April 17,2011

Is 1st half gain 2nd half pain?

Tim Shufelt Financial Post Apr 17, 2011

Since climbing back from the depths of recession, Canada’s sound economic footing relative to the United States has been a source of national pride and self-congratulation.

But as much as ever, the U.S. economy’s weaknesses become Canada’s own, an inescapable reality that could be made painfully clear in the second half of 2011.

The disappointing start to the year in the United States now threatens to spread north, raising the prospect of an imminent slowdown in Canadian economic growth. Many observers, the Bank of Canada among them, are advising Canadians to lower their expectations.

“We could lapse into this lowgrowth environment, with low productivity and a high Canadian dollar,” said Brian Bethune, chief financial economist for North America at IHS Global Insight. “I’m not sure that’s a very exciting future.” To him, a drop-off in growth is “baked in the cake.”

Last year, the global economic recovery suffered a setback, one significant enough to stoke fears of a return to recession and incite the U.S. Federal Reserve to again intervene by injecting billions of dollars of liquidity.

Whether a similar regression stains 2011 depends on two key questions: Will the Canadian dollar remain high? And will the U.S. recovery, which has so far been a start-stop affair, become sturdy enough to drive demand for Canadian exports?

The answer to the first question is fairly clear, Bank of Canada governor Mark Carney said this week.

The loonie’s “persistent strength” will remain the bane of the Canadian exporter, he said, one of the headwinds that will result in more modest economic growth over the next several quarters.

There is no consensus, however, on the immediate future of the U.S. economy, mainly because the current cyclical recovery in the United States is so historically atypical, said Nigel Gault, chief U.S. economist at IHS.

Unlike almost any other that came before, this recovery is forced to endure without a comeback -or even stability -in the housing sector. “It’s extremely unusual,” Mr. Gault said. “In a traditional robust expansion, housing would have been one of the leading sectors.”

But U.S. housing continues to hit new lows, with possible years ahead before home prices begin to rise substantially.

“That means the economy just can’t come back as quickly as it would in a normal recovery,” Mr. Gault said.

Millions of houses remain vacant, prices continue to fall, and the limited sales activity occurring is dominated by distressed properties.

With new-home construction almost at an “irreducible minimum,” the housing sector could not prove more of a drag on U.S. GDP, Mr. Bethune said. “You’ve got this anchor being dragged along.”

Growth in the first quarter in the United States is likely to come in at about 1.8% on an annualized basis, answering the question of whether a U.S. slowdown should be expected, Mr. Gault said. “We’ve had a pause already. We’re in the middle of it.”

These interruptions in the economic cycle set the current recovery apart in a second sense.

“In most recoveries, once they get going, they really get going,” Mr. Gault explained. “In theory, GDP bottomed out in 2009, and we’ve been growing since then. So we’re almost two years in. Normally at this point, you’d be comfortably above the previous GDP peak.”

That mark, however, was only just reached in the United States in the last quarter of 2010.

But perhaps conventional wisdom does not strictly apply, suggested Michael Gregory, senior economist at BMO Capital Markets. And perhaps decent growth is not predicated on stability in housing, he said.

Mr. Gregory likens the U.S. economy to a Bundt cake. “There’s a hole in the middle, but the cake is still rising.”

As a share of the overall U.S. economy, housing has shrunk to a record low, one factor limiting the havoc real estate volatility can wreak on markets, Mr. Gregory said.

In addition, just as rock-bottom interest rates failed to reignite housing activity, so too will rate hikes avoid further traumatizing the depressed residential sector, he said.

The U.S. recovery will continue despite its perpetual anchor, he said. “To me there’s a pretty sizeable adjustment to come, but that doesn’t bother the economy as much as it did a few years ago.”

Canada, as a result, will escape a second-half pause, Mr. Gregory predicted, “simply because the U.S. is starting to have that self-sustaining momentum.”

If housing is the U.S. economy’s anchor, then manufacturing is its buoy.

In the first quarter of this year, factory production in the United States grew by 9.1% on an annualized basis, a huge bump driven by emerging-market demand in Asia and Latin America.

“The U.S. export machine is humming,” Mr. Gregory said. “They realize where their bread’s buttered. Unfortunately, our bread’s buttered the same way.”

Whereas U.S. manufacturers have the benefit of a depressed greenback, making their prices more competitive on global markets, Canadian exporters have to contend with the challenges of an elevated loonie.

Under the assumption that the dollar continues to trade around US$1.03, the Bank of Canada cut growth estimates in six of the seven upcoming quarters.

