Ontario economy grew at twice the Canadian average last year

For years while the price of oil was high, Ontario's growth lagged behind that of Alberta and Saskatchewan the main oil producing provinces. However, now its growth is surging while the oil producers are hard hit.

Canada's large banks predict that this year Ontario's growth will be near the top of all provinces. The jobless rate, 5.8 percent, is the lowest since 2001. The national average unemployment rate is 6.5 percent itself the lowest since 2008. In 2016, Ontario added 96, 800 full-time jobs and surprisingly part-time jobs actually decreased by 10,200 a plus for many workers. Manitoba has the lowest rates at 5.4 percent and British Columbia 5.5 percent. However there are still 437,000 Canadians looking for work according to Statistics Canada. In 2016 the province grew at twice the national average. The growth is not related to just one sector but includes manufacturing, real estate finance and technology. Tax revenue from corporations grew 16,.8 percent last year and 19.6 percent this year as corporate profits grew. The future looks promising as a survey of Ontario businesses by the Bank of Canada showed that sales are up and that companies are intending to invest in new equipment and hire on more staff.

The center of recent growth is in the Greater Toronto Area. The Conference Board of Canada predicts that this will be the leading metropolitan growth area in 2016 leading to a 2.6 increase in GDP for Ontario. Windsor, the Ottawa region, and the Kitchener-Cambridge-Guelph triangle are also prospering. The Conference Board claims: "Through 2019, Ontario households will reap the benefits of a robust business sector. With the labour market looking good, healthy consumer spending across all spending categories is expected over the near term." Robert Hogue, the senior economist at the Royal Bank of Canada(RBC) described the Ontario economy as vibrant and said: "The Ontario economy has been, I think, quite impressive at adapting, at adjusting, and at continuing to generate jobs." Ontario premier Kathleen Wynne will no doubt point to Ontario's growth if she announces a plan to hike the minimum wage to 15 dollars an hour.

In spite of the low unemployment level, the growth in the economy has not been matched by a parallel growth in wages. The average worker has not shared in the boom. Statistics Canada data show the average worker's wages grew just 1.1 percent last year. This is below inflation meaning that last year the average worker took a pay cut. This may have an effect on consumer confidence and sales in the future. As Nik Nanos, of Nanos research put it: "There's a collision between the psychology of consumer confidence and the reality of the economic numbers. When people don't feel that real wages are significantly increasing, when they're unsure about their level of job security, it creates a psychological chill on consumer confidence." However, borrowing iterest rates are low and that may encourage spending. The Bloomberg Nanos Canadian Confidence Index suggests that consumers in the province are feeling upbeat. The swing up began as the price of oil dropped. No doubt it reflects more money being available as less is spent on fuel.

There is some worry about growing protectionist rhetoric by Trump in the US and uncertainty caused by renegotiation of the North American Free Trade Act (NAFTA). Exports could also be hurt if the Canadian dollar, the loonie, were to increase significantly in value. However there are positive signs too from the US. Aided by tax refunds and rising incomes Americans increased spending in April at the fastest rate since 2016 in a sign the U.S. economy is growing faster. This could result in an increase in Canadian exports to the U.S. especially as the value of the Canadian dollar is quite low. Another worrying factor for Ontario is the boom in the housing market in Toronto that may turn out to be a bubble.

While some complain of Ontario hydro rates, the province has a low tax rate of just 11.5 percent. Only British Columbia has a lower rate. Ontario is fortunate as well in that its economy does not depend on one main commodity. It is less subject to severe stress as has happened in Alberta where oil is its main source of revenue. However, the entire manufacturing sector in Ontario was badly hit during the 2008-9 recession and the recovery has been relatively slow with some negative effects such as there being more part-time and contract work with less benefits for workers.

British Columbia led all provinces in the growth of its GDP last year growing by 3.7 percent. This was up from 3.1 percent in 2015. Ontario came second with a growth rate of 2.6 percent the same as in 2015. Manitoba was third with 2.4 percent an increase from 2.1 percent in 2015.

Canadian analyst argues that a Trump win of the US presidency would be net benefit for Canadian economy

Matthew Barasch, Canadian equity strategist for RBC Capital Market, argues that if Donald Trump wins the presidency of the United States in November this would be a "net positive" for both the Canadian economy and Canadian stocks.

Barsch bases his prediction on Trump's pro-oil policies, and proposals for lower tax rates. Barasch notes that reports about a Trump presidency should be taken with a grain of salt: “We would be very cautious with those who suggest that markets will crash and dogs and cats will live together upon a Trump victory as these types of stories often sell newspapers, but have little connection to reality." He made the remarks in a note to his clients.

Barasch claims that Trump's tax cuts would in the near term probably give a boost to the U.S. economy, which would mean more exports to the U.S. from Canada, increasing GDP. He thinks that Trump's policies would lead to higher interest rates as economic growth and deficits increase. This along with less onerous regulations on banks and insurance companies could increase their profits.

Trump has vowed to revive the Keystone XL pipeline project that could help the energy and materials sector. Trump also would increase infrastructure spending which would help stocks such as railways. Trump's restrictive immigration policy could help attract talent to Canada and could boost our technology sector.

However, as Barasch notes, Trump vows to renegotiate NAFTA, and he also rejects the TPP, and this could hurt Canada in the long run. It remains to be seen if Trump would actually follow through on these promises. Barasch remarks: “Any move to roll back NAFTA would weigh on [consumer staples and discretionary stocks] that rely on significant access to the U.S. market, with auto parts a notable standout.”

