September 2010 Canadian Economic Fundamentals

[Ally]

CIBC outlook more pessimistic than most, but all agree we`re facing slowdown

Economist Avery Shenfeld calls it "The Great Disappointment," and while Canadians will be relieved to know he`s referring to the economic outlook in our neighbour to the south, at least some of this gloom will spill over the border.

This brings an unpleasant chill to our outlook after a couple of years in which the Fates seemed to be smiling on us. First, we had a recession that was milder than the American one, then a job recovery that was many times more vigorous.

But Shenfeld, who is chief economist at the Canadian Imperial Bank of Commerce, was unsparing in outlining the new reality to a Montreal audience yesterday: there`s no place for this country to hide in a world where global growth is slowing, most notably in our most important economic partner, and our own consumers are nearly tapped out.

Before you leap from the nearest window, however, keep in mind that Shenfeld`s analysis is more pessimistic than many others.

His forecast of 1.9-per-cent growth in Canada next year is near the bottom of those you`d find at major Canadian financial institutions. The Bank of Nova Scotia and the Bank of Montreal come in a notch higher at 2.3 and 2.5 per cent respectively, and the optimists at the Royal Bank forecast quite healthy growth of 3.2 per cent.

Read the full article here.

 

[Ally]

Recovery declining dramatically: Economist

OTTAWA AND TORONTO — The Canadian economy had a great run immediately following the recession, but analysts warn that the stark reality of a slow, painful recovery — like the one gripping the United States — is beginning to sink in.

Growth forecasts are being scaled back on the emergence of weaker economic indicators — highlighted yesterday by a report on the surprise drop in July retail sales. This is on top of soft consumer price statistics that suggest core inflation is slowing, and a bleak wholesale trade report.

These factors prompted IHS Global Insight to warn Canadian growth could slow at a more dramatic pace than that of the U.S. economy. The firm now estimates annualized growth in Canada of less than 1% for this quarter — a big comedown for an economy that advanced 5.8% in the first three months of 2010, followed by a 2% gain in the April-to-June period.

"When you look at relative momentum, Canada is declining even faster than the United States," said Brian Bethune, the firm`s chief Canadian economist.

Read the full article here.

 

[Ally]

From economic `sugar high` to sobering realities

The Canadian economy is coming off a "sugar high" and will face four impediments to future growth, says a new report from TD Economics.

A weaker U.S. economy, softness in Canadian housing, fatigued consumers and fading stimulus will all conspire to limit growth to between 1.5 and 2.2 per cent, the report says.

"After rebounding smartly, economic growth will likely fall into this weaker `new normal` range," said Craig Alexander, chief economist for TD Bank Financial Group.

"Given the remaining slack in the economy, as evidenced by a still-elevated unemployment rate, the outlook for 2011 can only be characterized as underwhelming."

U.S. employers have been slow to hire, and that`s creating a pall over consumers and slowing recovery in the housing market, the TD report says. That means sluggish economic growth, which will affect Canadian sectors such as auto and lumber as demand remains weak.

U.S. light-vehicle sales -- the market for 80 per cent of Canadian auto production -- remain well below the decade average of 15.3 million units. A weak recovery in home building, meanwhile, will affect Canada`s lumber industry nationwide.

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[Ally]

August home sales spike won`t last, analysts say

OTTAWA — Existing home sales rose 4.1 per cent in August, the first monthly increase since March, the Canadian Real Estate Association said Wednesday.

Activity via the multiple listing service was up most in Ontario and British Columbia, and accounted for most of August`s advance, the national realtors` organization said.

Seasonally adjusted sales activity increased or remained stable in more than half of all local markets, it said.

For the remainder of the year, however, CREA said it expects sales to slow.

"Activity rose sharply over the second half of 2009 and reached levels that are unlikely to be matched in the final four months of 2010, so year-to-date comparisons are forecast to turn down in the coming months," the report said.