Mr. Carney said Canada’s solid first quarter was an anomaly and will give way to 2% annualized growth in the current quarter.

“What we are seeing on the trade side is still quite a challenging situation for our exporters -and it could be more difficult,” he said.

In keeping to its plan for gradual increases in its key lending rate, however, Mr. Carney faces a dilemma.

The interest-rate differential with the United States already attracts higher capital flows, which in turn put upward pressure on the loonie. Further rate hikes, while the U.S. Federal Reserve is expected to hold steady until 2012, will only exacerbate the problem.

“That process becomes self-fulfilling,” Mr. Bethune said. “The capital inflows push the Canadian dollar up higher, which then rationalizes more capital inflows. You get this cycle, which can continue for some period of time.”

Many are anticipating the central bank to raise rates midJuly, at a time when second-quarter results will become apparent. But those results could prove disappointing, Mr. Bethune said. “It could well keep the Bank of Canada on hold through the end of 2011,” he said.

With the absence of substantial inflationary pressures, the central bank at least has the luxury of flexibility in timing its rate increases.

A good thing, since raising rates too soon would simply add another encumbrance to Canadian growth, Mr. Gregory said.

“We have to make sure the U.S. recovery and U.S. economic expansion is self-supporting, it is continuing, it is solid and it is entrenched.”

That might require the U.S. domestic economy to join the burgeoning export sector on the recovery track, Mr. Bethune said. But the U.S. customer has to budget for rising oil and gasoline prices as a result of volatility and war in North Africa and the Middle East.

That means less spending on domestic goods and services. “Any time you have a run-up in oil and gasoline prices like we’ve seen, that has a pretty retarding effect on growth in the U.S., as I’m sure we’ll have in Canada as well,” Mr. Bethune said.

While global oil supply is generally not limited, prices reflect geopolitical risks in a risk premium, he explained. “You’re just going to see a messy repricing of that risk premium every day. We’re dependent on a highly unstable part of the world.” http://business.financialpost.com/2011/04/17/is-1st-half-gain-2nd-half-pain/

Feb 11,2011

Housing market will be stable next two years: RBC

A stronger economy will offset the effects of higher mortgage rates and keep Canadian house prices stable over the next two years, according to the Royal Bank of Canada.

In a market update that has the bank forecasting price gains of 0.5 per cent in 2011 and 1.3 per cent in 2012, economist Robert Hogue said that after two years of “gyrating wildly,” the Going forward, we see nearly perfectly offsetting forces driving Canada’s housing market,” he said. “On the upside, the economic recovery will gather strength in 2011, continuing to boost employment and family incomes. On the downside, interest rates are expected to rise.”

The Bank of Canada will likely raise interest rates by 100 basis points this year and another 150 basis points in 2012, he said, making mortgage payments more expensive for the majority of homeowners. But real gross domestic product is expected to increase to 3.2 per cent in 2011 from 2.9 per cent in 2010.

“The net effect of these forces is expected to be close to nil, thereby leaving resale activity largely flat,” he said.

There have been a flurry of forecasts issued in the last week, as the market starts the year stronger than expected

Canadian housing market is likely to be a much less interesting place for the next several years. Capital Economics issued a cautious report that suggested higher interest rates could drive prices down as much as 25 per cent over the next three years, while the Canadian Real Estate Association raised its sales forecast for the next two years as it suggested that a stronger economic recovery and continued low interest rates would keep the market balanced.

“Even though mortgage rates are expected to rise later this year, they will still be within short reach of current levels and remain supportive for housing market activity,” CREA chief economist Gregory Klump said. “Strengthening economic fundamentals will keep the housing market in balance, which will keep prices stable.”

Capital Economics economist David Madani said too many optimistic forecasts are based on too short a time frame to be useful, because many mortgages won’t reset until rates rise much higher than they are today.

“Let’s balance this discussion a bit and think longer term,” he said in a recent interview. “As far as housing prices are concerned, we think they’re overvalued and we don’t see income growth closing that gap.”

Jan 25th, 2011

Canadian, U.S. consumers more hopeful about jobs, finances, purchases
By Julilan Beltrame, The Canadian Press

OTTAWA - North American consumers are starting to feel better about their personal finances and the economy, a hopeful sign for the still fragile recovery.

Two fresh surveys, one by the Conference Board in Canada and another from the International Monetary Fund in the U.S., detected an identical pattern of rising confidence in January, although relative optimism continues to be stronger north of the border.

Canada's confidence index rose 7.1 per cent this month to 88.1 points, the highest since the initial optimism coming out of the recession in the latter half of 2009 and early 2010.