It's possible that a Trump victory will also lead to an increasing number of Americans coming to Canada as they fear what Trump might do to the U.S. There are already reports of Americans making contingency plans to flee north. There are also reports warning of the difficulties associated with moving to Canada. There have been periods when significant numbers of Americans moved to Canada. In the 1960's thousands of Americans fled to Canada to avoid being drafted for the Vietnam War.

Canadian household debt greater than GDP in second quarter this year

Canadian household debt's ratio to household income rose to a record high in the second quarter according to statistics just released by Statistics Canada.

The report is likely to raise concerns that Canadian consumers are overborrowing. Statistics show that the ratio of household debt to disposable household income rose to 169.85 percent from 167.37 percent in the first quarter. For every dollar of disposable income, Canadians are spending $1.70. The ratio of household debt to gross domestic product rose to 100,54 per cent compared to 98.7 percent in the first quarter. This means the total household debt during the quarter was slightly greater than the value of GDP during the quarter.

The long period of low interest rates after the financial crisis have encouraged Canadians to take on more debt. This is especially true with respect to buying homes, with the result that prices have shot up in most markets. In markets such as Vancouver or Toronto houses are simply too expensive for the average Canadian to purchase.Many Canadians believe that housing for them is no longer affordable and even those thinking of buying a house worry that the price rise is a bubble that will burst. At the end of the second quarter, Canadian mortgage debt was at $1.29 trillion.

Borrowing by Canadians in the second quarter was $29.2 billion, seasonally adjusted. This is $3.5 billon more than in the first quarter. Mortgages accounted for $19.1 billion of the total up from $18.4 billion in the first quarter. The Bank of Canada has said the high debt level posed a vulnerability for the financial system, and that the amount of debt compared to disposable income was becoming alarming. The continued rise in home prices has increased the net worth of Canadians at an average of $271,300 as compared to $266, 900 in the first quarter.

Laura Cooper, of the Royal Bank of Canada, said: “Households are in an increasingly precarious position” and “should continue to be cautious" about adding debt. However, the share of mortgage loans in household debt has remained stable at 65.6 percent. This is the first time since 1910 that the mortgage loan share has not increased from quarter to quarter. In spite of the high levels of debt, most families are able to meet their debt obligations with credit-market debt still at only about 20 percent of their net worth.

Second quarter sees 1.6 percent annualized decline in Canadian GDP

In contrast to the first quarter when the Canadian economy grew by an annual rate of 2.5 percent the second quarter turned in a dismal performance with a decline of 1.6 percent at an annualized rate.

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This is the worst performance of the Canadian economy in the last seven years according to Statistics Canada. The decline was in large part due to the wildfires in northern Alberta that burned parts of Fort McMurray. The second quarter of 2009 when Canada was in the midst of the global financial crisis was the last time the economy saw such a large drop. However, economists had predicted a drop of around 1.5 percent, not too far off the actual result.

Avery Shenfeld of CIBC Capital Markets said: "It wasn't pretty, but it wasn't expected to be." Exports of goods and services fell by 4.5 percent after a rise of 1.9 percent in the first quarter. The fires near Fort McMurray had forced the shutdown of several oilsands operations. Statistics Canada said that excluding the large drop in crude oil output, the country's GDP would have increased by 0.1 per cent (0.4 per cent annualized). Exports of goods declined 5.5 percent while exports of services rose by a modest 0.6 percent. Exports of aircraft and other transportation equipment actually rose by 5.6 percent. One silver lining in the downturn is that in June GDP rose by 0.6 percent more than the 0.4 percent economists predicted. Mining, quarrying and oil extraction in June had risen by 3.6 percent. Energy product exports fell 7.5 per cent, with crude and bitumen exports declining 9.6 per cent and refined petroleum products down a whopping 19.6 per cent

Shenfeld said: "All told, a quarter we will like to forget, and for the next few months, a more supportive Q3 will help us do just that." The Bank of Canada predicts that growth will pick and also expects that the new child benefit program will boost consumer spending along with increased government spending on infrastructure. The second-quarter result reported Wednesday was worse than forecast by the Bank of Canada in its July monetary policy report. The central bank had predicted that the economy would contract at an annual rate of one percent during the second quarter due to the damage caused by the wildfires. Shenfeld also noted: "The best news [in the GDP report] was that June GDP rebounded ... and less than half of that [growth] came from the rebound in mining/oil/gas, as manufacturing also had a healthy gain."

Other economists were also optimistic about at least some improvement. BMO chief economist, Douglas Porter, said: "We knew for the past four months that today's GDP report was going to be ugly, and it delivered with a capital U. Looking beneath the headline drama, underlying growth continues to stumble along at little more than a one per cent [annual rate] pace, but we continue to expect that to improve in the coming year as the drop in energy investment ebbs."

IMF lowers growth prediction for Canadian GDP in 2016 and 2017

Although the Canadian economy had a fast start this year the International Monetary Fund(IMF) has reduced its growth forecast. The IMF cited continuing damage to the energy sector and lower expected growth globally as reasons for the reduced prospects.

The IMF cut its projection for Canadian gross domestic product (GDP) growth to 1.5 percent in 2016. In the previous prediction last quarter in January, the outlook was for 1.7 percent. The outlook for 2017 was reduced from 2.1 percent to 1.9 percent. The IMF said commodity-exporting economies suffered from reduced income and reduced investment. In Canada, the energy sector was a drag, only partially offset by a lower loonie and an expected increase in public investment by the Liberal government.