The group also cautioned against further tightening of mortgage regulations, saying rising interest rates and a projected slowdown in job growth are already primed to slow the housing market.

Read the full article here.

 

[Ally]

Jewels? Overrated. Leave a mortgage

There`s usually a grain of truth in most jokes. But how seriously should we take the musings of Patricia Croft, the retiring chief economist with RBC Global Asset Management, who spoke about the inflated Vancouver housing market to an audience of about 1,000 real estate executives this past week?

The gist of her comments was that prices and affordability had eroded so much in Vancouver that consumers might turn to intergenerational mortgages.

No such mortgages exist in Canada. The idea behind them is the parent passes on the equity in their home, as well as the debt. Usually the mortgages are interest-only -- a practice currently banned for banks regulated by Ottawa.

Reached by telephone the next day, she chuckled, agreeing she was being a little mischievous by throwing out the idea of a mortgage you pass on to the next generation.

"But how do people even afford to buy their homes?" asks Ms. Croft, noting that Royal Bank of Canada`s latest affordability index shows it takes 66% of pre-tax household income to carry a Vancouver bungalow. That`s 60% above the national average.

Read the full article here.

 

[Ally]

Home sales rebound, but it won`t last long, analysts say

Existing home sales in Canada rebounded in August, but the industry consensus is both prices and activity will decline the rest of this year. The only argument is by how much.

The Canadian Real Estate Association reported yesterday that August sales were up 4.1% on a seasonally adjusted basis from July -- a bad month for home sales because of the effects of the harmonized sales tax implementation in Ontario and British Columbia. As consumers scrambled to make their home purchases ahead of the July 1 HST deadline, June figures saw a boost, but July sales withered.

The real concern now is how the market will stack up over the rest of this year and into 2011, especially when compared with a buoyant 2009 housing market that set records for prices in many major markets.

TD Bank Financial Group economist Francis Fong weighed in yesterday with a forecast that sales will drop by 20% and prices by 7% on a national basis in 2011.

"The trend decline in both home sales and prices that has occurred across most of 2010 is largely a cooling of the excessive surge in housing activity that occurred across 2009. Between January and December of last year, home sales had skyrocketed by 66% and prices by almost 22%, which eroded affordability considerably and were simply unsustainable."

Read the full article here.

 

[Ally]

Home Ownership costs continuing to climb despite slowing activity: RBC

The cost of owning a home in Canada rose for the fourth consecutive quarter despite the slowdown in the resale market, according to a housing report released Monday by RBC Economics Research.

"Higher mortgage rates in tandem with a further appreciation in home prices boosted the monthly costs associated with carrying a mortgage on a typical home," said RBC senior economist Robert Hogue. "This extended the deteriorating trend in affordability since the middle of last year."

But despite the downturn, he said affordability remained "within a safe range."

The RBC Housing Affordability Measure calculates the amount of pre-tax household income needed to service the costs of owning a home.

An affordability reading of 50 per cent means that home ownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household`s monthly pre-tax income.

During the second quarter of 2010, the national level rose between 1.1 and 2.1 percentage points across the housing types tracked by RBC.

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[Ally]

Canada`s consumer-led economic recovery stalling

OTTAWA — Canada`s consumer-led economic recovery is quickly fading, as workers living paycheque to paycheque struggle with stubbornly high debt levels.

Reports Monday offered a sombre glimpse into how diminished consumer spending could dent housing prices and overall growth into 2011.

Largely, it boils down to the real estate market and the debt Canadians acquired in a flurry of home buying that helped the country weather the economic downturn.

Yesterday`s saviour is today`s nemesis, the Organization for Economic Co-operation and Development cautioned in a report on Canada`s economy.

"Most of the increase in household credit has been in mortgage debt, helping to bring about a strong revival in housing-market activity after a brief dip at the beginning of the crisis," said the report from the Paris-based think-tank, which represents the world`s richest countries.

But, it added, "high household indebtedness also implies a growing vulnerability to any future adverse shocks."

