October 2010 Canadian Economic Fundamentals

[Ally]

How the end of cheap oil could finally bring the NHL to Hamilton

Jeff Rubin says oil will soon return to triple-digit prices per barrel, a Canadian dollar at $1.20 US will give Alberta revenge for the National Energy Program, and National Hockey League teams will return to Winnipeg, Quebec and Hamilton.

Of course, it won`t all be fun and games -- Canadians will no longer eat chicken wings imported from China, Ontario autoworkers will need retraining to manufacture buses, and eventually movie director James Cameron may have to ride a bike.

Rubin left his job as chief economist with CIBC World Markets last year to write a book, Why Your World Is About To Get A Whole Lot Smaller. In it he postulated that oil hitting $147 a barrel, not the sub-prime mortgage debacle in the United States, caused the recent global recession, and that a return to high oil prices will curtail travel and reverse globalization.

He has just updated his thesis, adding a chapter on recent events like Greece`s debt and the oil-rig explosion in the Gulf of Mexico. He also muses that a lofty Canadian dollar could make NHL franchises in this country more profitable and return a team to Hamilton, whose Tigers were sold to an American bootlegger in 1925.

Rubin`s message, delivered during the Canadian conference of the Risk and Insurance Management Society Inc. in Edmonton, essentially predicts a last hurrah for oil, as cheap conventional supplies run out and the world turns to more expensive synthetics from oilsands. That will cause people to depend on food from local farms, albeit more expensive ones, and it will be decades before scarcity necessitates full-steam-ahead development of alternative energy.

Read the full article here.

 

[Ally]

National `checkup` offers mixed results for Canada, expert says

Residents of Saint John, N.B., feel the strongest sense of belonging to their community, while Montrealers feel least connected. The cost of housing eats up the biggest chunk of people`s paycheques in Vancouver and Victoria, and in the wake of the recession, Manitoba and Saskatchewan communities have the lowest jobless rates, while Atlantic Canada and Ontario are sagging under the highest.

These are among the insights from the latest Vital Signs report, an annual "checkup" of the quality of life in cities across Canada released today by Community Foundations of Canada (CFC).

"Canadians have a lot of data, a lot of information in front of them, and what we`re trying to do is say, `Here`s what those numbers mean,` " said Monica Patten, president and CEO of CFC, the Ottawa-based national body that oversees 170 community foundations across Canada.

The Vital Signs national report, now in its fourth year, is not a ranking but a collection of indicators that show where things are going well and where there`s room for improvement, she said. This year, 15 communities participated, including Calgary, Montreal, Ottawa, Toronto, Vancouver and Victoria.

Read the full article here.

 

[Ally]

Canadian job market will get worse: TD

Canada`s job market will get gloomier before it gets better, with job creation expected to be cut in half in 2011 as hiring shifts away from the services and back toward goods-producing industries, a jobs report from TD Economics said Tuesday.

Derek Burleton, deputy chief economist with TD Economics, forecasts net job creation to slide to less than 200,000 in 2011, almost half of the 350,000 jobs created in 2010, before headwinds start to clear out in 2012.

Instead, businesses will focus on increasing productivity in the coming months.

"The recent downturn was characterized by a period of more rapidly declining productivity, followed by a more muted bounce-back than was the case in the early 1990s," Mr. Burleton said in the report.

Coupled with this development is a shift towards more hiring in the goods-producing industries, such as manufacturing and primary industries, expected to account for a third of all jobs gains by 2012.

Read the full article here.

 

[Ally]

Outlook `highly uncertain,` Flaherty cautions

Federal Finance Minister Jim Flaherty said Monday private-sector economists advised him the domestic and global outlook remains "highly uncertain" and that the "boom times" from last decade are over.

The comments emerged as the minister met with economists to help craft the coming fall fiscal update.

Flaherty said he was advised to "stay the course" in terms of its budget plans, but there is a need to recognize "the uncertainty" in the outlook.

Plus, the economy was in store for "modest" growth. "We are not going to see the boom times we saw before," Flaherty said.

In the last survey the finance department conducted of private-sector economists, it envisaged growth of 3.5 per cent this year and 2.9 per cent in 2011. However, that survey was done in June, before a series of weaker-than-expected indicators -- including news that the economy shrank in July -- prompted analysts to scale back expectations.

