By Julian Beltrame, The Canadian Press
OTTAWA - Canada's once reliable consumer is emerging as a weak link in the country's economic recovery and future growth prospects.
A survey of consumer confidence for September came in as expected Thursday, suggesting Canadians are losing faith in the recovery and putting purchasing decisions off for another day.
Research marketing firm TNS Canada said its consumer confidence index dropped 2.3 percentage points, tracking a similar downward trend found in other polls and coming on the heels of four straight monthly declines in retail sales.
The survey suggested that several factors are holding Canadians back from a more positive outlook, including lower confidence in household income and employment prospects over the next six months.
Fewer respondents said they thought the current period was a good time to make major purchases.
"After last month's mini-rally it seemed that consumers might be the sump pumps that could return some buoyancy to that recovery," said Michael Antecol, vice-president of the marketing research firm TNS Canada.
"Now, it seems as if those pumps are sputtering, leaving some rocky days ahead."
The likely explanation is that Canadian households — much like their U.S. counterparts — have simply run out of enough resources to continue powering the economy, analysts believe.
And Canadians are getting nervous about their job security, the biggest factor in the confidence index.
While the economy has recouped all the job losses from the recession, the unemployment rate remains about two points higher than pre-slump levels, and employment gains have slowed appreciably since the spring.
The Bank of Canada has been sending up red flags about the exposure of households to debt for the better part of the year, one reason it is the only central bank among the G7 countries to have begun raising interest rates.
The central bank is widely expected to pause for the next few months now that the recovery appears to be slowing much faster than anticipated.
By way of contrast, Canada's approach to monetary policy has been the exact opposite of the U.S., where the Federal Reserve said this week it will likely need to loosen the purse strings further through more quantitative easing.
Even if borrowing costs do rise, the issue for most indebted Canadians would not be insolvency, but the fact they will be forced to scale back on future purchases because a bigger slice of disposable income would be going to debt servicing.
Scotiabank economist Derek Holt noted that while Ottawa can rightly boast of its sound fiscal position, that does not extend to the private sector.
When private debt is combined with that held by government, Canada's total punches in at 239 per cent of gross domestic product, not far removed from such free-spenders as the United States, the United Kingdom and Spain, and above such troubled economies as Italy and Japan.
"One of the dominant reasons Canada outperformed its peer group from the G7 over the past decade had to do with domestic economy strength, and I think that story is coming to a close," Holt said.
"We've experienced a tremendous bull run in the consumer sector and housing markets, but there's a case for arguing Canadian households are debt weary."
The Bank of Canada has also built more parsimonious consumers and a softer housing market into its future growth scenarios.
Combined with a weak export sector that is hamstrung by flagging demand from its largest market, the United States, and a strong loonie, several forecasting houses have slashed growth projections for Canada to two per cent and under for the next 18 months.
The latest was the CIBC, which said Wednesday it now expects the economy to expand by only 1.9 per cent next year — 0.6 of a point less than its forecast just two months back and a full point below the Bank of Canada's forecast.
Growth in the two per cent range represents trend growth in normal times, but is unusually low for an economy just a few quarters out of a deep recession.
Holt said future pillars of Canadian growth will likely be commodity exports, particularly oil, and business investment. But for the first time since the last recession, the economy may have to plug along without much help from the consumer.
Friday, September 24, 2010
Monday, September 20, 2010
Most Expensive Cities
Montreal, Toronto among top 10 most expensive cities- Vancouver, obviously was already in the list.
By The Canadian Press
TORONTO - Toronto and Montreal have now joined the list of the top 10 most expensive cities in the world due to a stronger loonie and higher inflation rate.
An updated survey from Swiss wealth management firm UBS Bank suggests the two Canadian cities jumped around 20 spots since last year, ranking eighth and ninth among 73 cities surveyed.
Oslo, Zurich and Geneva remain the world's most expensive cities, but Canada's two largest cities ranked higher than London, Singapore and even Paris.
On the other end, the lowest prices for a broad basket of goods and services can be found in Mumbai, Manila and Bucharest.
Despite the pricey standard of living, the survey also found employees in the Canadian cities enjoy relatively high purchasing power from their hourly wages with Montreal ranking 11th and Toronto 14th.
On top were workers in Zurich, Sydney and Miami, while employees in Jakarta, Nairobi and Manila had the lowest purchasing power among cities surveyed.
When it came to comparing wages, the survey found Toronto ranked 13th and Montreal 16th among cities surveyed. Zurich and Copenhagen had the two highest wage levels.
The Prices and Earnings survey is published every three years. In 2009, the survey measured a standardized basket of 122 goods and services between March and April. This year's update was carried out to adjust 2009 data for cumulative inflation and exchange rate movements.
