CHHMA - EYE ON OUR INDUSTRY
Volume 15, Issue 13, April 1, 2015

Inside This Issue:

• Last Call for CHHMA Spring Conference & AGM/Hall of Fame Induction Luncheon
• Bond with your Fellow Canadians at Maple Leaf Night in Las Vegas
• CHHMA Ontario Golf Tournament Set for May 26th at Angus Glen
• Register Now for CHHMA Quebec Golf Classic (May 28th)
• CHHMA Lobbying Saskatchewan Government to Make Changes to New MMRP Plan
• Sears to Form REIT for $2.5-Billion Sale-and-Leaseback Deal
• Walmart Canada to Drop Unlimited Free Shipping
• Canadian Airspace is Friendly to U.S. Drones
• Target Speeds Up Canadian Exit, Plans to Close All Stores by Mid-April
• Dollarama Ponders Raising Prices Above $3
• Call for Entries for Hardlines Outstanding Retailer Awards
• Canada’s GDP Shrinks 0.1% in January, Not as Bad as Feared
• Stephen Poloz Warns of ‘Atrocious’ First Quarter for Canadian Economy
• Executives Increasingly Gloomy About Oil Shock’s Impact on Economy
• Canadian Consumer Confidence Gains for Fourth Week
• Retail Sales in Canada Still in Good Shape … Except for Gasoline Stations
• Latest U.S. Economic News 

Association News

Last Call for CHHMA Spring Conference & AGM / Hall of Fame Induction Luncheon

This year’s CHHMA Spring Conference & Annual General Meeting is only one week away (Wednesday, April 8th, 8:00 a.m. to 3:00 p.m.at the International Centre Conference Facility in Mississauga, ON) and if you and/or your colleagues haven’t made plans to attend, you can still do so.

This event offers a great opportunity to hear from some true experts in their fields discuss timely topics that can help you in your business and give you something to think about in regards to best addressing consumer and customer expectations.

In addition, come out and support two worthy gentlemen who are being inducted into the Hardware & Housewares Industry Hall of Fame during the conference luncheon: Mr. Bryan Gilbart,Vice President of Marketing & Sales,Envirogard/Rainfresh Water Filters and Mr. Paul Straus,President, Home Hardware Stores Limited.

A number of senior retailer executives have been invited to attend the luncheon and afternoon presentation, so the conference always offers some excellent networking opportunities too.

So take advantage of CHHMA membership and join us next Wednesday!

Click here for full details and to register. 
   
  
   
Bond with your Fellow Canadians at Maple Leaf Night in Las Vegas     

Maple Leaf Night is taking place this year on the evening of Tuesday, May 5th at the Mirage Hotel & Casino in Las Vegas.This popular social event is open to CHHMA members and their retail customers in town for the National Hardware Show (May 5-7), which is celebrating its 70th anniversary this year.

It’s a great way to wind down after the first day of the show with your fellow Canadians.  Enjoy some cocktails and hors d’oeuvres with other CHHMA members plus mingle with retail customers who are invited to attend the event complimentary on behalf of the sponsors.

Click here for sponsorship and ticket information.

We look forward to seeing you in Vegas! 


CHHMA Ontario Golf Tournament Set for May 26th at Angus Glen

The 46th Annual Ontario Golf Tournament (in support of the CHHMA Scholarship Program) will take place at the Angus Glen Golf Club in Markham, Ontario on Tuesday, May 26, 7:45 a.m. shotgun start. This year’s tournament will be limited to only 144 golfers on a first come, first serve basis.

Members attending the CHHMA Spring Conference & AGM on April 8th will be able to register early for the tournament.

The event is open to CHHMA members and their invited customers.  It includes breakfast, golf, an executive lunch, awards and prizes.

Click here for an Early Bird registration form if you have registered for the conference.

Full registration will commence after the Spring Conference & AGM.

So register soon and we hope you can make it out to enjoy a fun day on the golf course with your industry colleagues and customers.


Register Now for CHHMA Quebec Golf Classic (May 28th)

This year’s CHHMA Quebec Classique de golf / Golf Classic is once again being held at the excellent Club de golf Le Fontainebleau in Blainville, Quebec on Thursday, May 28th, limit of 144 golfers.

Registration and brunch will start at 9:00 a.m., with an 11:00 a.m. shotgun start.  After golf, there will be dinner with wine followed by prize presentations.

In order to maintain the most reasonable cost possible, the tournament depends on company sponsors, so please consider sponsoring a hole while registering.

Click here for full details and to register now:   French Registration       English Registration

 Always an industry highlight, we hope to see you there!