Overall, the U.S. measure still lags Canada but in January it reached its highest level in eight months, rising to 60.6 from 53.3 in December, according to a Conference Board survey there.

Releases from both the IMF and the Conference Board note that levels are still below what would be considered positive, although they are improvements over recent months. Analysts generally welcomed the stronger consumer sentiment.

"In all, better consumer expectations in January bode well for a continued upturn in consumption...which will in turn prove supportive of overall economic activity," said Martin Schwerdtfeger and economist with the TD Bank.

The increases follow a month of generally more upbeat economic news, particularly in the U.S., which has seen the early stages of an employment recovery and strong manufacturing activity.

But Conference Board of Canada economist Pedro Antunes said while positive news played a part, both in Canada and the U.S., there is also a predictive element to the surveys.

"This is really about looking ahead...and people are a little more optimistic," he said.

Still, some economists cautioned against reading too much into surveys — for instance, whether more upbeat consumers will translate into more sales of homes, cars and appliances.

"It's actions that speak louder than words," said Scotiabank economist Derek Hold. "The way people manage their money and spend can be very different from how they say they will."

While conditions appear to be improving, that comes after last year's summer period faced generally downbeat news, when Canada's recovery slowed to one per cent and the U.S. became so weak both the central bank and the government launched a second round of stimulus measures.

On Monday, the International Monetary Fund gave a modified thumbs up to the global recovery, while noting that advanced countries, including Canada and the U.S., will continue in the slow-growth lane for the next two years.

The IMF predicted Canada's growth will average 2.3 per cent this year and 2.7 per cent in 2012 — one-tenth of a point less than the Bank of Canada's estimate of the previous week. The U.S. will grow by three per cent and 2.7 per cent in the next two years, largely thanks to stimulus, the Washington-based financial institution said.

Both countries will get a better measure on how their economies are progressing in just over a week's time when employment figures for January are released.

Canadians' rising confidence was seen across a range of measures, but not uniformly across the country.

One of the clearest signals was that 28.1 per cent of respondents said they expect their financial situation to improve in the coming six months, up 3.3 percentage points. The number who felt the next six months looked worse, dropped by 0.7 point to 15.1 per cent.

The respondents were also more confident about Canadian labour markets, with those who felt job opportunities would increase over the next six months rising 1.4 percentage points, while those who felt conditions would get worse falling 2.7 points.

There was also a clear signal that more respondents felt good about making a major purchase, although the optimistic camp and pessimistic group each represented about 44 per cent of respondents.

"Whether this sudden improvement on the major purchases question can be sustained remains to be seen. But, coupled with the increasing optimism about future employment opportunities, it does suggest healthy consumer consumption going forward," the Conference Board said.

Regionally, confidence rose the strongest in Ontario and the Prairies. Quebec registered a modest increase and British Columbia and Atlantic Canada were slightly less optimistic than they were in December.

The Canadian finding is based on the result of over 2,000 interviews conducted between Jan. 6 and 17. The margin of error is estimated at plus or minus 2.2 percentage points.




Jan 17th, 2011

Department of Finance tightens CMHC rules

Today Minister of Finance announces a couple of changes for high ratio loans approval - and such changes emerge amid rising concern about the record levels of household debts nears a startling 150% as of third quarter of last year.

The following is a summary of the main changes and their implications. Again these new changes affect mainly the high ratio mortgages, that is mortgages with downpayment less than 20%.

For the second time in twelve months, the Department of Finance tightened rules on residential mortgages to help slow the pace of household debt accumulation. Changes include shortening the amortization period to 30 years (which had already been shortened from 40 to 35 years in 2008), withdrawing CMHC insurance of home equity lines of credit (HELOC), and a reduction in the maximum refinance percentage from 90% loan-to-value to 85%. Changes to the amortization period and the refinancing ratio will take effect March 18 and the HELOC change will take effect April 18, 2011.
 
