August 2011 Canadian Economic Fundamentals

[Ally]

Evidence of economic contraction continues to mount





OTTAWA - Prospects grow dimmer with every passing day for the Canadian economy as the wheels of industry are grinding to a halt domestically and in that of our largest trading partner, the United States.




The latest signs of economic contraction appeared Thursday with a report from Statistics Canada showing that the volume of wholesale sales fell 0.5 per cent in June, the second decline in three months.




The data, considered an important harbinger of consumer spending - the cornerstone of economic growth - follows equally weak reports on other segments of the economy released in recent days.






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[Ally]

Mark Carney's opening statement before the House of Commons Standing Committee




In recent weeks, several downside risks to the Bank`s July Monetary Policy Report (MPR) projection have been realised. The European sovereign crisis has intensified, the U.S. credit rating has been downgraded, and a broad range of data has signalled slower global growth.




The United States is in the midst of the weakest recovery since the Great Depression. This is not a surprise as history teaches that recessions involving financial crises tend to be more severe and have recoveries that take twice as long. Recent benchmark revisions show that the U.S. recession was even deeper and the recovery from the trough has been even shallower than previously reported.




The Bank expects that American household spending will remain subdued in the face of high personal debt burdens, large declines in wealth and tough labour market conditions. In addition, fiscal stimulus in the United States will soon turn to fiscal drag.





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[Ally]

Do renters need insurance?




Contents insurance is something most renters don`t put too high on their list of priorities.




In the grand scheme of expenses, many feel it`s a cost they can do without, believing the likelihood something bad will happen is slim.




According to the Insurance Bureau of Canada, about half of all renters don`t have insurance, especially young people. They also fail to appreciate the full value of their clothing and personal belongings.





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[Ally]

Tame inflation buys Bank of Canada time




OTTAWA ` Annual inflation was 2.7% in July, Statistics Canada said Friday, down from 3.1% in June.




The core rate, which excludes volatile items such as energy and some foods, rose to 1.6% from 1.3%.




Economists polled by Bloomberg expected the July inflation rate to be 2.8% and the core rate to be 1.6%.




`The tame core reading buys the Bank of Canada time to remain on the sidelines, and worry about global recession risks,` said Sal Guatieri, senior economist, vice president of

BMO Capital Markets.





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[Ally]

Flaherty insists Canada in strong position to weather economic turmoil





Finance Minister Jim Flaherty on Friday reiterated his call to "stay the course" and continue to work toward balancing the budget as the best way to buffer Canada against the impact of a possible global recession.







He also called on this country's private sector to do its part, saying strong investment will be needed to ensure the economy grows and that jobs are created.







The finance minister and Bank of Canada governor Mark Carney were appearing before the committee for a special session Friday morning as it looked at the impact on Canada of government-debt crises in the United States and Europe. Carney was to speak later in the morning.






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[Ally]

Flaherty, Carney brace for lower economic growth




OTTAWA`Canada`s top economic policymakers are preparing for slower domestic growth in the wake of financial market turmoil and severe problems with the economies of the United States and Europe.




Acknowledging that this country cannot escape the negative impact from the global economic storm, Finance Minister Jim Flaherty for the first time said Ottawa might need to step in with another round of stimulus spending if conditions get worse.




`If we were to see the situation globally deteriorate in a dramatic way, we would obviously do what is needed to protect our jobs and economy and families in Canada,` he told the Commons finance committee.





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[Ally]

Flaherty insists Canada in strong position to weather economic turmoil




OTTAWA - Finance Minister Jim Flaherty on Friday reiterated his call to "stay the course" and continue to work toward balancing the budget as the best way to buffer Canada against the impact of a possible global recession.




He also called on this country's private sector to do its part, saying strong investment will be needed to ensure the economy grows and that jobs are created.




The finance minister and Bank of Canada governor Mark Carney were appearing before the committee for a special session Friday morning as it looked at the impact on Canada of government-debt crises in the United States and Europe. Carney was to speak later in the morning.





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[Ally]

Swap market says Canadian bank super safe




In times of market turmoil you tend to get a lot of negative rumours and speculation in the market. It`s only natural. Over the past few days there has been considerable chatter about the Canadian banks and their level of capital, with some observers suggesting that maybe they are not as strong as we thought.







Investors who feel in need of some comfort would do well to take a look the credit default swap market. Credit default swaps (CDS) are basically insurance contracts on bonds whose prices move up and down depending on the level of risk associated with the issuer. Since the CDS market is the preserve of sophisticated players, many analysts regard it as a better guage than, say, the stock market.





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[Ally]

Beef up trade diversification to tap Asian markets, Bank of Canada governor says




OTTAWA - Bank of Canada governor Mark Carney called Friday for a beefed-up trade diversification strategy that should include major pipeline investments linking Canadian oil and gas to booming Asia-Pacific markets.




Carney, speaking to the House of Commons finance committee, stopped short of endorsing the controversial $5.5-billion Northern Gateway pipeline that would link Alberta`s vast oilsands riches to hungry Asian markets via a pipeline to Kitimat, B.C.




But a Bank of Canada spokesman confirmed that Calgary-based Enbridge Inc.`s Northern Gateway is the kind of investment Carney was contemplating when he counselled MPs concerned about the mounting debt crises in the U.S. and especially Europe.





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[Ally]

Canada home affordability drops, Vancouver pricier






TORONTO (Reuters) - Housing in Canada became harder to afford in the second quarter, with Vancouver's pricey market playing a major role in the deterioration, according to a report by Royal Bank of Canada on Monday.





It was the second straight quarter in which the bank's quarterly Housing Trends and Affordability Index dropped. The cost of housing rose nationally across all the housing types the index tracks in the second quarter.