Read the full article here.

 

[Ally]

Fall housing market to improve after summer slowdown: Re/Max

OTTAWA -- Canada`s housing market should return to "more normal" conditions this fall following a summer slowdown, a report from real estate firm Re/Max said Tuesday.

The company, which overseas real estate agents throughout the country, said despite some improvement in the housing sector this fall, sales in most markets are unlikely to return to the brisk pace seen late last year.

Re/Max said the threat of higher interest rates, stricter mortgage regulations and new harmonized sales taxes in Ontario and British Columbia - elements commonly cited for recent sluggishness in residential real estate - had just a "nominal impact" on the housing market.

"Economic uncertainty played a much greater role on softer housing conditions over the summer months," the company said in a statement.

Read the full article here.

 

[Ally]

Least expensive places in Canada to buy a home

Sales of existing homes in Canada rose from a year ago in August, according to the Canadian Real Estate Association (CREA). Does this mean Canada is headed for bubble territory? Residents of these cities might beg to differ. Click through to see which cities boast the least expensive homes in the country.

Read the full article here.

 

[Ally]

The most expensive provinces to buy a home

It takes a set of rose-coloured glasses to find good news in Canada`s real estate market these days — and, even then, your specs had better be smudge-free. If prospective owners aren`t bummed by the recent spike in mortgage rates of late, maybe this will get them down: According to the latest data, Canadian home prices have risen steadily for the last 15 months, the longest such streak since 2006.

Where those prices have jumped, though, is a different story. Based on the percentage of annual income needed to service a home`s mortgage, property taxes and utilities, RBC has released data on which areas of Canada are the most expensive to own a home in. Using a detached bungalow as a uniform measuring stick, here are the priciest provinces for owning a home in 2010.

Read the full article here.

 

[Ally]

Don`t listen to the doomsayers on housing

Should we brace for a collapse in home prices in Canada? Does housing even qualify as an "investment," as it has been regarded almost forever?

That`s the debate taking shape in recent weeks as dire news of a worsening U.S. housing crisis seeps across our porous border, and our own market has shown signs of weakness.

The epic implosion in U.S. housing prices, now of long duration and the first of this magnitude since the Dirty Thirties, has made a hash of "safe as houses" among our language`s stoutest truisms.

The projected 10 per cent of Americans at risk of losing their homes to foreclosure has prompted a growing number of economists and urbanologists to argue against houses as an investment.

Read the full article here.

 

[Ally]

Canada will lead G7 in economic growth

OTTAWA — Despite the recent slowdown, the International Monetary Fund said Wednesday it still sees Canada to be the leader in economic growth among major industrialized countries this year and next.

The finding is contained in the organization`s latest world economic outlook, released Wednesday, which suggested growth in the emerging markets would advance three times faster than rich nations next year.

The IMF forecast indicated the Canadian economy is set to grow 3.1% this year and 2.7% in 2011, which would be tops among major industrialized economies. Plus, next year`s expected advance of 2.7% would be ahead of the average 2.2% growth anticipated for the other big industrialized economies, such as Japan, the United States and Europe.

The updated IMF forecast for Canada is down from the group`s previously envisaged 3.6% advance in 2010, and just a shade off the 2.8% gain anticipated in 2011.

The Bank of Canada had anticipated 3.5% growth this year and 2.9% in 2011, although those projections are expected to be revised downward when the central bank releases its updated economic outlook on Oct. 20. Plus, Finance Minister Jim Flaherty has warned that Canadians need to adjust their expectations for the economy as the "boom times are over" and the outlook is mired in uncertainty.

Read the full article here.

 

[Ally]

Flaherty rules out further stimulus as IMF gives Canada a passing grade

OTTAWA—A new international forecast putting Canada at the forefront of growth among advanced industrialized economies shows there is no need for a second round of government stimulus spending, federal Finance Minister Jim Flaherty said Wednesday.

"We don`t need any further stimulus in the Canadian economy at this point," Flaherty told reporters.

"There`s no intention to extend stimulus programs," added Flaherty, who in recent days has moderated an earlier position against extending stimulus for infrastructure projects in cases where they are not completed on time.