Key Implications:
 
The amortization change may alter the quarterly profile of housing market activity as some sales are pulled forward by households to pre-empt it. But the impact is not expected to be large, nor does it lead us to alter our annual forecast. Existing home sales were already forecast to weaken by about 8% compared to 2010, and prices to slip by a modest 1%. On aggregate, our calculations suggest that 20K sales (annually) may be impacted by the amortization change, with the average price likely to weaken a further percentage point. However, while the last few months of data represented upside risk to our December forecast, today’s measures put our forecast back on track. (the above forecast is by a major bank on the overall housing market in Canada)

 
The other two changes are more likely to impact consumer durables and housing-related spending. For instance, household usage of HELOCs is mostly directed towards renovations, vehicle purchases, and debt consolidation. Yet, on that front as well, the impact is not expected to be large. Our macroeconomic forecasts already embedded a significant slowdown in household debt accumulation and consumer durable spending. The withdrawal of HELOC insurance may cause some substitution toward more traditional mortgages, but very few financial institutions insure their HELOC portfolios.  As such, the change is unlikely to register significantly on the aggregate lending scale. Moreover, less than a fifth of refinancing deals are high loan-to-value (LTV >80%), and lowering the LTV threshold to 85% likely impacts less than a tenth of refi loans through lower amounts and/or alternative vehicles. All said, aside from some distortion on the timing of some heavily credit-dependent activities, the policy changes do not alter our forecasts.
In terms of monetary policy, this helps take some pressure off the Bank of Canada (BoC).  With all the talk about the non-sustainable pace of household debt accumulation, there was speculation about whether or not the BoC would consider hiking interest rates for reasons not directly related to its inflation-targeting mandate. Such speculation can be put to rest for the time being, and we can go back to focusing on the inflation outlook.

Click here to read the full report on Globe & Mail.



Dec. 07,2010

Bank of Canada Holds Interest Rate...

OTTAWA – The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

The global economic recovery is proceeding largely as expected, although risks have increased. As anticipated, private domestic demand in the United States is picking up slowly, while growth in emerging-market economies has begun to ease to a more sustainable, but still robust, pace. In Europe, recent data have been consistent with a modest recovery. At the same time, there is an increased risk that sovereign debt concerns in several countries could trigger renewed strains in global financial markets.

The recovery in Canada is proceeding at a moderate pace, although economic activity in the second half of 2010 appears slightly weaker than the Bank projected in its October Monetary Policy Report. In the third quarter, household spending was stronger than the Bank had anticipated and growth in business investment was robust. However, net exports were weaker than projected and continued to exert a significant drag on growth. This underlines a previously-identified risk that a combination of disappointing productivity performance and persistent strength in the Canadian dollar could dampen the expected recovery of net exports.

Inflation dynamics in Canada have been broadly in line with the Bank's expectations and the underlying pressures affecting prices remain largely unchanged.

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered.

November 08,2010

Canadians comfortable with their mortgage debt levels; One third have made additional payments in the last 12 months

Canadian Association of Accredited Mortgage Professionals releases

Annual State of the Residential Mortgage Market in Canada report

TORONTO, Nov. 8 /CNW/ - Canadian homeowners are comfortable with their mortgage debt, have significant home equity and could withstand an increase in their mortgage interest rate, according to the sixth Annual State of the Residential Mortgage Market report from the Canadian Association of Accredited Mortgage Professionals (CAAMP), released today.

Highlights:

The vast majority of Canadians with mortgages are able to afford at least a $300 increase in their monthly mortgage payments.

One in three (35 per cent) mortgage holders have either increased their payments or made a lump sum payment on their mortgage in the last year.

89 per cent of Canadian homeowners have at least 10 per cent equity in their homes and 80 per cent have more than 20 per cent equity.

Overall home equity is at 72 per cent of the total value of housing in Canada; for homeowners who have mortgages, equity level averages 50 per cent.

As of August 2010, there was $1.01 trillion in outstanding residential mortgage credit in Canada, an increase of 7.6 per cent from last year.

"Canadians are being smart and responsible with their mortgages," said Jim Murphy, AMP, President and CEO of CAAMP. "They are building equity in their homes and making informed, long-term mortgage decisions. The survey results speak to the strength of our mortgage market, especially when compared to the United States."

Homeownership is a good long-term investment

Most Canadians agree that buying a home is a good long-term investment and are focused on their mortgages to support that investment.

Many mortgage holders are making voluntary additional payments: 16 per cent have increased monthly payments during the past year, 12 per cent have made lump sum payments, and 7 per cent did both.

Canadians are exercising caution when taking out their mortgages, with a majority choosing a fixed-rate (66 per cent). A five-year fixed-rate mortgage remains the most popular option in Canada. Despite the fact that variable rate mortgages have become much less expensive compared to fixed rates, the majority choice is still fixed rates: this decision is based on people's individual assessments of risk, not just the cost difference.

Potential rate increases won't be a problem

The CAAMP study found that a vast majority of Canadians have significant capabilities to afford higher payments if and when mortgage interest rates rise. 84 per cent report that they could weather an increase of $300 or more on their monthly payments.

Most of the people who have low tolerances for increased payments have fixed rate mortgages, by the time their mortgages are due for renewal, their financial capacity will have expanded and their mortgage principal will have been reduced.

