian Tire’s Q1 revenue rose 3.3% to C$2.81 billion although earnings per share decreased from Q1 2017.
 
Canadian Tire acquired Norwegian sports and work textile producer Helly Hansen for C$985 million. Analysts said the move was designed to make Canadian Tire more internationally competitive.
 
Craftsman Tools are now available in Canada exclusively at Lowe’s, Reno-Depot, RONA and Ace Hardware. Similar to the US, the initial offerings include Craftsman mechanics tools sets, tool storage and flashlights, with a broad range of Craftsman products phasing in to stores in time for the holidays.

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