The index measures the proportion of pretax household income needed to service the cost of owning a home. A rise in the measure indicates a loss of affordability.





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[Ally]

Home ownership still affordable in most markets, RBC says



Home ownership is still reasonably affordable in Canada despite rising property prices and higher mortgage rates, an RBC survey has found.







The bank's housing trends and affordability report found that in most markets homes are either "reasonably affordable" or at worst "slightly unaffordable" with Vancouver being the major exception.





The survey measures the proportion of pre-tax household income that would be needed to service the costs of owning a home at current market values.





The measure rose in the second quarter, indicating a loss of affordability.





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[Ally]

Montreal house-price rise is tops in Canada





Montreal had the biggest jump in the average price of a two-storey house in Canada during the second quarter, fuelling a deterioration in affordability in a city once known for its cheap real estate, an RBC report said Monday.




Year over year, the price of a 1,500-square-foot home rose 13.5 per cent in Montreal to $377,200 - a higher rate than in Canada's sizzling Vancouver market where prices for the same type of house rose 9.7 per cent during the quarter, the RBC report on housing trends and affordability said.




Yet with the cost of a standard two-storey home now at $843,300 - and with the average price of a detached bungalow rising by nearly 20 per cent year over year - Vancouver is still by far the least affordable city in Canada to buy a home.






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[Ally]

Retail sales increase again




Retail sales rose for a third consecutive month in June, up 0.7 per cent to $37.8 billion.




Statistics Canada said Tuesday that motor vehicle and parts dealers were responsible for almost all of the gain, as without activity in that sector sales actually fell 0.1 per cent.




Sales were up on a monthly basis, and they were also 4.6 per cent higher in July than they were during the same month a year earlier.



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[Ally]

Banks move to bump up mortgage rates




Some Canadian banks are hiking their variable mortgage rates, seeking to pump up its profit margins as it becomes evident that interest rates will remain low for some time to come.






Royal Bank of Canada (RY-T50.740.681.36%), the country`s largest bank, kicked off the increases on Tuesday, raising the rates on its five-year variable closed residential mortgages by 0.20 percentage points. As a result, the price of its current special offer rate is now prime minus 0.45 per cent. Bank of Montreal (BMO-T60.320.520.87%) followed suit hours later with a 0.15-percentage-point hike. The prime rate is currently 3 per cent.





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[Ally]

Commodity-rich provinces to lead wage growth: Survey




OTTAWA `Newfoundland and Labrador will lead the country this year when it comes to wage growth, according to a report released Tuesday that shows that, two years into the recovery, salary increases still lag well behind advances projected before the recession.




The national average salary projection is 2.6 per cent for 2011 and 2.8 per cent for 2012, according to Hay Group, a global management consulting firm. The pre-recession projection for 2009 had been for an average increase of 3.7 per cent.




`Overall, the direction of the sentiment is positive,` said Karl Aboud, director of the Hay Group reward consulting practice. `Across sectors, there has been a significant recalibration of expectations. 2.8 per cent represents a modest increase from the previous year.





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[Ally]

Analysis: Rails, not pipes, may tame twisted oil market





NEW YORK ` U.S. crude oil shipments by railroad could help to end gaping price distortions in world oil markets faster than most traders have been expecting.




Rail shipments of crude from the landlocked and oversupplied Midwest to refiners in the Gulf Coast appear set to surge next year, to nearly double the volume now flowing in congested pipelines between the regions.




The shipments, which were rare until this year, have already grown to around 100,000 barrels per day (bpd) in recent months, industry sources told Reuters. Two rail terminals in St. James, Louisiana are receiving much of the crude, while other sites like Houston are taking additional crude.






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[Ally]

Canada losing its 'wiggle room' if U.S. economy goes sour again




As worries about another U.S. recession mount, Canada`s economy is highly exposed to any downturn and is less equipped to fight a slump than it was three years ago.




Heavy government and consumer debt, along with reduced flexibility for stimulus spending and monetary policy mean Canada today has less resilience to a crumbling U.S. economy compared with the global financial crisis of 2008.





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[Ally]

Housing starts to hold steady in 2011, 2012




Canada Mortgage and Housing Corp. says housing starts should hold steady for the rest of 2011 and into next year.




The agency said its national point forecast is for 183,200 units started in 2011, with about 183,900 next year.




It's third-quarter housing market outlook says starts have been strong in the last few months, but are expected to moderate closer in line with demographic fundamentals.





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[Ally]

Royal Bank bumps rate for variable mortgages





Paper-thin margins in the lucrative and highly competitive variable mortgage sector have forced the hand of Royal Bank of Canada, which hiked some of its variable mortgage rates Tuesday.




"It was a little bit of a surprise, but the reality is their margins are extremely thin, and the fixed-rate margins so wide that banks just want to regain some profitability," Robert McLister, editor of Canadian Mortgage Trends, said Tuesday.




The posted rate for the five-year variable closed mortgage at Canada's largest mortgage lender is now prime plus zero per cent, an increase of 0.20 percentage points.






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[Ally]

Housing crash not in the cards, CMHC signals




A much anticipated correction in the Canadian housing market is not in the cards, according to a report by the Canada Mortgage and Housing Corp.




In its third-quarter market outlook, the national housing agency forecasts the market will ease slightly but `remain steady`this year and next.




`Housing starts have been strong in the last few months, but are forecast to moderate closer in line with demographic fundamentals,` Mathieu Laberge, deputy chief economist for CMHC, said Wednesday. `Despite recent financial uncertainty, factors such as employment, immigration and mortgage rates remain supportive of the Canadian housing sector.`






In fact, CMHCrevised up its outlook for 2011 housing starts to 183,200 units from 179,500 in its second quarter report. It forecasts the number will climb in 2012 to 183,900 units.





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