Also, Canadians have been able to negotiate better than posted mortgage interest rates. For five year fixed rate mortgages arranged in the past year, the average rate is 4.23%, which is 1.42 points lower than typical, advertised rates.

Of the 1.4 million Canadians who renewed their mortgage in the past year, 72 per cent were able to renegotiate a decreased rate: on average, rates are 1.09 percentage points less than the rates prior to renegotiating.

Canadians have significant equity in their homes, strengthening the housing market

Canadians' home equity is impressively high. Among homeowners who have mortgages, the average amount of equity is about $146,000, or 50 per cent of the average value of their homes.

The amount of equity take-out in the past year is unchanged from last year with around one in five homeowners, or 18 per cent, taking equity out of their home, at an average of $46,000. The most common purpose for equity take-out is debt consolidation and repayment (45 per cent) followed by home renovations (43 per cent), purchases and education (19 per cent) and then investments (16 per cent).

The report is authored by CAAMP Chief Economist Will Dunning and based on information gathered by Maritz Research Canada in a survey of Canadian consumers conducted in October 2010.

The CAAMP survey report contains a wealth of industry information, including consumer choices and borrowing behavior, opinions on current "hot topics" related to housing and mortgages, regional breakdowns of responses, and an outlook on residential mortgage lending.

For a copy of the report, please visit www.caamp.org, 'Mortgage Industry', under 'Resources'.

September 20, 2010

Click here to read the full report from TD Economics

HIGHLIGHTS OF THE WEEK
United States
• Foreign currency policy captured headlines this week as Japan intervened to devalue the Yen, and pressures mounted on China to accelerate its appreciation of the RMB.
• Currency interventions are limiting the potential impact of U.S. export growth during the recovery. This is a challenge for America, because a rapid improvement in the terms of trade would go along way to aiding the recovery, as indebtedness impedes consumer spending.
• The prospects for quantitative easing (QE) could create an interesting dynamic in currency markets, as foreign countries react to a possible decline in the USD.
• In the end, not every economy can rely on exports to support growth.

Canada
• The robust pace of Canadian economic growth recorded since the third quarter of 2009 is likely to moderate, reflecting a slow recovery in global demand and a combination of domestic risks.
• Most notably, record levels of household indebtedness, which drove high levels of consumer spending in the past nine months, will now put downward pressure on spending as households become more cautious.
• This will have a particularly adverse impact on the housing market, which recorded massive gains over the course of 2009, driven largely by this debt-fuelled spending spree.
• We expect the cooling in consumer spending to feed into the downturn in the housing market, which has already begun and will persist throughout the remainder of 2010 and a large part of 2011.

September 06, 2010

Favourable U.S. data suggests Canadian rate increase

Paul Vieira, Financial Post · Monday, Sept. 6, 2010

OTTAWA • What a difference a week makes in gauging the state of the Canadian economy.

At the start of last week, few market players believed the Bank of Canada would raise its benchmark rate on Wednesday as concern over its largest trading partner, the United States, mounted. The U.S. economy was believed to be on the verge of flirting with a double-dip recession, given the spate of weak economic data traders had grown accustomed to over the summer.

But two key U.S. pieces of August data released last week — the ISM manufacturing index and non-farm payrolls — were better than expected and suggested the North American economic recovery, while sluggish, marches on and is in no real danger of falling into an abyss. This helped trigger a “vicious” sell-off in bonds, in which investors piled in because of fears of a severe economic slowdown.

The result: The probability that Mark Carney, the Bank of Canada governor, will raise interest rates by 25 basis points, to 1%, increased to slightly more than 60% on Friday from less than 50% as of late August.

The good-looking U.S. data “tipped the scale heavily” toward a rate hike, said Douglas Porter, deputy chief economist at BMO Capital Markets.

Also playing a role was Canadian GDP data for the second quarter, which on the surface appeared tepid — 2% annualized growth, well below the rapid pace recorded in previous quarters. But analysts say the Canadian economy is stronger than the second-quarter headlines indicated, with final domestic demand still advancing at a robust pace. Plus, much of the second-quarter drag was from so-called “import leakage,” in which gains in imports — as firms acquired productivity-enhancing equipment at the fastest pace since 2005 — outstripped exports. Income data also showed wages and salaries grew “a very solid” 4.8% annualized in the three-month period, according to economists at Moody’s Analytics.

“Although growth slowed more than expected in the second quarter, the cause of this slowing does not suggest that there has been significant deterioration in the economy’s overall health,” said John Clinkard, chief Canadian economist at Deutsche Bank.

