August 2011 Canadian Economic Fundamentals

[Ally]

Housing start strength unlikely to last



Canadian home building activity has been gathering momentum, with a 12 percent year-over-year increase in July, but economists say the strength is likely due to builders catching up to robust demand last year, rather than expectations of coming growth.







The Canada Mortgage and Housing Corp. said yesterday overall starts rose to 205,100 units on a seasonally-adjusted annual rate`11.6 percent higher than the 188,900 reported last July and up 4.3 percent from the 196,600 recorded this June.





The pick-up was driven by strong construction on condos and apartment buildings in Canadian urban centres.





`Housing starts rose in July due to an increase in multiple starts in all regions except Quebec,` said Mathieu Laberge, deputy chief economist at the CMHC.





`The multiples sector showed continued strength in Ontario, and a significant increase in British Columbia and in the Atlantic region,` Laberge added.







Home building activity has been increasing through the first seven months of 2011, but starts still are down 4.6 percent from a year ago.





During the first half of last year, the market was rebounding from the recession and buyers were on a tear`prompting an influx of demand and the need to build more units.





Housing starts tend to lag activity in the resale market, and economists believe the recent strong construction activity is the result of increased demand last year.





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[Ally]

Canadian dollar exhibits volatility following housing price index release




The selling prices of new homes in Canada rose in June according to economists, but the deceleration in the advance signals a possible slowdown in consumer demand.








THE TAKEAWAY: Canada Housing Prices Lower But Meet Expectations > Consumer Demand Slowing > Canada Dollar Bullish









The selling prices of new homes in Canada rose in June according to economists, but the deceleration in the advance signals a possible slowdown in consumer demand. The Canada`s New Housing Price Index rose 0.3% in June compared with a 0.4% increase in May. The advance in June home selling prices met expectations of economists surveyed by Bloomberg News. On a year on year basis, the index rose 2.1% in June, surpassing the 1.9% yearly increase exhibited in May. The yearly print came in line with economists` forecasts as well.





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[Ally]

Bank of Canada may have to reboot forecast





Less than a month ago the Canadian dollar was hitting new highs on speculation the Bank of Canada would raise its benchmark interest rate in September. But with recent economic news reading like a bad report card, analysts are now beginning to speculate about rate hikes coming in mid-2012 - and some are even betting rates will fall before they rise.




"The economic outlook really has turned 180 degrees," said David Tulk, chief Canada macro strategist at TD Securities, though he adds that there was a sense that the global economy was weakening "under the surface," leaving markets to try to reconcile that with continued domestic strength and an inflation rate that edged uncomfortably close to the Bank of Canada's target two per cent.




The continuing sovereigndebt crisis in Europe and the downgrading of the U.S. debt rating by Standard & Poor's earlier this week, are threatening to carry the "soft patch" that was supposed to have been confined to the first part of the year into the second half, and causing a "wholesale re-evaluation of the Canadian economy."






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[Ally]

Balanced budget still on track despite U.S. economic troubles, Flaherty says





WAKEFIELD, Que. ` Federal Finance Minister Jim Flaherty vowed Wednesday that the Harper government will stick to its goal to eliminate the budget deficit by 2014-15, despite this week's diminished growth south of the border.







"When we announced the Economic Action Plan, we were clear we would run deficits for a time in order to protect employment and protect the economy, but that we would then move back to a balanced budget," Flaherty told reporters outside a policy retreat north of Ottawa.







"In order to get there by (fiscal year) 2014-15, we have to have some expenditure reductions. We will stay on course, we will stay on track, we will continue with the plan."






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[Ally]

Lower mortgage rates be on the horizon, expert says





House hunters worried about being pushed out of the market by higher mortgage rates received a little good news this week.




The turmoil inflicted on world financial markets over the last two weeks is taking the pressure off bankers to raise interest rates, something that was expected to happen this fall.




`What everyone was anticipating before all this came to light was for mortgage rates to start to increase,` said Ryan McKinley, mortgage development manager for Vancity credit union.






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[Ally]

The Great White Tax Haven




Until last year, Peter was a successful American fund manager, with roughly 200 employees in New York City and a personal fortune of $100 million. That`s still the case today, save for one detail`Peter is no longer an American. In 2010, the U.S.-born executive took the extreme step of renouncing his American citizenship. `I wanted to remove myself from a society and country that was heading for a financial catastrophe,` Peter said in an email interview through his Toronto-based lawyer, David Lesperance, who specializes in `tax-efficient citizenship, residence and domicile solutions.` In other words, Lesperance moves rich people to places where they`ll pay less tax. So which global tax haven lured Peter (not his real name) away from Uncle Sam? Was it the Cayman Islands? Switzerland? Monaco?