This is the sixth straight quarter that the IMF has reduced part of its two-year Canadian GDP outlook. The decline in our growth outlook has reflected the slump in prices for commodities. The Bank of Canada also predicted lower growth in Canada in a January report at 1.4 percent. Private-sector economists have a rosier projection of our growth at least during the first quarter this year. They think that our growth was close to 3 percent on an annualized basis and expect our growth to be close to 2 percent for the year. The Bank of Canada's projection for the year in January was 2.4 percent well above that of the IMF.

The CIBC's most recent forecast for 2016 was at 3.2 percent, down from 3.4 percent in January and 3.8 percent a year ago. For 2017 it forecast growth at 3.5 percent down marginally from its January forecast of 3.6 percent.

The Organization for Economic Co-operation and Develoment (OECD) also downgraded its estimates for the growth in the Canadian Economy as well as those for other G7 countries. The OECD predicted that Canada's economy will grow by 1.4 percent this year and 2.2 percent in 2017.

The global outlook also was for weaker growth according to the IMF report:“Global recovery continues, but at an ever-slowing and increasingly fragile pace. The months since the last World Economic Outlook have seen a renewed episode of global asset market volatility, some loss of growth momentum in the advanced economies, and continuing headwinds for emerging market economies and lower-income countries...Consecutive downgrades of future economic prospects carry the risk of a world economy that reaches stalling speed and falls into widespread secular stagnation.”The report did note, however, that conditions had improved somewhat since earlier in the year. Oil prices were somewhat firmer, and capital outflows from China were lower, and some decisions by central banks were helping to improve sentiment about economic growth but downside risks remained. The IMF World Econonomic Outlook is released just prior to the spring meetings of the IMF and World Bank to take place in Washington April 15 to 17.

Bank of Canada leaves overnight interest rate at 0.75 per cent

The Bank of Canada announced that it will be maintaining the overnight interest rate at a low 0.75. The bank rate will be one per cent and the rate on deposits 0.50 per cent.

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Total Consumer Price Index(CPI), according to the Bank, rose just one percent even though core inflation has remained near 2 percent for the last few months. The lower CPI rate is the result of the sharp drop in energy prices. The drop in the value of the dollar, increasing the cost of U.S. imports, has offset other factors that might reduce prices.

During the first quarter of this year, the Canadian economy has stopped growing due to damage caused by the decline in oil prices and its negative effect on the oil production sector.The Bank statement said:“The impact of the oil price shock on growth will be more front-loaded than predicted in January, but not larger. The ultimate size of this impact will need to be monitored closely.” The Bank predicts that the remaining quarters will see a rebound due to low interest rates, and the positive effect that lower dollar will have on exports. While the lower dollar helps exporters in that their products may be cheaper in countries such as the US, the higher prices for imported machines and materials used in production may partially offset these gains in some cases. The Bank has decided not to lower interest rates further as it did in January this year.

Stephen Poloz, the Bank of Canada Governor said: "By the middle of the year we should be seeing only the good stuff." However the statement also contained a number of warnings about the road ahead including the slow pace of business investment, and falling prices for Canadian commodity exports including oil, natural gas, lumber, hogs and iron ore.

For the entire year, the Bank predicts a growth rate of 1.9 per cent, down from the forecast of 2.1 per cent predicted in January. After no growth this quarter, the growth rate will be 1.8 per cent, 2.8 per cent and 2.5 per cent over the following three quarters on an annualized basis. Given the relatively slow growth rate, many economists expect that the Bank could very well cut rates again before raising them next year. Economist, David Madani, of Capital Economics insisted that it was "pure fantasy" if the Bank believes that economy will rebound as quickly as it predicts unless there is even more interest rate relief. However, the Bank sees the current rates as appropriate at least for now. If growth remains relatively sluggish Poloz may decide to lower rates once again as some predict. The Canadian dollar reacted positively to the Poloz announcement, increasing in value relative to the US dollar.

International Monetary Fund reduces Canada GDP growth rate projection

The International Monetary Fund(IMF) has slightly reduced its forecast for Canadian economic growth both for this year and next. Reduction in oil prices is partly responsible for the reduction in the growth outlook.

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The IMF's, World Economic Outlook, predicts that Canadian GDP will grow by 2.2 per cent this year and only 2.0 per cent in 2016. These predictions are both down 0.1 per cent from the last projection in January of this year. The US economy will do better than Canada, and is predicted to grow by 3.1 per cent both this year and next. Lower oil prices in the US will help spur consumer demand there. The US growth rate will still be below the global average estimated at 3.5 per cent for this year.

In spite of the slight decline, the IMF still describes Canadian growth as solid and reinforced by a relatively stronger US economy and the decline of the Canadian dollar which will help exports. The report said:“These developments have led to a welcome pickup in exports, but have yet to translate into strong investment and hiring. But risks are tilted to the downside, because the unusually large fall in oil prices could further weaken business investment in the energy sector and lower employment growth.”The lower oil prices will lower investment and employment significantly in areas such as Alberta where the energy sector is a key part of the economy. While the lower oil prices might have a net negative effect on Canada, the IMF estimates that if the lower prices were passed through to consumers globally there would be a net jump in global growth of about one per cent.