And last week, he scaled back the size of scheduled increases in employment insurance premiums to less than half, in a nod to critics who complained the hikes would kill jobs by taking money out of the pockets of employers and employees alike.

But the firm rejection of further measures suggests the upcoming economic update this fall, and next year`s spring budget, is likely to stress government restraint rather than spending.

Read the full article here.

 

[Ally]

Building permits tumble in August

OTTAWA — The value of building permits fell more than expected in August, led lower by the non-residential sector, Statistics Canada reported Thursday.

Permits were down 9.2 per cent to $5.7 billion, the federal agency said. Still, it said the number was 11. 4 per cent above the August 2009 level.

Most economists had expected permits to fall by about two per cent in August, coming after a revised 3.8 per cent decline in the previous month.

"They have been bouncing between big declines and big increases so far this year," said Douglas Porter, deputy chief economist at BMO Capital Markets. "However, we believe that the underlying trend is starting to soften."

Statistics Canada said municipalities issued $2.2 billion worth of non-residential permits in August, down 22.9 per cent from the previous month. Ontario, British Columbia and Quebec accounted for much of the drop in August.

Read the full article here.

 

[Ally]

Dollar`s `strength` means little when based on U.S. weakness

When Canada`s dollar rises on the strength of our own economic performance, the consequences for Canadians are both good and bad.

A strong dollar always makes our exports less competitive -- but that may well be a manageable problem when our economy is cooking, and it certainly pushes our industries to make themselves more productive at a time they can afford to implement changes. And it also benefits consumers by making imports cheaper.

But when our dollar looks good only because someone else -- i.e. the United States -- is looking bad? That`s what`s happening now with the Canadian dollar blipping up over 99 cents US. And it`s harder to find any bright side to this picture.

Read the full article here.

 

[Ally]

Canada at the losing end of currency war, analysts say

OTTAWA — The continuing slide in the U.S. dollar has pushed the loonie closer to parity than it has been in the past five months.

None of which is good news for Canada, which finds itself currently at the losing end of a global currency war, analysts said Wednesday.

"The more the dollar appreciates and gets to parity if not higher, the worse the hit will be to our economy," said Sal Guatieri, senior economist at BMO Capital Markets.

Unlike other times when the economy was better equipped to handle a rising dollar, Canada faces a double whammy if the U.S. Federal Reserve pumps more money into the system, as it is widely expected to do at its Nov. 3 policy meeting, said David Tulk, a senior strategist at TD Securities.

For one, the Fed`s exercise in so-called "quantitative easing" is a sure sign that the economy of Canada`s largest trading partner is in worse shape than expected, Tulk said.

Read the full article here.

 

[Ally]

House prices expected to hold steady: Report

Re/Max says the outlook for Canada`s home resale market looks healthy going into the final three months of 2010, after a summer "pause."

The national real-estate sales organization says it anticipates fewer sales than in the surprisingly strong fourth quarter of 2009 but prices are expected to hold up.

Re/Max says there hasn`t been a big influx of listings, while demand has normalized after a very hot period in late 2009 and early this year.

Read the full article here.

 

[Ally]

Send bedbugs to the deepfreeze

Getting rid of bedbugs infestation could be as simple as freezing them out.

Called the cryonite system, it sounds like a perfect Canadian solution. Just rain some CO2 "snow" on the little pests and kill them off quickly and cleanly. No mess, no fuss and then vacuum them up.

That`s just what Lorne Chadnick in Ottawa figured when he saw the system being demonstrated at a trade show. He was already running a successful business as the Allergy Guy, helping allergy suffers get a good night`s sleep with mattress and pillowcase covers, air filters and the like.

Read the full article here.

 

[Ally]

High oil prices not long-term trend: Producers

Canadian oil and gas producers have embraced rising crude prices but aren`t expecting the run to develop into a long-term phenomena.

Oil prices hit a five-month high Wednesday, topping $84 US per barrel in New York before closing at $83.23 US.

The surge in oil futures, the fifth in six sessions, came as the U.S. dollar was battered in a global currency skirmish that plunged the greenback to 15-year lows against the yen and an eight-month low against the euro.