Stewardship News

CHHMA Lobbying Saskatchewan Government to Make Changes to New MMRP Plan

The CHHMA has joined forces with a number of like minded associations to hold a lobby day in Saskatchewan in hopes we can persuade the Government to change its plan to execute the following in regards to the province’s new Waste Packaging and Paper Stewardship Plan:

- Exempt certain products such as newspaper (which is probably the biggest contributor to blue box waste)
- Shifting authority to the government from the stewards to set the actual fees
- Setting small company exemptions at too high of levels

The province-wide Multi-Material Recycling Program (MMRP) is being operated by Multi-Material Stewardship Western (MMSW) [similar to other programs in B.C., Manitoba, Ontario] and was to have commenced on January 1st of this year but after the Saskatchewan Government made a number of changes to MMSW’s approved stewardship plan, without advance notice or consultation, MMSW asked the Minister of the Environment for a 180 day extension to the start date (i.e. effectively pushing launch date back to July 1, 2015) in order to provide adequate time for MMSW (stewards) and the Ministry to agree to program plan amendments, recalibrate the financial obligations, and re-strike new commercial contracts with municipalities that take into account a revised funding obligation.

We will keep you posted on the outcome of our efforts and look for further stewardship and legislation news in our Government Watch Reports – the latest of which will be out shortly.
 

Industry News

Sears to Form REIT for $2.5-Billion Sale-and-Leaseback Deal

Sears Holdings Corp. is forming a real estate investment trust (REIT) to acquire about 254 of the retailer’s properties and the new company will probably use a rights offering to finance the purchase.

Proceeds from the property sale are expected to exceed $2.5-billion, Sears said in a statement Wednesday.  The REIT, Seritage Growth Properties, would lease the Sears and Kmart properties back to the retailer.

Seritage, based in Maryland, plans to use debt and other credit to finance the acquisition.

Sears is trying to squeeze more value out of its real estate holdings by leasing space to other retailers and developing properties.  The shares surged 31%, the most ever under chief executive officer Eddie Lampert, after Sears announced plans to sell stores to a spinoff REIT in November.

Sears will also form a separate $330-million venture with General Growth Properties Inc. and contribute 12 properties at the landlord’s malls as part of the deal, it said in a separate statement. General Growth will make a cash contribution of $165-million to the venture.

“Sears Holdings is an asset-rich enterprise with multiple levers to generate financial flexibility, while creating shareholder value,” Lampert said in the joint-venture statement.

The rights offering by Seritage is expected to close by the end of the second quarter, Sears said.

Source: Bloomberg News


Walmart Canada to Drop Unlimited Free Shipping

Walmart Canada this week will drop its unlimited free shipping of online orders in a move that signals that competitive pressures are easing a bit even as digital wars remain intense.

The company’s cyber-shopping charges, which take effect on Thursday, come as Target Corp. prepares to close all its 133 stores in Canada and leave this country completely, giving competitors some relief, at least for now. Last Saturday, Future Shop closed all its 131 stores although about half will be re-opened soon as sister chain Best Buy.

On April 2, Wal-Mart will start charging $4.97 for standard home shipping for orders of less than $50, Simon Rodrigue, senior vice-president of e-commerce at the retailer, said in a note to customers on Monday.

Walmart Canada joins other retailers with minimums for free delivery on standard items, including Amazon ($25), Best Buy ($35) and Hudson’s Bay ($99).

At the $50 threshold, shoppers will “qualify” for free standard home delivery on everything “except especially large and oversized items,” he said. Pick-up of orders remains free at stores with special “grab & go” lockers in the Greater Toronto Area or all post offices, except in remote regions, he said.

“One of our pillars has been free standard home shipping to most places in Canada, but in a few days we will make some changes to our home shipping charges to ensure we can continue to give you great service and everyday low prices,” he said.

Wal-Mart introduced free shipping in 2013 as Target was expanding into Canada, putting the heat on all retailers to up their game and draw customers in an increasingly crowded market.

Now as Target exits and other faltering retailers close stores completely or partially, the retail sector feels a little more room to manoeuvre even as the players fight the accelerating digital war.

In particular, Amazon.com Inc. is expanding quickly in Canada and forcing Wal-Mart and others to bolster their e-commerce.

While Wal-Mart, a division of the largest retailer in the world, could afford the cost of free shipping the service also took its toll.

In its fourth-quarter, Walmart Canada’s operating profit slipped an undisclosed amount although its sales picked up, the U.S.-based parent reported last month. Its holiday season in Canada was strong overall, with its online business jumping 38.5%, it said.

The operating profit decline in the quarter was a result of spending on e-commerce, discounting as well as a restructuring which saw the loss of about 210 head office jobs.

