GDP Grows 1.7%
The Canadian economy grew at an annual pace of 1.7% in the final months of 2017, according to Statistics Canada. Results were below economists’ expectations of 2.0% growth in the fourth quarter. The economy grew 3.0% for all of 2017, a much stronger pace than the 1.4% growth seen in 2016. Growth in the fourth quarter was driven by a 2.3% increase in business investment compared with the third quarter, and a 0.5% increase in household spending. Growth for the third quarter was revised down to an annualized rate of 1.5% from 1.7%. Economists say the rapid growth spurt seen from mid-2016 through the middle of 2017 is over, and the economy is back to chugging along at about a 2.0% annual pace of growth. For 2017 as a whole, household spending made the biggest contribution to growth, followed by inventory and business investment. 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.
Canadians Worried About Money
Half of Canadians are more concerned about their ability to repay debts than they were back in September, and one in three Canadians say they are unable to cover their monthly bills, according to the latest MNP Consumer Debt Index. The quarterly survey, conducted by Ipsos, shows that even people who are making ends meet have fewer dollars left to spend at the end of the month. Four in ten Canadians said that if interest rates go up much more they are concerned they will be in financial trouble. And more than 70% said that as interest rates rise they’ll be more careful about how they spend their money. Millennials and Gen Xers are the demographic groups most likely to be worried about the effects of higher interest rates. Analysts say some of that may be due to the fact that an entire generation of Canadian consumers has never experienced anything except rock-bottom rates.
Unemployment Drops to 5.8%
Canada's unemployment rate inched down to 5.8% in February, and the Canadian economy added about 15,000 new jobs after losing 88,000 jobs in January. Health-care and social assistance sectors added jobs, while wholesale and retail trade as well as manufacturing all shrank. By province, New Brunswick and Nova Scotia added jobs, while Saskatchewan lost some. There was little change everywhere else. Economists said that despite the decline in the unemployment rate, the overall report was neutral, as part-time jobs accounted for all of the gains, and full-time jobs declined by 40,000, the first decline in six months. Most of the gains were driven by public-sector employment, which increased by 50,000 jobs. Most economists agree that public-sector job growth is not sustainable, and private-sector job gains are needed to maintain growth. But the economy only added 8,000 private-sector jobs in February, while losing 43,000 self-employed positions.
Consumer Confidence Rises to 55.72
Consumer Confidence in Canada increased to 55.72 in February from 55.12 in January, 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 1.7%
The consumer price index (CPI) rose 1.7% in January on a year-over-year basis after rising 1.9% in December, according to Statistics Canada. Underlying or core inflation rose 1.83%, based on an average of the three preferred gauges used by the Bank of Canada, which was the highest level since the summer of 2016, and up from 1.76% in December. Economists said that the firming in core prices suggests that the strong economic growth that Canada has experienced over the past year is doing its job in pushing inflation toward the central bank’s target of 2%, which is the same as the Fed’s target in the US. On a seasonally adjusted basis, inflation rose 0.5% in January compared to December 2017.
Canada U.S. Trade Updates
Members of the Trump administration have recently hinted that withdrawing from NAFTA is not in their current plans. A congressional gathering heard Treasury Secretary Steven Mnuchin express some optimism about getting a deal based on ongoing meetings. Mnuchin said "It is a major priority of ours to renegotiate the deal." Canadian minister Justin Trudeau also struck a cooperative tone during an address he made in mid-February in California, saying that both the US and Canada benefit greatly from NAFTA.
Housing and Construction News
Canadian housing starts dropped slightly in January to a still-strong 216,210 seasonally adjusted annual units, according to Canada Mortgage and Housing Corp (CMHC). Economists had expected starts to drop to 210,000 units. Last year was a strong year for housing, but the pace of growth is expected to slow this year. Nevertheless, the six-month trend in starts in January remained near the 10-year high set in December. BMO Capital Markets is still expecting a solid 200,000-plus level of starts this year. Economists are also unsure of how tighter mortgages rules that took effect this year and the three interest rate increases that have been enacted since last July are going to affect consumers. Multiple urban starts, which are generally apartment buildings, townhouses and condominiums, essentially held steady at 134,685 units in January while single-detached urban starts increased by 0.6% to 63,715 units. Rural starts were estimated at a seasonally adjusted annual rate of 17,810 units. There were some significant movements on a regional basis, with the largest gains concentrated in Ontario, where multifamily starts are soaring. Saskatchewan and Alberta also experienced good gains, due to high levels of building activity in Regina and recoveries in Edmonton and Calgary. Separate data from Statistics Canada showed new home prices were unchanged in December.
Home sales fell 14.5% in January from December. Analysts say a flood of buyers and sellers trying to close deals last year ahead of tighter mortgage rules were behind the expected decline, which was the lowest level of sales in three years. They expect the market to be dampened in the near future as Canadians adjust to the new rules and an interest rate hike, the third in the past year. January sales were down in three-quarters of all local markets and virtually all major urban areas. On an annual basis sales were down 2.4%.
Retail Sales Fall 0.8%
Retail sales fell 0.8% in December 2017 after three consecutive monthly increases, with sales at general merchandise stores, health and personal care and electronics and appliance stores dropping. Total retail trade in current dollars dropped to $49.65 billion from $50.04 billion in November, but was up 5.8% from December 2016, according to Statistics Canada. For the full year of 2017 retail sales grew at the fastest rate in more than 20 years, climbing 6.7% to $588 billion. The increase was led by motor vehicle and parts dealers and gasoline stations and was partly attributable to higher prices. Excluding those categories, sales for 2017 rose 4.7%. 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 Prime Minister Justin Trudeau met with Amazon CEO Jeff Bezos during his tour of America. He also met with California’s governor, Jerry Brown.
Lowe’s Canada will hire more than 7,000 employees this spring for their Lowe’s, RONA and Reno-Depot stores. They held their first ever National Hiring Day event in all stores throughout Canada on February 24. The largest number of jobs were available in Ontario and Quebec. Management teams were onsite to accept applications and conduct interviews; candidates could also apply online.
Canadian Tire beat expectations as Q4 revenue rose to $3.96 billion from $3.64 billion in Q4 2016. Comp sales were up 3.5% at Canadian Tire, considerably above expectations. CEO Stephan Wetmore says they remain committed to investing in innovative initiatives that will help them grow as well as exceed customer expectations. Over the past few years Canadian Tire has invested hundreds of millions of dollars in innovation, including everything from renovating existing stores to creating more interaction with customers and incorporating visual reality so customers can test out how tires feel in different driving conditions.
Canadian Tire acquired Sher-Wood Athletics Group’s global hockey trademarks. Sher-Wood manufactures and distributes hockey gear and hockey licensed products. Terms were not disclosed.
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