The IMF also suggested that the Canadian government pursue "targeted macroprudential policies that would address high housing sector vulnerabilities". The IMF is concerned that low mortgage rates will encourage borrowing and send house prices soaring, resulting in a possible real estate price bubble. If interest rates rose or there was a slump in employment many borrowers might not be able to make mortgage payments. The government has already taken some steps to make qualification for mortgages a bit stronger. Other policies to dampen demand may be required. House prices are still rising in Canada although mostly in some key markets such as Toronto and Vancouver. Cities in Alberta such as Edmonton and Calgary could see price declines as the energy industry cuts back due to the low price of oil. Some statistics on recent home prices can be found in this article.

Read more: http://www.digitaljournal.com/business/business/imf-slightly-reduces-growth-outlook-for-canada-this-year-and-next/article/430740#ixzz3XUZxqMfX

The Organization for Economic Cooperation and Development reduces growth rate projection for Canada

The Organization for Economic Cooperation and Development(OECD) has cuts it growth rate prediction for Canada in both this year and also in 2016.

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In its economic assessment released today, March 18, the OECD said: “Overall, the near-term outlook remains for moderate, rather than rapid, world GDP growth. [But] real investment remains sluggish and labour is not yet fully engaged. Lower oil prices will boost global demand and have created conditions for many central banks to lower interest rates.”The Canadian central bank has already lowered interest rates in the hope of stimulating economic activity. Prior to the drastic drop in oil prices the OECD had predicted that Canada would gradually begin raising interest rates around the middle of this year. The opposite has happened, as in January, Stephen Poloz, the governor of the Bank of Canada, lowered interest rates from 1 percent to 0.75 percent.

The report claimed that overall the effect of lower oil prices should be positive:“Lower oil prices both raise the real incomes of households and reduce costs for firms, and should therefore be beneficial for global growth, notwithstanding the loss of real income for oil producers. The fall in energy prices also puts downward pressure on consumer prices. Many central banks have responded to the shock by cutting interest rates or signaled a more accommodative policy stance.”This is little comfort for provinces such as Alberta whose economy is very much dependent upon oil production and royalty revenues. Alberta's construction industry is predicted to face three years of job losses.

The OECD predicts that Canadian GDP will increase just 2.2 percent in 2015, down from a predicted 2.6 per cent gain last November. In 2016 growth is also down at 2.1 percent compared to an earlier estimate of 2.4 percent. US growth has remained the same at 3.1 percent in 2015 and 3.0 percent in 2016, outpacing Canadian growth.

The Royal Bank of Canada(RBC) earlier had also reduced its growth forecast for Canada. For 2015 RBC predicted growth in GDP as 2.4 percent down from a December forecast of 2.7 percent. However, Craig Wright, RBC chief economist said: “We see the hit to the economy from a pullback in oil and gas activity as targeted and regional, and unlikely to derail Canada’s economy this year.” The slump in oil prices wlll hurt growth prospects for oil-producing provinces such as Alberta and to a lesser extent Saskatchewan, as well as Newfoundland and Labrador. On the other hand, the lower oil prices will be positive for Ontario,, British Columbia, and Quebec, that are oil consumers. The lower Canadian dollar will also help exports along with the growth of the US economy.

Canadian economy slows in third quarter of 2012

In the July-September, third quarter, Canada suffered the largest drop in exports in three years. The economy grew at a 0.6% annual rate compared to 1.7% in the first two quarters.

While Canada has recovered relatively quickly from the recession compared to some other countries, growth has become more sluggish in 2012. and particularly in the last quarter. While the Bank of Canada and many economists had been expecting a slowdown in the third quarter the results were even weaker than expected.

Analysts predicted that even with the slowing economy, the Bank of Canada will still take the position that interest rate hikes may be needed down the road. Michael Gregory, senior economist at BMO Capital Markets said:

"The Bank of Canada bias is very much a long-term bias so it's not going to be changing any time soon. But there is no question the Canadian economy is under-performing a bit here and if this continues past the turn of the year and the whole 'fiscal cliff' in the U.S., we could see a different tone from the Bank of Canada. But it is way too early for that to be happening now."

The Bank has kept the benchmark rate at a low 1% for more than two years now.

The 0.6% growth rate was below a Reuters poll average of 0.9% and the Bank of Canada's forecast of 1%. The U.S. economy did much better during the period at 2.7%. Business investment in Canada actually declined by 0.6% in the third quarter. This is the first decline since 2009 and contrasts with a growth of 1.3% in the first quarter.

Exports were hard hit by the relatively weak growth in the U.S. and problems in Europe. They fell by 2% during the quarter. Consumer spending continues to increase in spite of the high debt load of many Canadians. It grew at the fastest pace in two years rising by almost 4%.

Residential housing construction also declined during the quarter by 4.4%. Tougher mortgage rules may be causing lower demand.

The Bank of Canada is predicting the the fourth quarter will see growth of 2.5% but with these latest figures that may be optimistic. Paul Ferley, an economist at the Royal Bank of Canada said:

"Expectations had been that after a weak third-quarter activity we would bounce back in the fourth quarter. It could still be the case, there were some temporary factors that don't look like they have fully reversed as yet, we may see that in October, but it may limit the rebound in the fourth quarter to something closer to 2 percent."

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Mark Carney: Excessive household debt could threaten economy

Mark Carney Bank of Canada governor said that if excessive household debt threatened the economy he would act. Ten per cent of Canadians could be unable to meet their mortgage payments if interest rates increased to more normal rates says Carney.