Retailers struggle with free shipping in Canada, given the wide expanses of the country and heavy cost of shipping to remote areas. Many merchants offer free shipping on minimum purchases, which can help offset some of the expenses.

Wal-Mart offered free shipping to 97% of the country and free next-day shipping to most big cities, Mr. Rodrigue has said.

In November, Amazon raised the ante in Canada’s e-commerce battle by offering same-day shipping in Toronto and Vancouver just as retailers headed into the crucial holiday shopping season.

Amazon charged fees for same-day delivery, starting at $6.99, although Wal-Mart already was offering free same-day shipping in the Greater Toronto Area.

Same-day shipping is becoming more common among U.S. retailers and malls but is a relatively new phenomenon in Canada.

Retail consultant Alex Arifuzzaman suggested that Walmart.ca may have utilized free home shipping for three and a half years to build its online consumer base.

“But at the end of the day it’s all about making money and you can’t make money if you’re paying to ship something and it costs $3 and you’re making 50 cents profit on it,” he said.

“By having that $50 threshold, it gives incentive to customers that are, say, at $20, $30, $40, to buy more to get over $50. I think if any customers are lost it will be those customers at the very low end of the spectrum, which aren’t profitable anyway.”

Queens School of Business marketing professor John-Kurt Pliniussen expects “there won’t be a lot of flack” about the $50 threshold “because I think Walmart knows most people are spending close to the $50” online anyway. He anticipates the retailer will eventually introduce a shipping membership like Amazon’s Prime, which bills consumers annually.

Source: The Globe and Mail, The Toronto Star

Canadian Airspace is Friendly to U.S. Drones

U.S. companies like the online shopping juggernaut Amazon are increasingly choosing Canadian airspace to test new drones after being hamstrung by restrictive laws in their own country that could take up to two years to change, experts say.

Amazon.com Inc. announced this week it had been “rapidly experimenting” with unpiloted aircraft at a rural test site in British Columbia as part of its plan to one day deliver small packages via low-flying drones to customers in the United States, Britain and Israel. However, several other U.S. companies had already moved north of the border to take advantage of Transport Canada’s Special Flight Operations Certificates (SFOCs), a system that “gives our regulator a lot of discretion” and “is fantastic compared to the United States,” according to Ottawa-based drone expert Diana Cooper.

“It looks like we’re starting to become a destination country for huge companies like Amazon, so it’s a great strategic advantage,” said Ms. Cooper, a lawyer at LaBarge Weinstein.

U.S. companies can get an SFOC through a Canadian subsidiary, as Amazon did, or if they have approval in their own jurisdiction for similar drone operations, Ms. Cooper said.

In Canada, drones are being used to produce films, help search-and-rescue crews and to monitor and inspect mines, pipelines and crops, she added.

In 2010, Transport Canada issued 66 SFOCs to commercial drone operators or recreational pilots using an aircraft heavier than 35 kilograms. That number steadily increased to 1,672 in 2014. The U.S. Federal Aviation Administration (FAA), meanwhile, has granted commercial exemptions to just 24 of 342 applicants.

Amazon had been waiting months for a special experimental exemption from the FAA and, after it was issued a one-year SFOC in December, started testing its drone delivery system in Chilliwack, B.C., Ms. Cooper said.

“They can’t even do appropriate testing in the United States. Even at that basic first stage, they were out of luck in their own jurisdiction,” she said. “On the one hand, the FAA wants to see that this technology is safe, but they don’t allow companies to test properly to show that the technology is safe.”

Once an operator demonstrates to Transport Canada that it has a safe track record, it can apply for a longer-term SFOC that can last up to three years, Ms. Cooper said.

Click here to read the rest of the article.

Source: Article by Mike Hager, The Globe and Mail


Target Speeds Up Canadian Exit, Plans to Close All Stores by Mid-April

Target Corp. is planning to close all of its Canadian stores even faster than originally planned as locations ring up higher than expected sales.

A court-appointed monitor overseeing the windup of the Target Canada stores says all 133 locations across the country will be permanently shut down by "as early as mid-April," which is about a month ahead of schedule.

Some locations have already ceased operations — 17 stores closed in the middle of March. Another six Target locations shuttered on Monday, while 23 are slated for closure on Wednesday and 32 more on Thursday.

All items from the distribution centres have now been shipped to the stores.

Sales for the period Jan. 15 - March 14 were $511,699,000 compared to projected sales of $465,449,000, according to documents filed with the court.

"It is anticipated that the pace of delivery of vacate notices ... will continue to increase over the next two weeks," the monitor wrote in an update filed with the court.

"All stores are expected to be closed to the public as early as mid-April 2015."