“Given the surge of investment in new machinery and equipment in the second quarter, that [means] business confidence is strong,” Mr. Clinkard said.

Still, much doubt remains about the health of the United States. The Bank of Canada’s economic outlook, released just two months ago, now appears too optimistic given recent trends. It expected the economy to reach its full potential late next year, but that could be pushed out further with weaker economic indicators in the United States and Canada. Plus, recent data suggest inflation, which ultimately drives the bank’s rate decisions, poses no threat as the key core rate — which strips out volatile-priced items — has slowed for two straight months.

These factors are driving analysts to scale back expectations for rate hikes for the remainder of 2010 and into 2011, predicting the Bank of Canada will pause for a while to see where all the economic dust settles. For instance, Bank of Nova Scotia chief economist Warren Jestin now envisages the central bank moving its benchmark rate no higher than 1.75% next year, or 50 basis points below previous forecasts.

Last week’s U.S. data may have put to rest fears of a double-dip recession, “but we are also tracking a U.S. economy that is nowhere near the pace it needs to be at this stage of the business cycle,” said Avery Shenfeld, chief economist at CIBC World Markets. The United States still requires “easy monetary policy and a softening in next year’s planned fiscal tightening if it is going to stay out of trouble.”

Even with positive jobs and manufacturing data, the week ended with a bit of a reality check for the U.S. economy with figures showing growth slowing in the service sector, which accounts for 80% of U.S. output.

The U.S. Federal Reserve is expected to refrain from rate hikes for a while — well into 2011, according to most analysts — with the U.S. economy still in a lacklustre state. The Bank of Canada, then, won’t want to raise rates too aggressively ahead of the Fed or risk the Canadian dollar appreciating to levels that start to take a bite out of economic output.

In fact, speculation is that the Fed would inject further liquidity, through another round of securities purchases, before considering a rate hike. But senior Fed policymakers remain divided on that need, with Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, describing fears of deflation and a double-dip recession as “alarmist.”

In addition, Mr. Lockhart said that, despite all the worry, the U.S. economy remained on a “gradual recovery track.”

Read more: http://www.financialpost.com/news/Favourable+data+suggests+Canadian+rate+increase/3487100/story.html#ixzz0yqQg7dlu

August 10, 2010

Consumer Confidence

National consumer confidence dipped in the second quarter of 2010. According to the Conference Board of Canada’s index of consumer confidence, consumer sentiment lost some ground after having increased in the first quarter, and is now roughly back on par with levels reported at the end of last year. The decrease in confidence reflects weaker outlooks for household budgets and employment, and less enthusiasm about making major purchases.

The balance of sentiment about making major purchases, such as a home or a car, edged into negative territory in the second quarter of 2010. A negative balance of sentiment means more survey respondents said it was a bad time to buy a big-ticket item, such as a home or car, than said it was a good time to do so. This indicator is an important factor underlying the housing market

The balance of sentiment about job growth prospects was down compared to the first quarter, but was still more positive than in any other quarter since the third quarter of 2007.

The balance of sentiment on the outlook for household budgets was also down in the second quarter, but nevertheless remained positive. A positive balance of opinion means more households said they expect their household budget to improve in the next six months than said they think it will worsen. The quarter-over-quarter decline was largely due to downbeat responses from consumers in British Columbia and Ontario, where the HST comes into effect on Canada Day.

CREA http://creastats.crea.ca/natl/consumer_confidence.htm

August 10, 2010

Employment Trends

The unemployment rate in Canada was down 0.2 percentage points to 8.2 per cent in the first quarter of 2010. This stands 2.3 percentage points above the record low in the third quarter of 2007.

Although still down 229,200 positions since employment peaked in the third quarter of 2008, employment has been recovering since the beginning of the second half of 2009. Since the turnaround, total employment levels have climbed by 138,400 jobs.

Job growth in the first quarter totalled 91,900 positions on a seasonally adjusted* basis. This job gain reflects 47,400 additional full-time positions and 44,500 more part-time jobs.

The majority of the hiring was in British Columbia and Ontario, where more than 30,000 combined jobs were added in the goods producing industries. First quarter job growth occurred in natural resources, utilities, construction and manufacturing, trade, public administration, education, healthcare, and in scientific, business, and accommodation and food services.

Hiring in these sectors offset layoffs in agriculture, transportation and warehousing, the financial sector, and information and culture services.

* Seasonal adjustment removes normal seasonal fluctuations.