Read the full article here.

 

[Ally]

RBC: Housing Trends and Affordability

Click here to acces the latest report.

 

[Ally]

Clash on Taxes

Toronto-based Magder Furs is a business that knows a thing or two about survival. First opened in 1959, the fur clothing and accessories store was one of the city`s earliest challengers to Ontario`s bylaw forbidding retail stores from opening on Sunday.

That rebellious streak eventually forced Magder Furs into bankruptcy, as 20 years of fees acquired from flaunting the bylaw ($514,000 worth to be exact), took their toll.

Refinanced and reopened in 1994, today Magder Furs faces a challenge a bit less contentious than its legal battle against the Ontario government, yet just as harmful to the business -- crushingly high property taxes.

"There`s an issue of property tax here in Toronto," says Glen Magder, co-owner of Magder Furs. "Residential taxes are very low, but the commercial taxes are extremely high."

As Toronto heads toward a municipal election on Oct. 25, small business owners in the city are trying to bring issues that affect their businesses to the forefront of the municipal agenda. But the list of grievances small businesses in Toronto have aren`t unique to the city -- they`re the same municipal challenges businesses across the country face.

The Canadian Federation of Small Businesses has consistently identified a handful of common challenges many small businesses with municipal governments in its reports. These include lack of access to city contracts, high property taxes and government red tape in getting projects started.

Read the full article here.

 

[Ally]

Canada`s economy goes into reverse

OTTAWA — Canada`s economy declined in July for the first time in almost a year as the country`s recovery faltered after an initially strong rebound from recession.

Statistics Canada said Thursday the economy shrank 0.1 per cent during the month, as widely expected. "Manufacturing, retail and wholesale trade, construction and forestry all posted decreases. Increases were recorded in the mining sector and, to a lesser extent, in some financial industries and the public sector," the federal agency said.

The decline in gross domestic product was in line with economists` forecasts for a 0.1 per cent drop in overall economic activity in July.

"It was expected that the pace of growth in the Canadian economy would decelerate in the second half of the year," said David Tulk, a senior strategist at TD Securities. "But what perhaps is a greater surprise in the magnitude of the slowdown."

The July report marks the first monthly contraction since August 2009, when GDP shrank 0.1 per cent. That had been the only month to show a decline in economic activity since a 10-month string of reduced GDP readings between August 2008 and May 2009. Economic growth was flat in April.

Statistics Canada said manufacturing fell 0.7 per cent in July, with 11 of the 21 major groups within the sector posting declines.

Read the full article here.

 

[Ally]

Producers consider output cut

Natural gas producers are teetering on the fourth consecutive winter of low demand and prices, but relief could be at hand, analysts say.

Even though North American storage inventories are marginally lower than they were at this time last year, ConocoPhillips CEO Jim Mulva told an oil and gas conference in Houston that his company is shutting onshore natural gas production in Canada and the United States while it awaits higher prices.

"We`ve had a small amount of production that we`ve shut in because we feel it`s not that economic to produce," Mulva told reporters at a conference. "And so we`d rather keep it in the ground for when we can produce it at a later date."

Conoco didn`t disclose how much gas it shut in, but the move was seen as the latest sign producers in the U.S. might finally be getting ready to cut production and drilling in the face of low prices, following the cue of Canadian producers that have dramatically slashed drilling since the third quarter of 2006.

According to the U.S. government`s Energy Information Administration, natural gas in storage is about five per cent lower than this time last year but still more than six per cent above the five-year average.

Read the full article here.

 

[Ally]

Fears of double dip being overplayed, conference board says

Don`t listen to the naysayers, says the Conference Board of Canada, a double-dip isn`t in the cards.

Dire warnings of a return to recession fail to recognize one key factor, the board said: a slow recovery from this recession was expected.

"Historically, economic recoveries from recessions caused by financial crises are characterized by long periods of weak growth and that is exactly what is occurring now," said Michael Burt, associate director of forecasting and analysis at the board.