Try Canada. A year and a half ago, Peter moved to Toronto and is well on his way to obtaining his Canadian citizenship. He bought a luxury home in the city, as well as a vacation property. And now he`s in the midst of determining how much of his fund management company to uproot from New York and move across the border. `Five years ago, I would not have considered expatriation as an option, especially to Canada,` he said. `I always thought of Canada as a younger sibling of the U.S.`the same, but less advanced in terms of culture, quality of life, business opportunities and above all, taxation. I now see it as the same, but maybe better in the long term.`




As for those taxes, Peter says he`s fed up with his money going to pay for what he considers needless trillion-dollar wars in the Middle East, and to cover the staggering interest charges America owes on the money it`s borrowed to live beyond its means; by the end of this decade, at least 18 cents out of every $1 of tax revenue America raises will go to interest payments. `I know I get more for my taxes in Canada,` he says. `And the debt levels here are reality-based.`





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[Ally]

Inconclusive Evidence






Forget about adding insult to injury. The writers and columnists who have used the recent weakness in the American economy to make a particular point are adding something much more dangerous: ideology. Keynesian economics and the mountain of stimulus-related cash that was poured into the global in economy over the last three years have been a failure, they declare. The solution now, they say, is obvious: aggressive debt reduction measures.




Take the latest piece by the National Post`s George Jonas. For all the bluster and theoric ` and, in a particularly nifty move, an attempt to link Marxism and Keynesian economics ` what`s most interesting about his piece is that he doesn`t seem to understand the basic foundations of Keynesian economic theory in the first place. He describes it as an economic Ponzi scheme, the equivalent of an `eat all you want diet.` But Keynes never suggested that people eat all they want ` only that they eat when they`re particularly hungry. He believed in balanced budgets, prudent spending and fiscal sobriety, but he also believed the fiscal policy had the power to prevent massive human suffering of the kind that took place during the 1930s





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[Ally]

Young workers bearing brunt of unemployment: CLC





Young workers continue to bear the brunt of unemployment in Canada and the government has to do something about it, says Ken Georgetti president of the Canadian Labour Congress.






"There are far too many young people unemployed or working in part-time or dead end jobs," Georgetti says. "They aspire to good jobs and careers but they end up living in their parents' basements. The federal government is doing nothing for them."




Georgetti was commenting on the release by Statistics Canada of its Labour Force Survey for July 2011. There were 1,351,900 unemployed Canadians in July and the unemployment rate decreased to 7.2%. Among 15 to 24-year-olds, unemployment was much higher, at 14.1%.





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[Ally]

Expert: enjoy the high loonie while you can





Cross border shoppers should enjoy the soaring loonie while they can, because volatile money markets might bring it down. Canada remains vulnerable because of US debt problems.







This is despite the fact that Canada's economy has been one of the strong ones globally, through the recession and the debt crisis. SFU's Andre Pavlov with the Beedie School of Business says America represents about 50 per cent of the world economy.







"So the US suffers. It doesn't matter how well we do in Canada and whether we have done the right thing or not. We're going to feel the problems in the US."







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[Ally]

The bedrock of the Canadian economy has been strong employment




Employment in Canada is at an all-time high. At least that`s what Statistics Canada`s June labour market report tells us. The U.S. economy, however, is still nearly seven million jobs below its pre-recession peak.




There is a strong feedback loop between employment, income, housing demand, home prices, confidence, retail sales and more employment that Canada is experiencing while the U.S. is being left out.






U.S. weekly initial jobless claims in the summer have been hovering between 400,000 and 430,000. While that`s a significant improvement versus the 500,000-level that signals as many people are being let go as newly hired, it is not low enough to provide assurance the economy is on a strong growth path and that employment prospects are on the upswing.





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[Ally]

Manufacturing sales sink in June, could push GDP into red




Canada`s economy may have contracted slightly in the second quarter, but economists aren`t worried about a double-dip recession.




Observations about the possibility of a second-quarter dip in gross domestic product arose from a Statistics Canada report Tuesday that showed a 1.5-per-cent decline in sales among the country`s manufacturers in June ` well below what was expected, and the third-consecutive monthly drop.





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[Ally]

Rapidly aging labour force negatively affects economy





Canada's labour force is aging rapidly and by the year 2021 as many as one in four workers could be age 55 or over, according to a report Wednesday by Statistics Canada.




The shift has negative implications for the Canadian economy, as the federal agency's survey also forecasts a slowing in the growth of the labour force, primarily as a result of the retirement of the baby boomers.




"The economic implications are quite clear - if we have a slowing labour force our economy will grow at a slower rate than in the past," said Sal Guatieri, senior economist at BMO Capital Markets.




One of the reasons, he said, is measured in the participation rate.