CREA http://creastats.crea.ca/natl/employment_trend.htm

July 13,2010

Upbeat survey may pave way for interest rate hike

By Julian Beltrame

OTTAWA — Canadian firms are giving the recovery a vote of confidence in a key quarterly survey, paving the way for the Bank of Canada’s expected interest rate hike next week.

The central bank’s quarterly survey, released Monday, showed firms were concerned about the fallout from the European sovereign debt mess, but still generally upbeat about the coming year.

“Overall, (business executives) are positive about the outlook for business activity over the next 12 months,” the bank wrote.

“For the first time in two years, firms, on balance, reported an improvement in their past sales activity.”

The bank’s governing council next interest rate announcement is next Tuesday.

Following a strong jobs report last week, the survey likely represents the last piece of evidence governor Mark Carney was looking for to confirm a predisposition to continue raising rates.

“I’d say there’s a 75 or 80 per cent probability they will hike next week by 25 basis points,” said Derek Holt, vice-president of economics with Scotia Capital.

“I think they’d want to avoid the perception that they just came out with a whole new round of bullish forecasts and then got wobbly knees after just one quarter-point hike (in June).”

What could stay Carney’s hand, economists say is the unknown factor of what will happen to the global economy as governments move from spending to restraint later this year and next.

Canada’s domestic economy appears well grounded. Statistics Canada reported on Friday that an additional 93,000 jobs were added in June, bringing total re-hiring since the recession’s end to over 400,000.

And the business outlook survey showed that 50 per cent of firms surveyed said they planned to add workers over the next 12 months, as opposed to only 10 per cent that planned to cut their workforce.

TD Bank economist Diana Petramala viewed that finding as the strongest in the report, although she said it might indicate some hiring that’s already taken place.

While an increase in the bank’s policy rate to 0.75 per cent will raise short-term interest rates for consumers, most economists say it is unlikely to have much of an impact on longer-term, fixed mortgage rates. Many see a hike at this time as not applying the brakes to growth, since the rate would remain near the historic low, but as a judgment by the bank that the recovery is taking hold.

Not all agree, however. A bearish minority argue that Canada still faces considerable headwinds from the European situation and ongoing U.S. weakness, and that Carney should refrain from adding a further impediment to growth.

But failing a climb down from its forecast of 3.7 per cent growth this year, and 3.1 per cent next year, the bank appears on track to take interest rates a little higher next week, analysts say.

“With price pressures expected to rise in the production line, excess economic slack continuing to melt away, and credit and lending conditions continuing to ease, the survey results weigh on the tightening side,” noted economist Michael Gregory of BMO Capital Markets.

The summer poll, and a separate survey of loan officers also released Monday, found sentiments positive, if not deliriously so, across a range of topics.

The bank said credit conditions appear to be easing, especially for larger corporations, a critical prerequisite for expansion.

The balance of opinion was also positive on questions of sales volume prospects for the coming year, and future investment intentions.

Not all doubts have vanished, however.

Business executives expressed concerns about “recent global economic and financial uncertainties and possible spillover effects in Canada.”

And although on the plus side of the ledger, expectations on future sales and investment intentions were softer than three months ago. That’s partly because of the way the Bank of Canada couches its questions, contrasting expectations to what they were in the earlier survey.

The bank noted the responses suggest that firms that have already experienced strong sales growth from recession lows now believe that the growth rate will slow to more sustainable levels, but remain positive.

And many firms that do not expect to increase spending on new machinery have already made those investments, particularly firms in the services sector.

On other elements of business activity, executives said they expect the cost of their inputs to increase at a greater rate during the next 12 months, and plan to pass on these cost increases to their customers.

But the inflationary expectations over the next two years were modest, within the central bank’s one-to-three per cent range.

The Canadian Press http://news.therecord.com/Business/article/744317

By Keith Leslie

TORONTO — The harmonized sales tax about to take effect in British Columbia and Ontario is proof of Benjamin Franklin’s assertion that “in this world nothing can be said to be certain, except death and taxes.”

Funerals are just one of many services and goods previously exempted from provincial sales taxes that will be subject to the HST starting Canada Day, as governments in both provinces switch the tax burden from corporations and to consumers.

However, exactly what’s going up in price and what’s not depends entirely on which province you live in.

The single sales tax, which combines the five per cent Goods and Services Tax with provincial Retail Sales Taxes, will be 12 per cent in B.C. and 13 per cent in Ontario.

Energy costs will be the biggie for most Ontario consumers, with an immediate jump in the cost of electricity, natural gas and home heating oil because of the HST.