"Consumers are deleveraging and banks remain cautious about lending and that is why consumer spending growth remains tepid."

Job growth in Canada has brought employment past pre-recession peaks and domestic demand is healthy. The major weakness now is exports, and that is a function of the much-deeper recession the U.S. is recovering from, Burt said.

The report is far less sanguine about prospects in the U.S., although it said the world`s biggest economy should muddle through

Read the full article here.

 

[Ally]

Autos flying off the lots in Canada

While global auto sales continue to be dragged down by the weakness in the U.S. and Western European markets, new and used vehicles are flying off the lots at a record pace in Canada this year, according to a new report from Scotia Economics.

In total, 1.57 million new vehicles are expected to be purchased in Canada this year, in addition to 2.9 million used vehicles, which will bring combined auto sales in the country to a new record of 4.4 million vehicles. That`s up from their previous peak in 2007 of 4.3 million units, the report states.

New vehicle sales have jumped 8% so far this year, driven by a substantial spike in light-truck purchases. That almost fully reverses the 9% slide they experienced last year as the economic crisis caused more Canadians to purchase less expensive used vehicles, or continue to drive their aging vehicles, said Carlos Gomes, Scotia senior economist, who authored the report.

"While fleet volumes have only recently started to improve, purchases by Canadian households began to rebound last year, and are currently on a near-record pace," he said. "In fact, we expect 2010 retail volumes to climb to the second-highest annual level on record — only behind the 2008 peak."

Read the full article here.

 

[Ally]

Pace of housing price increases continues to slow

OTTAWA — Housing prices rose for the 15th straight month in July, but by the smallest margin in four months, according to a national index released Wednesday.

And for the first time in four months, prices failed to rise above the previous month`s in all of the six metropolitan areas measured in the Teranet-National Bank house price index.

The price of resale homes in July was up 12.4% from the previous year, according to the index, which showed the pace of price increases declining even though the year-over-year increases in Toronto and Vancouver were more than 14%, and in Ottawa the increase 10.9%.

The month-over-month change was also the smallest in four months, with the composite index as a whole in July rising just 0.5% over June.

"For the first time in four months, prices did not rise from the month before in all six markets," said Marc Pinsonneault, senior economist at National Bank Financial Group. "The Vancouver index was down 0.3% from June." The biggest monthly increases were to be found in Toronto, up 1.2%, and Ottawa, where prices advanced by 1.5%, which Pinsonneault attributes at least in part to the manoeuvring to avoid the harmonized sales tax, introduced in Ontario on July 1.

Read the full article here.

 

[Ally]

Power Corp. betting on no-realtor alternative

The practice of people selling their homes by themselves in Canada without a realtor`s help is still the exception rather than the rule. But Power Corp. of Canada is making a big bet that more Canadians will embrace the idea, launching a nationally branded service to help them do it.

Through its Quebec-based subsidiary Bytheowner.com( Duproprio.comin Quebec), which it owns by way of holding company Square Victoria Digital Properties, Power Corp. has bought four smaller no-commission companies in Alberta, Saskatchewan, Manitoba and Ontario for an undisclosed amount. The company now lists 12,000 properties for sale across Canada. With this move the diversified management company, with a market cap of more than $12-billion and interests in businesses such as Great-West Lifeco Inc. and Investors Group Inc., joins Rogers Communications Inc. and its online real estate search engine, Zoocasa, as major conglomerates taking a chance on consumers moving away from the traditional realtor model.

"[Power Corp.] shares the same vision we do that the real estate marketplace will be very different in the next few years," said Martin Rygiel, general manager of Bytheowner.

Craig Fehr, an analyst with Edward Jones, said Bytheowner should be thought of as a minor advertising company in Power Corp.`s portfolio.

"On a subsidiary level, this [expansion] just made sense from a diversification perspective," Mr. Fehr said.

Read the full article here.