Carney remarked:"In exceptional circumstances, if there are issues that threaten financial stability, such as household debt ... the bank could use monetary policy for that purpose," Most economists think that the Bank of Canada will keep interest rates at one per cent for some time yet as the economic recovery remains fragile. However there were good job numbers for the month of March many times the predicted amount. Perhaps this indicates the economic recovery is being sustained. The interest rate at present is far below the inflation rate.

At present household debt is 150 per cent of income. Carney claims this is unsustainable. Carney said:"We have never been as indebted as we are today as individuals," If Carney does decide to raise interest rates this could cause problems for those barely able to pay their mortgages now. See this article for more.

Canada GDP grows slowly at 1.8 per cent in 4th quarter of 2011

The growth was in line with what economists had predicted. Although consumer spending and business investment was stronger foreign trade slowed. The strong dollar and economic slowdowns especially in Europe no doubt contributed to this result.

The third quarter growth rate was stronger at 4.2 per cent according to Statistics Canada. In the fourth quarter export growth declined from 16 per cent to 4.6 per cent while imports rose 2.2. per cent.

Manufacturers are struggling with a high Canadian dollar and also weak demand. However energy companies such as Enbridge are doing well as the demand for energy increases. For much more see this Bloomberg article.

Canada is the world's tenth largest economy. In the first half of this year the growth rate is predicted to be under two percent according to the central bank's forecast. Global financial problems and weaker demand are the main causes of the slower growth.

Canada: Job growth slow in January

   While the U.S. employment situation is improving Canada is going in the opposite direction. Last month Canada managed to add only 2,300 job. Economists had been predicting that about 24,500 would be added. Unemployment edged up slightly to 7.6 per cent.
     Unemployment is rising in the Atlantic provinces and also Ontario with little change in other provinces. The construction area did not do well with the loss of 13,700 jobs after a decline the month before as well. In the technical, professional and scientific area there were 44,800 fewer jobs last month. This is an area of well paid jobs.
   The chief economist at Toronto Dominion Bank said: "These figures are consistent with an economy fighting to keep its head above water," Many economists believe that job growth will remain weak through 2012. However in the U.S. 243,000 jobs were added in January. This is far above what most analysts predicted and lowered the unemployment rate to the best level since 2009. For more see this CBC article.

Wages in Canada rise only marginally over the last year

 Over the last year ending this September wages in Canada rose a mere 1.1 per cent according to figures from Statistics Canada. This is the smallest increase since November of 2009.
  Although the average showed a small increase over the year, September average weekly earnings of non-farm workers actually declined by .3 per cent. This is just the nominal decrease and does not take into account that the inflation rate was 3.2 per for the month. Average weekly wages have been declining since April when they reached a peak of 4.1 per cent.
   The uncertain economic outlook may lead to a lessening demand for increased wages as many workers are happy enough just to have work. The government points out that 600,000 jobs have been created since the recession. However the other side of this story is that almost a million more have entered the labor market. Unemployment remains at 7.3 per cent. This is a large reserve army of the unemployed that will also keep wages low. For much more see this article.
 
   

Ratio of Canadian Household Debt to Income of 140 percent.

Given the low interest rates it is not surprising that Canadian real estate sales are doing well and house prices are rising in contrast to the US. However as this article shows the result of low interest rates is that consumers are piling on debt as well and this may not bode well for the future especially if there are more job losses or a decrease in economic activity.



Increasing household debt stirs concern
Bank of Canada worries about jump in borrowing
By PAUL VIEIRA, Canwest News ServiceDecember 11, 2009
Rising levels of household debt and deteriorating budget balances in several countries will emerge as the most prominent risks to the Canadian financial system over the next few years, the Bank of Canada said yesterday.

In its semi-annual review of the Canadian financial system, the central bank said the level of vulnerability to an adverse near-term shock has declined modestly. Furthermore, the likelihood of a renewed global downturn has diminished since the release of its previous assessment in June.

"At the same time," it warned, "several medium-term risks have intensified."

Two were singled out: rising levels of household debt, perhaps spurred in recent months by consumers looking to take advantage of record-low borrowing costs; and an inability to resolve global trade imbalances, which the bank warned could cause a "disorderly" adjustment in exchange rates.

The central bank said the review is meant to provide an assessment of downside risks that could cause stress in financial markets, even if they are low-probability events.

Nevertheless, it acknowledged the ratio of household debt to income has climbed to "historically" high levels of more than 140 per cent.

"The medium-term risk to financial stability arising from the household sector is judged to have increased," it said. "This judgment is predicated on concerns that the sustained growth of household debt in the context of rising interest rates will increase the vulnerability of households to an adverse shock over the medium term."

Asked yesterday about the issue of household debt, Finance Minister Jim Flaherty told reporters an increase in this area is "to be expected during what has been a serious economic downturn."

He added, however: "Well, you know, we certainly want people to be careful because interest rates are very low now and there's lots of liquidity in the system. There's lots of money being lent and I do ask Canadians to be mindful of the fact that interest rates will not be low indefinitely."

Financial Post

© Copyright (c) The Montreal Gazette

Canada creeping out of recession.

Technically we are out of the recession now but growth is still quite weak even less than was predicted. However, stock markets seem to be doing relatively well in spite of the Dubai debacle. Note that Canada did not grow as much as the US although no doubt the job situation is better here.


Canada's economy edges higher in third quarter.