The next full survey is scheduled for the spring of 2010.
By The Canadian Press
TORONTO - Toronto and Montreal have now joined the list of the top 10 most expensive cities in the world due to a stronger loonie and higher inflation rate.
An updated survey from Swiss wealth management firm UBS Bank suggests the two Canadian cities jumped around 20 spots since last year, ranking eighth and ninth among 73 cities surveyed.
Oslo, Zurich and Geneva remain the world's most expensive cities, but Canada's two largest cities ranked higher than London, Singapore and even Paris.
On the other end, the lowest prices for a broad basket of goods and services can be found in Mumbai, Manila and Bucharest.
Despite the pricey standard of living, the survey also found employees in the Canadian cities enjoy relatively high purchasing power from their hourly wages with Montreal ranking 11th and Toronto 14th.
On top were workers in Zurich, Sydney and Miami, while employees in Jakarta, Nairobi and Manila had the lowest purchasing power among cities surveyed.
When it came to comparing wages, the survey found Toronto ranked 13th and Montreal 16th among cities surveyed. Zurich and Copenhagen had the two highest wage levels.
The Prices and Earnings survey is published every three years. In 2009, the survey measured a standardized basket of 122 goods and services between March and April. This year's update was carried out to adjust 2009 data for cumulative inflation and exchange rate movements.
The next full survey is scheduled for the spring of 2010.
Tuesday, September 7, 2010
Favourable U.S. data suggests Canadian rate increase
Paul Vieira, Financial Post · Monday, Sept. 6, 2010
OTTAWA • What a difference a week makes in gauging the state of the Canadian economy.
At the start of last week, few market players believed the Bank of Canada would raise its benchmark rate on Wednesday as concern over its largest trading partner, the United States, mounted. The U.S. economy was believed to be on the verge of flirting with a double-dip recession, given the spate of weak economic data traders had grown accustomed to over the summer.
But two key U.S. pieces of August data released last week — the ISM manufacturing index and non-farm payrolls — were better than expected and suggested the North American economic recovery, while sluggish, marches on and is in no real danger of falling into an abyss. This helped trigger a “vicious” sell-off in bonds, in which investors piled in because of fears of a severe economic slowdown.
The result: The probability that Mark Carney, the Bank of Canada governor, will raise interest rates by 25 basis points, to 1%, increased to slightly more than 60% on Friday from less than 50% as of late August.
The good-looking U.S. data “tipped the scale heavily” toward a rate hike, said Douglas Porter, deputy chief economist at BMO Capital Markets.
Also playing a role was Canadian GDP data for the second quarter, which on the surface appeared tepid — 2% annualized growth, well below the rapid pace recorded in previous quarters. But analysts say the Canadian economy is stronger than the second-quarter headlines indicated, with final domestic demand still advancing at a robust pace. Plus, much of the second-quarter drag was from so-called “import leakage,” in which gains in imports — as firms acquired productivity-enhancing equipment at the fastest pace since 2005 — outstripped exports. Income data also showed wages and salaries grew “a very solid” 4.8% annualized in the three-month period, according to economists at Moody’s Analytics.
“Although growth slowed more than expected in the second quarter, the cause of this slowing does not suggest that there has been significant deterioration in the economy’s overall health,” said John Clinkard, chief Canadian economist at Deutsche Bank.
“Given the surge of investment in new machinery and equipment in the second quarter, that [means] business confidence is strong,” Mr. Clinkard said.
Still, much doubt remains about the health of the United States. The Bank of Canada’s economic outlook, released just two months ago, now appears too optimistic given recent trends. It expected the economy to reach its full potential late next year, but that could be pushed out further with weaker economic indicators in the United States and Canada. Plus, recent data suggest inflation, which ultimately drives the bank’s rate decisions, poses no threat as the key core rate — which strips out volatile-priced items — has slowed for two straight months.
These factors are driving analysts to scale back expectations for rate hikes for the remainder of 2010 and into 2011, predicting the Bank of Canada will pause for a while to see where all the economic dust settles. For instance, Bank of Nova Scotia chief economist Warren Jestin now envisages the central bank moving its benchmark rate no higher than 1.75% next year, or 50 basis points below previous forecasts.
Last week’s U.S. data may have put to rest fears of a double-dip recession, “but we are also tracking a U.S. economy that is nowhere near the pace it needs to be at this stage of the business cycle,” said Avery Shenfeld, chief economist at CIBC World Markets. The United States still requires “easy monetary policy and a softening in next year’s planned fiscal tightening if it is going to stay out of trouble.”