The Canadian dollar went along for the commodity ride Wednesday, closing at 98.94 cents against the U.S. dollar after reaching 99.37 cents during the day.

While a strong loonie is a double-edged sword for Canadian producers whose revenues come in U.S. dollars, oil prices above $70 US mitigate most of the pain.

Crude rallies flow right to Bonterra Energy`s bottom line as the junior oil and gas company`s 5,700 barrels of oil equivalent production is unhedged - and 70 per cent weighted toward oil, said chief financial officer Garth Schultz.

Read the full article here.

 

[Ally]

Flaherty, Geithner on same side over linking IMF reform to currency

OTTAWA — Finance Minister Jim Flaherty said Wednesday he and his U.S. counterpart Timothy Geithner have discussed linking reform of the International Monetary Fund -- in which emerging markets would get additional say in the running of the institution -- with increased exchange-rate flexibility by certain countries.

Mr. Flaherty spoke to reporters before he heads off to Washington for this weekend`s IMF and World Bank semi-annual meeting, in which he warned Canada could be "disadvantaged" by recent foreign-exchange interventions and continued exchange-rate inflexibility by some countries.

"There are concerns about interventions in currency markets and inflexibility," he said. "This is a topic that we will be discussing over the next several days."

The Canadian dollar hit a five-month high in trading Wednesday, trading above US99¢, as investors bet the Bank of Canada will sit on the sidelines while other central banks in struggling advanced economies provide further liquidity injections through asset purchases, or quantitative easing.

Read the full article here.

 

[Ally]

Canada at the losing end of currency war, analysts say

OTTAWA — The continuing slide in the U.S. dollar has pushed the loonie closer to parity than it has been in the past five months.

None of which is good news for Canada, which finds itself currently at the losing end of a global currency war, analysts said Wednesday.

"The more the dollar appreciates and gets to parity if not higher, the worse the hit will be to our economy," said Sal Guatieri, senior economist at BMO Capital Markets.

Unlike other times when the economy was better equipped to handle a rising dollar, Canada faces a double whammy if the U.S. Federal Reserve pumps more money into the system, as it is widely expected to do at its Nov. 3 policy meeting, said David Tulk, a senior strategist at TD Securities.

For one, the Fed`s exercise in so-called "quantitative easing" is a sure sign that the economy of Canada`s largest trading partner is in worse shape than expected, Tulk said.

On top of that, at a time when U.S. demand for our goods is ebbing, this easing will drive the loonie even higher, making Canadian exports even a tougher sell.

Read the full article here.

 

[Ally]

Landlords dodge new CMHC rule

These are particularly confusing times to be a real estate investor due, for the most part, to a policy change made by the Canada Mortgage and Housing Corp. (CMHC) in April.

The major issue concerns mortgages on CMHC-insured properties with four complete units or less, which went from being calculated using an 80% offset model to a 50% add-back one. As reported in this paper, the offset model meant that up to 80% of the expected rental income is used to offset the cost of the mortgage. With the add-back model, half of the expected gross rental income will be added to an investor`s income, but the entire mortgage is added to expenses.

In other words, it wreaks havoc on an investor`s debt-service ratio, as was the case with full-time Toronto investor and consultant Cindy Wennerstrom, who is currently shopping for her eighth property but is "stuck, mortgage-wise," she says.

"When banks take off 50% of the rent and apply that to your expenses, there is usually a deficit. That is subtracted from your actual income," she says.

And with Ms. Wennerstrom`s other properties each producing a cash flow of $800 to $1,100 per month, there still isn`t enough to bring her to the desired debt-service ratio of 40%.

Read the full article here.

 

[Ally]

Business wary on recovery: Survey

Canadian companies are guardedly optimistic that the economic recovery is proceeding along, with more saying they intend to ramp up investment but fewer planning to increase hiring, according to a quarterly Bank of Canada survey.

The central bank`s Business Outlook Survey for the July-through-September period, released Friday, found firms are slightly more optimistic about their sales prospects over the next 12 months than they were in the last poll. However, executives ``generally expect growth to be modest,`` the bank said, given the uncertainties in the global economy and particularly in Canada`s No. 1 export market.

Read the full article here.