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[Ally]

Canadian banks shift rate hike views into 2012





TORONTO ` Canada`s biggest banks have pushed their rate hike forecasts into next year following some of the worst financial market turmoil since 2008.




Only last month, most had called for the Bank of Canada to resume tightening this fall. But on Friday, RBC Capital Markets, BMO Capital Markets, and CIBC World Markets, all Canadian primary dealers, confirmed they now see the central bank`s key rate unchanged at 1 per cent until 2012.




They join TD Securities and Scotia Capital, who were early movers on seeing rate increases holding off until in 2012, based on the deteriorating global economic and fiscal conditions. Other forecasters have also indicated their economic outlooks are under review.






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[Ally]

Cheap money to spur home sales




July proved to be a another strong month for Canadian home sales with the Canadian Real Estate Association now predicting 2011 will see an increase in sales as opposed to a previous forecast for a drop.




Actual sales last month were up 12.3% from a year ago while year-to-date sales are 1.6% lower than the same period for 2010.




Prices also continue to have some upward movement, albeit some of the increase year over year being attributed to the introduction of the HST in British Columbia and Ontario, and tighter mortgage regulations in 2010.





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[Ally]

CREA updates housing resale forecast





The Canadian Real Estate Association (CREA) has revised its forecast for home sales activity via the Multiple Listing Service[sup]Â (MLSÂ[/sup]) Systems of Canadian real estate Boards and Associations for 2011 and 2012.



Overall, sales activity and prices remained stronger than expected in the second quarter. Sales momentum was also better than expected heading into the third quarter. As a result, the 2011 national forecasts for sales activity and average price have been raised slightly.




National sales activity is forecast to reach 450,800 units in 2011, up less than one per cent from levels in 2010. CREA had previously forecast a decline of about one per cent for activity in 2011. Erosion in affordability due to higher prices has prompted a small downward revision to the outlook for sales in 2012.





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[Ally]

Average home price dropped $10K in July





Average home prices in July were lower than they were in June, but sales numbers and average prices are still up sharply compared to the same month a year ago, new data showed Tuesday.




The Canadian Real Estate Association said the national average price for homes sold in July 2011 stood at $361,181, which is the lowest level since January. In June, the average price was $372,700. Despite the slowdown, prices have nonetheless gained 9.3 per cent in the past 12 months.




"Earlier this year, the national average price was being skewed upward by sales in some expensive Vancouver neighbourhoods, but this factor is now diminishing,` CREA's chief economist Gregory Klump said. `Upward skewing of the national average price is also shrinking due to overall sales trends in Vancouver, and most recently in Toronto."





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[Ally]

Housing market defies expectations




July proved to be a another strong month for Canadian home sales with the Canadian Real Estate Association now predicting 2011 will see an increase in sales as opposed to a previous forecast for a drop.




Actual sales last month were up 12.3% from a year ago while year-to-date sales are 1.6% lower than the same period for 2010.




Prices also continue to have some upward movement, al-beit some of the increase year over year being attributed to the introduction of the HST in British Columbia and Ontario, and tighter mortgage regulations in 2010.





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[Ally]

Wholesale sales post surprise gain in June





OTTAWA ` Canadian wholesale sales rose unexpectedly in June, led by agricultural products and reflecting higher import costs, Statistics Canada said Thursday.




The federal agency said the value of purchases increased 0.2 per cent during the month to $47.8 billion following a two per cent advance in May, which was revised from an earlier estimate of 1.9 per cent. Economists had forecast a decline of 0.5 per cent in June.




However, after removing the impact of price changes, wholesale sales based on volume declined 0.5 per cent in June.




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[Ally]

Canada harvests thriving Middle East wheat market




With little fanfare, this week the Kingdom of Saudi Arabia inked an agreement to purchase 660,000 tonnes of wheat from farmers in Canada, the United States, Australia and the European Union.




Sixty five million sacks of flour. One and a half billion loaves of bread. At average Canadian yields, the deal is equivalent to 2,800 square kilometers of farmland ` about the size of four Edmontons.




The Canadian Wheat Board refuses to release details on the sale, but if past orders are any indication, much of that 660,000 tonnes will be coming out of the Prairies.





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[Ally]

Real estate buyers to focus on low interest, ignore market turmoil: Economists




TORONTO - Canada's real estate market is now expected to grow this year rather than decline, as buyers take advantage of continued low interest rates that are intended to offset recent economic turmoil, economists said Tuesday.




The comments came after the Canadian Real Estate Association revised its 2011 national forecast for home resales, citing stronger than expected sales and higher prices in the second quarter.




An earlier CREA forecast that called for a one per cent dip in sales this year from 2011. But the association said Tuesday sales should grow this year ` albeit less than one per cent above 2010.





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