BoC Holds Rates Steady
The Bank of Canada kept its key interest rate unchanged at 1.75% in September but said that the US/China trade conflict is having a more damaging impact on global growth than previously thought. The bank did not issue any statements about future direction, but several comments about the worsening effects of trade tensions on the world economy suggest the bank is prepared to cut rates if necessary.
Unemployment Remains at 5.7%
The unemployment rate remained at 5.7% in September as more people participated in the job market and the Canadian economy added 471,000 new jobs in both full-time (306,000) and part-time (165,000) positions. The bulk of the employment increase in August was in Ontario and Quebec. There were also smaller gains in Manitoba, Saskatchewan and New Brunswick. Employment held steady in the other provinces. The number of private sector employees increased in August, more than offsetting the decline in July. The majority of employment gains were concentrated in the services sector.
Consumer Confidence in Canada decreased to 53 Index Points in September from 55.60 in August. Consumer Confidence in Canada averaged 53.49 Index Points from 2010 until 2019, reaching an all-time high of 57.05 in November of 2018 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 1.9%
The Consumer Price Index (CPI) rose 1.9% year over year in August after rising 2.0% in July, according to Statistics Canada. Excluding gasoline, the index was up 2.4% year over year. The upward pressure on consumer prices is not great enough to spur the BoC to consider an increase in interest rates; in fact, many analysts are predicting that the BoC may cut rates as soon as the end of October. The eight components of the CPI were mixed in July, with some rising and some falling.
Q2 GDP Steady
Following four months of growth, real GDP was essentially unchanged in July as a 0.7% decline in goods-producing industries was offset by a 0.3% increase in services-producing industries. On a three-month rolling average, real GDP increased 0.8%, the same growth rate as in June. The construction sector contracted 0.7% in July, largely offsetting growth in the previous two months. Residential construction was down 1.0% as an increase in single-family construction was offset by a decline in multifamily dwellings and in home alterations and improvements. Engineering and other construction decreased 0.7% while repair construction was down 1.1%. Sales at building materials and supplies dealers fell 2.8% for the month. Non-residential construction (+0.7%) was up for the seventh time in eight months as activity in the commercial, industrial and public sectors increased. The Canadian economy grew 3.7% in the second quarter to $2.085 trillion CAD, rebounding with its best performance in two years.
Housing and Construction News
Housing starts rose 12% in August, driven by accelerating construction in Ontario and Quebec. Manitoba and the western provinces all saw starts decline. The sharp divide in new construction mirrors the resale home market in Canada, where sales have climbed this year in Ontario and Quebec but weakened across the Prairies and British Columbia. CMHC said that residential construction is still strong and the real estate market is stabilizing after steep declines in 2018.
Home sales were up in most of Canada’s largest markets in August, including B.C.’s Lower Mainland, Calgary, Winnipeg, the Greater Toronto Area, Ottawa and Montreal. A solid job market and a drop in five-year fixed mortgage rates is helping to spur activity. On a month-over-month basis, home sales in August were up 1.4%, the sixth consecutive move higher. Sales were up in slightly more than half of all local markets, with gains led by Winnipeg and an improvement in B.C.’s Fraser Valley. The actual national average price for a home sold in August was about $493,500, up almost 4% from August 2018. Excluding the Greater Toronto and Greater Vancouver regions, the national average price was less than $393,000, while the year-over-year gain was 2.7%. The increase in sales came as the number of newly listed homes rose 0.4% in July.
The Canadian Real Estate Association has upwardly revised home sales projections for the year and now expects national home sales to recover to 482,000 units in 2019, an increase of 19,000 units from the June forecast. Sales are forecast to rise by 7.5% to 518,100 units next year. That's still off the high of 540,000 sales hit in 2016, according to CREA. British Columbia sales are expected to decline 5.4% this year compared to 2018 and sales are also depressed in Alberta, Saskatchewan and Newfoundland and Labrador. Manitoba, Quebec and New Brunswick are expected to set new annual sales records. Prices are expected to stabilize at a national average of $491,000 because of the diverging trends of Eastern and Western Canada. Average prices in 2019 are expected to fall in B.C., Alberta and Saskatchewan, while rising in Ontario, Quebec and the Maritimes. CREA projects the national average price to gain by 2.1% next year to $501,400, remaining below its 2017 level.
Retail sales increased 0.4% in July to $51.5 billion, the first increase in retail sales in three months. Higher sales were reported in 6 of 11 subsectors representing 71% of retail trade. Sales at building materials and garden equipment and supplies dealers decreased 3.2% after increasing 5.0% in June. Provincially, retail sales were up in six provinces, with the largest increases observed in Ontario and, to a lesser extent, the Prairie provinces. On an unadjusted basis, retail ecommerce sales were $1.8 billion in July, accounting for 3.2% of total retail trade. On a year-over-year basis, retail ecommerce increased 32.8%, while total unadjusted retail sales were up 3.7%.