Canwest News ServiceNovember 30, 2009

OTTAWA - Canada's economic recession officially ended in the third quarter of this year, but with a weaker-than-expected increase.

Statistics Canada said Monday said gross domestic product grew 0.1 per cent in the quarter, following a 3.4 per cent contraction in the previous three- month period, which was the third quarterly decline in a row.

Most economists had forecast growth of one per cent for the July-through- September period.

Separately, the agency released the September GDP figure, which showed an increase of 0.4 per cent. Many economists had expected an advance of around 0.3 to 0.4 per cent for the month.

``The Canadian consumer has helped propel the economy into recovery,'' Diana Petramala, an economist with TD Securities, said in a note ahead of Monday's report. ``A red-hot real estate market has also helped support the economy by stimulating residential investment, related to a significant bounce-back in housing starts.''

However, she said, ``in the third quarter, it appears that businesses continued to service demand out of current stock, rather than ramping up production.''

The third-quarter GDP figures compares to 2.8 per cent growth seen during the same period in the United States - Canada's biggest trading partner.

Financial Post

© Copyright (c) Canwest News Service

Canada's economy is in big trouble.

The depth of the recession perhaps may cause Harper to consider spending even more money on stimulating the economy. On the other hand given his conservative proclivities perhaps he may decide as have some European countries that further spending would create too much debt for his liking.


This is from the globeandmail.



Recession strikes again

The numbers are in....and Canada's economy is in big trouble. It shrank 0.7 per cent in January, in line with expectations from economists and a slight improvement over December, when economic output plunged a full 1 per cent.
No one is celebrating: The decline marks the sixth consecutive monthly contraction in the economy, with gross domestic product down 2.4 per cent over the past 12 months and showing signs of getting a lot worse based on recent performance.
Benjamin Reitzes, economist, BMO Nesbitt Burns: “The December/January declines mark the worst two-month performance for GDP in at least 11 years. If GDP manages to stand pat in February and March (which might be wishful thinking), the economy would still be on pace to contract at a more than 6 per cent annualized rate, a record back to 1961. The global recession hit home in the first quarter.”
Millan Mulraine, economics strategist, TD Securities: “There is no getting away from the fact that the Canadian economy is in the depths of a rather profound economic recession, and from the evidence so far this year, it clearly appears that the economy may have taken a dramatic turn for the worse. ... In the final analysis, this report will provide further ammunition for the Bank of Canada to reduce the policy rate even further when they meet late April with a real likelihood that they may engage in quantitative easing as they attempt to provide further monetary stimulus to the Canadian economy.”

Loonie dives on jobs report and oil price decline..

The Canadian economy does not seem to be weathering the economic storms as well as some people thought. The declining oil price will hurt our energy stocks but on the other hand it will help the consumer and companies that depend upon fuel and petroleum products. Also, the declining dollar may eventually help exporters a little. But at the same time the price of our imports will go up and cross-border shopping will be less attractive.



Loonie dives on jobs report, oil

VIRGINIA GALT
Globe and Mail Update
August 8, 2008 at 9:51 AM EDT
The Canadian loonie dove to 93.62 cents (U.S.) Friday morning from Thursday's close of 94.97 cents within minutes of Statistics Canada's report that the Canadian economy lost 55,200 jobs in July.
The currency was battered by the “one-two punch combination of the shockingly weak jobs report and crude oil continuing to retreat…and there is no sign of any let up in that regard,” said Patricia Croft, chief economist at Phillips Hager & North.
The employment report – marking the biggest job loss in 17 years – “really caught people off guard,” Ms. Croft said in an interview.
“Canada has been considered a bastion of economic stability, unlike the U.S., the U.K., Europe, Japan, which are already in recession or heading that way. Canada, until recently, has held up quite well, but this jobs report is a sign that it's our turn now,” she said.

The Royal Bank said in its morning commentary that a sharp rally in the U.S. dollar, falling crude oil prices and a weak Canadian employment report “all served to conspire against the Canadian dollar.”
Bank of Nova Scotia currency analysts noted that the Canadian jobs report came on the heels of a Statistics Canada's announcement Thursday that the value of building permits issued in June was down by 5.3 per cent, with declines in both the residential and non-residential sector. Economists had forecast a decline of 1 per cent.
“We're starting to see surprises in Canadian economic indicators coming in on the downside,” Ms. Croft said.
“But the key is the employment report. It's all about the consumer, and consumer confidence is driven by the employment outlook and by income, of course. There are signs now that what had been a very solid support for Canadian consumers is …fraying around the edges.”
The U.S. dollar, meantime, is at a five-month high. “There's a very strong correlation between the U.S. dollar and oil,” Ms. Croft said.

Carney: Economy Stalling

In Canada there will obviously be a big difference between provinces such as Ontario on the one hand and Alberta and Saskatchewan on the other. Canada will always have lots of demand for our natural resources recession or not so the oil industry and potash for fertilizer will still thrive even if some sectors slow down a bit. Ontario is probably already in recession.


Economy stalling: Carney
TheStar.com - Business - Economy stalling: Carney

Full recovery not seen until 2010 as anemic exports stifle growth

April 25, 2008
Les Whittington
Robert Benzie
Staff Reporters



OTTAWA–Acknowledging that the economic storm sweeping North America is worse than expected, the Bank of Canada said yesterday that the Canadian economy is sagging and won't recover fully until 2010.