Ontario motorists will be among the first to feel the pinch when they fill up at the pumps. Gasoline and diesel fuel, which had been exempt from the province’s eight per cent sales tax, will be subjected to the 13 per cent HST.

British Columbia is maintaining its exemption for the provincial sales tax portion of the HST on gas and diesel, and won’t apply the HST to electricity or home heating fuels. However, B.C. has a carbon tax on energy that will rise to 4.82 cents a litre on July 1.

The tax on alcohol is actually decreasing, but the prices won’t. The provincial taxes of 10 to 12 per cent will be lowered under the HST, but other fees and taxes will rise because of what the provinces say is their social responsibility to maintain minimum prices for liquor.

The HST will not apply to purchases of resale homes in either province, but will apply to new homes costing over $400,000 in Ontario and those over $525,000 in B.C. New home buyers in Ontario will receive rebates up to $24,000 to lessen the impact of the HST.

There are so many other differences to the way B.C. and Ontario are harmonizing sales taxes that retailers who operate in both provinces will need two rule sheets to figure out what’s taxed and what’s not.

Internet fees will now be subject to the HST in Ontario, but were already hit with both taxes in B.C.

British Columbia will apply the HST to cable television fees and local residential phones, both of which were already taxed with the GST and PST in Ontario.

Green fees at golf courses will be subjected to the HST in Ontario but not in British Columbia.

Ontario has exempted newspapers and prepared meals and drinks costing under $4 from the HST, but British Columbia did not.

B.C. will apply the HST to snack foods, catering services, over-the-counter medications and food-producing plants and trees.

Ontario will apply the HST to legal services but they will remain exempt in B.C.

B.C. will subject shoe repairs, tailoring, wedding planning services and veterinary bills to the HST while those services remain exempt in Ontario.

Taxes will go up in both provinces on services such as lawn care, snow removal, dry cleaning, hair cuts, massages, personal trainers, gym memberships and home service calls. Home renovations and real estate commissions will also rise because of the HST.

Home insurance was exempt from the GST so it will not be hit with the HST, but will still be subject to the provincial sales tax.

Other items previously exempt from the PST but now subject to the HST include hotel rooms, taxis, domestic air, rail and bus travel along with campsites and hunting and fishing licences.

Also rising will be the tax on magazine subscriptions, some theatre tickets, ski lift fees, rental fees for hockey rinks and banquet halls and lessons for everything from ballet to soccer. However, music lessons will remain exempt from the HST.

Music and videos downloaded as MP3 files will also be subject to the HST after previously being exempt from the provincial sales tax.

Cigarettes and other tobacco products — and nicotine replacement products — will also be subjected to the HST after being exempt from the provincial sales tax, as will vitamins.

There will be no HST on vital documents such as health cards and birth certificates or on driver’s licence and vehicle plate renewals, although personalized vanity plates will be subject to the HST in Ontario.

Used cars, which were previously exempt from the five per cent GST when sold privately, will now be subject to the 13 per cent HST in Ontario and a 12 per cent provincial sales tax in B.C.

Both provinces negotiated some exemptions from the HST with the federal government, which wanted the tax applied as widely and with as few exemptions as the GST.

Consumers will continue to pay only the five per cent GST on children’s clothing and footwear, children’s car and booster seats, diapers, books and feminine hygiene products.

The HST will not be charged on basic groceries, rent, condo fees, prescription drugs, some medical devices, child care, municipal public transit, most health and education services, tutoring, most financial services and legal aid.

However, even though condo fees are exempt from the HST, purchases by condominium corporations will be subject to the tax, so condo fees are expected to rise.

The price of going to the movies or a sporting event in Ontario is actually expected to drop with the introduction of the 13 per cent HST because those outings were hit with a 10 per cent PST plus the GST.

The Canadian Press http://news.therecord.com/Business/article/737079

Recession realized, recovery begins

Vancouver, BC - April 14, 2010

For residential markets across British Columbia, from Metro Vancouver to the Interior and northern reaches, the recession's negative effect on statistical numbers is waning but to varying degrees.. Some regions have rebounded, others are still hurting.

Be on the lookout for our Q1 2010 Residential Summary, we'll be publishing that report in late May to our mailing list and the press so you'll be able to review the early 2010 trends based on all registered property sales in British Columbia.

Click here to download the full report. (417 KB) 

Click on the article to read more

Click here or on the image below to view the full presentation

Information Provided by: Darlene McCann
Verico-Paragon Mortgage Group Inc.
Cell: 604-803-9807
Fax: 604-931-0724
Email: darlene.mccann@verico.ca
Website: http://darlenemccannmortgages.com