Even with positive jobs and manufacturing data, the week ended with a bit of a reality check for the U.S. economy with figures showing growth slowing in the service sector, which accounts for 80% of U.S. output.
The U.S. Federal Reserve is expected to refrain from rate hikes for a while — well into 2011, according to most analysts — with the U.S. economy still in a lacklustre state. The Bank of Canada, then, won’t want to raise rates too aggressively ahead of the Fed or risk the Canadian dollar appreciating to levels that start to take a bite out of economic output.
In fact, speculation is that the Fed would inject further liquidity, through another round of securities purchases, before considering a rate hike. But senior Fed policymakers remain divided on that need, with Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, describing fears of deflation and a double-dip recession as “alarmist.”
In addition, Mr. Lockhart said that, despite all the worry, the U.S. economy remained on a “gradual recovery track.”
OTTAWA • What a difference a week makes in gauging the state of the Canadian economy.
At the start of last week, few market players believed the Bank of Canada would raise its benchmark rate on Wednesday as concern over its largest trading partner, the United States, mounted. The U.S. economy was believed to be on the verge of flirting with a double-dip recession, given the spate of weak economic data traders had grown accustomed to over the summer.
But two key U.S. pieces of August data released last week — the ISM manufacturing index and non-farm payrolls — were better than expected and suggested the North American economic recovery, while sluggish, marches on and is in no real danger of falling into an abyss. This helped trigger a “vicious” sell-off in bonds, in which investors piled in because of fears of a severe economic slowdown.
The result: The probability that Mark Carney, the Bank of Canada governor, will raise interest rates by 25 basis points, to 1%, increased to slightly more than 60% on Friday from less than 50% as of late August.
The good-looking U.S. data “tipped the scale heavily” toward a rate hike, said Douglas Porter, deputy chief economist at BMO Capital Markets.
Also playing a role was Canadian GDP data for the second quarter, which on the surface appeared tepid — 2% annualized growth, well below the rapid pace recorded in previous quarters. But analysts say the Canadian economy is stronger than the second-quarter headlines indicated, with final domestic demand still advancing at a robust pace. Plus, much of the second-quarter drag was from so-called “import leakage,” in which gains in imports — as firms acquired productivity-enhancing equipment at the fastest pace since 2005 — outstripped exports. Income data also showed wages and salaries grew “a very solid” 4.8% annualized in the three-month period, according to economists at Moody’s Analytics.
“Although growth slowed more than expected in the second quarter, the cause of this slowing does not suggest that there has been significant deterioration in the economy’s overall health,” said John Clinkard, chief Canadian economist at Deutsche Bank.
“Given the surge of investment in new machinery and equipment in the second quarter, that [means] business confidence is strong,” Mr. Clinkard said.
Still, much doubt remains about the health of the United States. The Bank of Canada’s economic outlook, released just two months ago, now appears too optimistic given recent trends. It expected the economy to reach its full potential late next year, but that could be pushed out further with weaker economic indicators in the United States and Canada. Plus, recent data suggest inflation, which ultimately drives the bank’s rate decisions, poses no threat as the key core rate — which strips out volatile-priced items — has slowed for two straight months.
These factors are driving analysts to scale back expectations for rate hikes for the remainder of 2010 and into 2011, predicting the Bank of Canada will pause for a while to see where all the economic dust settles. For instance, Bank of Nova Scotia chief economist Warren Jestin now envisages the central bank moving its benchmark rate no higher than 1.75% next year, or 50 basis points below previous forecasts.
Last week’s U.S. data may have put to rest fears of a double-dip recession, “but we are also tracking a U.S. economy that is nowhere near the pace it needs to be at this stage of the business cycle,” said Avery Shenfeld, chief economist at CIBC World Markets. The United States still requires “easy monetary policy and a softening in next year’s planned fiscal tightening if it is going to stay out of trouble.”
Even with positive jobs and manufacturing data, the week ended with a bit of a reality check for the U.S. economy with figures showing growth slowing in the service sector, which accounts for 80% of U.S. output.
The U.S. Federal Reserve is expected to refrain from rate hikes for a while — well into 2011, according to most analysts — with the U.S. economy still in a lacklustre state. The Bank of Canada, then, won’t want to raise rates too aggressively ahead of the Fed or risk the Canadian dollar appreciating to levels that start to take a bite out of economic output.
In fact, speculation is that the Fed would inject further liquidity, through another round of securities purchases, before considering a rate hike. But senior Fed policymakers remain divided on that need, with Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, describing fears of deflation and a double-dip recession as “alarmist.”
In addition, Mr. Lockhart said that, despite all the worry, the U.S. economy remained on a “gradual recovery track.”
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