With weak export sales as the main culprit, Canadian economic growth will drop to a very weak 0.3 per cent in the April-through-June period, significantly lower than the 2 per cent forecast by the central bank only three months ago.

But that's better than the outlook in the United States, which Bank of Canada governor Mark Carney indicated is now experiencing a recession marked by marginally declining economic growth in the first six months of this year.

"Growth in the global economy has weakened" since January, Carney remarked at a news conference to release the bank's latest Monetary Policy Report.

He said this deterioration reflects "the effects of a sharp slowdown in the U.S. economy and ongoing dislocations in global financial markets." As a result, the Canadian economy will expand by only 1.4 per cent this year and 2.4 per cent in 2009. Not until 2010 will growth reach 3.3 per cent.

Carney said "some further" rate cuts may be needed but gave no indication of the timing. The bank chopped its benchmark rate on Tuesday to 3 per cent from 3.5 per cent, echoing a similarly aggressive cut in March.

TD Bank economist James Marple remarked that the main thrust of the report is "that worsening conditions in the domestic U.S. economy, working in combination with continued problems in credit markets, are expected to bring about a substantial slowdown in global growth."

"We believe that the case for continued monetary stimulus remains strong," Marple concluded in a commentary on yesterday's statement by the Bank of Canada.

Carney told reporters Canada has so far dodged the runaway price inflation on food and other items experienced in other countries. This is because of the price-reducing effects of the federal government's GST cut and the loonie's rise to near parity with the U.S. dollar.

Consumer price inflation, on a year-over-year basis, averaged 1.8 per cent in the first three months of this year.

But there is a threat of higher inflation if demand for commodities in China, India and other emerging economic powers remains robust, the bank said. It said global inflationary pressures "could spill over to Canada and lead to higher-than-projected inflation through increased costs for imports."

The bank also said that business and consumer sentiment in Canada is expected to soften a bit this year.

Yesterday's gloomy prognosis lends credence to those who say Ontario, whose economy lives and dies by exports, will record negative economic growth for the first half of this year.

At Queen's Park, Ontario Finance Minister Dwight Duncan was asked about the growing consensus that the province is already in recession.

"We're experiencing challenges in the economy. I wouldn't accept the premise of that question," Duncan told reporters, noting only one major economist has declared Ontario's economy is contracting.

"We continue to see the consensus estimate predicting growth in each of the next two years – that is not to underestimate the challenges that are before us."

Tim Hudak, Progressive Conservative MPP for Niagara-Glanbrook, said the evidence is clear that "a Dalton McGuinty recession has now hit the province of Ontario."

NDP Leader Howard Hampton said it's time to face the music.

"With jobs vanishing by the thousands, will the McGuinty government admit that the Ontario economy is in recession," he asked.

Report: Canadian Economy Will Avoid Recession

This is from Canada.com. While this report may make things look rather rosy in Canada the details paint a different picture. Manufacture is likely to see a continuing decline because of the strong dollar and weaker demand from the U.S. Also some exports such as hogs and lumber may have troubles as well. Provinces such as Ontario may be in depression while Saskatchewan and Alberta continue to boom as the demand for oil and natural gas continues at even higher prices.

The Canadian economy will avoid recession: report

Eric Beauchesne
Canwest News Service



Monday, April 14, 2008


OTTAWA - The Canadian economy will avoid being dragged into a recession by the U.S. downturn thanks to healthy domestic activity and strong commodity prices, a major Canadian financial institution forecast Monday.

However, CIBC World Markets warned that Canada may slowly bleed factory jobs for years, and long after what it sees as a relatively short U.S. recession ends.

"The energy-and resource-rich Canadian economy will manage to sit out this U.S. recession ...," said Jeff Rubin, CIBC economist and one of the authors of the forecast. "Nevertheless manufacturing - and in particular, autos and parts - remains vulnerable, both to a U.S. recession and a parity exchange rate."

CIBC is forecasting that high commodity prices, which are cushioning Canada's resource sector, will push the loonie to $1.05 US by year end. The currency closed at 98.08 cents US Monday, up from 97.71 cents US Friday.

Oil, which CIBC sees reaching $150 US a barrel over the next several years, rose more than a dollar to a record high close of more than $111 US a barrel Monday. TD Bank, meanwhile, reported that its commodity price index, led by surging oil prices, "rallied strongly last week" to a "whopping" 29 per cent more than a year earlier.

CIBC forecast that continuing high commodity prices and the strong dollar will hurt central Canada's manufacturing-based economy.

"Weakness in the Ontario economy, which will likely come the closest to outright recession of any of the provinces, will likely spur further Bank of Canada rate cuts," Rubin said.

CIBC expects another three quarters of a percentage point reduction in interest rates here, somewhat less than in the U.S., which will also help lift the loonie.

Canadian economic growth will slow to 1.6 per cent this year from 2.7 last year, it forecast but would rebound to a healthy three per cent next year.

While the U.S. slipped into recession in the first quarter of this year and will remain in a recession this quarter, it will start to recover in the summer, leading to 0.9 per cent growth for the year, accelerating to 2.3 per cent in 2009.

While the U.S. rebound will help Canada's struggling manufacturers, the strong dollar and a relatively heavy reliance on labour will continue to weigh heavily on the sector, it warned.

"Relative to the U.S. Canadian manufacturing was loading up on workers during the cheap Canadian dollar era ...," Rubin noted, warning, "we could see years of slow bleeding in factory jobs and activity ... ."

The forecast was issued amidst further evidence of Canada's strong domestic economy - a continuing non-residential construction boom in the first quarter of this year led by activity in Alberta and then Ontario.


"Last year's pace for investment in non-residential building construction continued into the first three months of 2008, again the result of major construction activity of office buildings underway in Alberta and Ontario," Statistics Canada said in reporting that investment hit $10.3 billion, up 1.6 per cent from the fourth quarter, the 20th consecutive quarterly increase.

Even another Statistics Canada report of a 3.2 per cent drop in Canadian auto sales in February was not seen as a serious economic setback as it followed two months of strong sales and the level was still the fourth highest on record.

And business leaders, at least outside of the struggling manufacturing sector, remain relatively upbeat about the outlook for sales and employment, according to a Bank of Canada survey.

"While the weaker U.S. economic situation is weighing more heavily on the outlook, firms are not expecting a marked change in the pace of business activity," it said in releasing the results of its quarterly Business Outlook Survey.


Businesses continued to report higher sales from a year earlier, although the balance of opinion on future sales growth has turned slightly negative, reflecting slower sales in the struggling manufacturing sector, but still suggesting that overall they expect sales to continue to rise at nearly the same pace as over the past year, it said.

Fewer firms reported facing capacity pressures or labour shortages, but inflation expectations have increased with more looking to an acceleration of prices for what they buy and what they sell. However, inflation expectations are within the central bank's one-to-three-per-cent inflation control range, it noted.

Also, for the third straight quarter, firms reported increased difficulty getting credit.

Still, more firms expected to boost rather than cut back on investment, although the gap between those who plan to purchase new machinery and equipment and those that will cut back on such purchases narrowed closer to zero.

"Among firms planning to invest less, most of whom are based in Central and Eastern Canada, the most common reason cited was significant investment spending over the past year, followed by a desire to preserve cash given uncertainty about the economic outlook," the Bank of Canada said. "Firms located in Western Canada generally expect to increase investment spending over the next 12 months."

The latest quarterly survey of an economically representative sample of senior managers from 100 firms was conducted from Feb. 22 to March 20.

BMO Capital Markets economist Michael Gregory said the survey results justify a further half a percentage point cut in interest rates by the central bank after its rate review meeting next week.

And TD Securities economist Jacqui Douglas said comments to the media by Bank of Canada governor Mark Carney since the weekend meeting of G-7 finance ministers and central bank governors also suggest the central bank is ready to cut rates further.

"His comments were dovish and emphasized the need for a forward-looking approach to monetary policy, supporting our call for a (half-a-percentage point) rate cut," she said. "If there was one over-riding theme in Governor Carney's remarks, it was that despite the fact that domestic demand in Canada continues to hold up, he's still very concerned about the outlook for growth."

Meanwhile, the March U.S. retail sales report was "marginally" better than expected with a 0.2 per cent increase.

"On balance ... it does not change the trend in consumer spending by any measure," said TD Bank analyst Charmaine Buskas, adding that TD still expects a further half a percentage point cut in U.S. rates later this month.

"The consumer continues to be buffeted by a number of headwinds, including high energy prices, weak job growth, and difficult credit conditions," she said "All these factors have translated into slumping consumer confidence which in turn, will remain a drag on retailing activity."



© Canwest News Service 2008








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Manufacturing and Construction Jobs in Canada

Seems to me that the growth in service industry jobs might help erode job quality. Even though construction wages may be lower than manufacturing Macjobs a probably less than half the wages per hour of construction jobs. Weir is right that construction jobs tend to be temporary and move from area to area but nowadays manufacturing jobs may b e temporary too!

Manufacturing and Construction
Posted by Erin Weir under labour market, free trade.
June 26th, 2007
Comments: 1

Recent commentaries from CIBC and Export Development Canada argue that the manufacturing crisis is not eroding job quality. Both note that a surge in construction employment, added to the relatively few new jobs in non-renewable resource extraction, nearly equals the number of manufacturing jobs lost in recent years.
As emphasized on the front page of yesterday’s Financial Post, this argument contradicts what the Canadian Labour Congress has been saying. It also contradicts a previous CIBC study that linked an overall decline in job quality to reduced manufacturing employment.
The more recent CIBC document and Export Development Canada’s document overlook a critical fact: average hourly wages (for hourly-paid employees) are more than 10% higher in manufacturing than in construction. Including overtime, manufacturing paid $23.61/hour and construction paid $21.20/hour in May 2007. Excluding overtime, these figures were $22.90 and $20.46 respectively.
Certainly, increased construction employment is good news. The building-trades unions, supported by the labour movement in general, are working to improve construction wages. However, the fact remains that replacing manufacturing jobs with construction jobs tends to reduce average wages.
Another important difference is that, whereas manufacturing employment is rooted in particular communities, construction employment is temporary because it is tied to particular projects. Construction and non-renewable resources are notoriously volatile. Canada’s current position at or near a cyclical peak in these sectors does not compensate for the underlying loss of stable manufacturing jobs.
One must also ask why Export Development Canada would seek to downplay the manufacturing crisis. Could it be because the federal government is currently negotiating a “free trade” agreement with Korea that would eliminate even more Canadian manufacturing jobs?
The loss of jobs in manufacturing, an industry heavily engaged in international trade, reflects poorly on Canadian trade policy. It seems odd that Export Development Canada’s countervailing success story is construction, the classic non-tradeable industry.