The liquidation has been underway since last month, while lawyers are in court trying to iron out the details of Target's departure. A variety of creditors that include landlords, suppliers and others impacted by the closures, are trying to determine what will happen to money they're owed.

The court is considering approving the US$2.22-million sale of a variety of intellectual property assets from Target Canada back to its U.S. parent company, including both in-store and outside signs, 28,000 branded shopping carts, and 912,000 shopping bags.

Court documents say that unlike other items owned by the stores, which include electric scooters and shopping cart corrals, the Target-branded items can't be sold in the liquidation process because they're all permanently stamped with the company's name.

"It is not possible to remove the Target branding from most of the (intellectual property assets) without destroying or substantially decreasing their value," the monitor said, noting an outside appraiser was involved in the process.

"The external signage cannot be repurposed and in any event has no value based on the third party bids (and) estimates of value that have been received."
In addition to the sales price, Target Canada believes it will save an extra $1.9 million by shifting the responsibility for removing and disposing of the branded items over to Target Corp.

Source: The Canadian Press


Dollarama Ponders Raising Prices Above $3

Dollarama says it could eventually introduce products priced above $3 as it raises prices in the face of a low Canadian dollar.

“We’ll hold on as long as we can, but you’re going to see some inflation I would say in Canada, unavoidably,” chief executive Larry Rossy said last Wednesday in a conference call after releasing strong fourth-quarter results.

The discount retailer said it has absorbed some of the currency headwinds through lower margins, but has been forced to raise prices, for example, by adding 25 cents to some $1 items.

“I think at $1 we’re struggling to get good value for the client today,” Mr. Rossy told analysts.

When Dollarama started 23 years ago, all items sold for a loonie or less. But three years after it began selling items between $1.25 and $3, 71.5 per cent of sales now come from these higher price items.

The retailer said it also expects that it can open more stores in Canada than it thought as it continues to open locations in underpenetrated markets, particularly in Ontario and Western Canada.

The company said last week that the country can support about 1,400 stores, compared with the 1,200 maximum in its prior forecasts. Dollarama has 955 stores following the addition of 81 locations last year including 27 in the fourth quarter.

Meanwhile, Dollarama said it is feeling no negative pressure in Alberta or Western Canada from the impact of lower energy prices.

The liquidation of Target stores is having a short-term negative impact on Dollarama sales, but Mr. Rossy said the possible expansion of Walmart into some of these locations would be positive, as has been the experience for the 380 Dollarama stores located near Walmart stores.

As reported last week, Dollarama raised its quarterly dividend by a penny to nine cents per share as its fourth-quarter profit rose about 21% from a year ago and beat the analysts’ estimates.

The retailer earned a fourth-quarter profit of $100.3 million or 76 cents per share, compared with a profit of $83 million or 59 cents per share a year ago. Analysts had expected a profit of 71 cents per share.

Sales rose 15% to $669 million for the quarter ended Feb. 1. The increase was due to a 9.3% growth in the number of stores and an 8.5% increase in same-store sales compared with a year ago when results were hurt by bad weather that forced temporary store closures ahead of Christmas.

For the full year, the chain earned $295.4 million or $2.21 per diluted share, compared with $250.1 million or $1.74 per share in 2013. Sales increased 13% to $2.33 billion on a 5.7% increase in same-store sales.

Source: The Canadian Press 


Call for Entries for Hardlines Outstanding Retailer Awards

Hardlines Inc. announced last Friday that it is now looking for entries for the 2015 Outstanding Retailer Awards (ORAs).

The Awards, which recognize the finest retailers in the hardware and home improvement industry, are national in scope and all Canadian home improvement retailers and managers who have operated under their current ownership for at least two years are eligible.

Dealers may submit their entries directly to HARDLINES or their chain or buying group head offices may select their best dealer(s) and prepare their entries for them, in collaboration with the dealer. Head offices may enter more than one store per category.

In addition, vendors may identify specific outstanding retailers for entry. ORA submissions are due July 31st, 2015.

Categories to enter:
1. Best Hardware Store (any size);
2. Best Building Supply/Home Centre (under 15,000 square feet);
3. Best Building Supply/Home Centre (over 15,000 square feet);
4. Young Retailer Award (a store manager 35 or under; entrants may be owners or chain employees);
5. Marc Robichaud Community Leader This award is open to all stores. Its purpose is to celebrate the outstanding contributions, events, charitable donations, etc., made by a store’s staff/managers/owners to the community they serve;
6. Best Large Surface Retailer (over 65,000 square feet);
7. Best Contractor Specialist Store.

Winners will receive a trip for two to Toronto, including one night’s accommodation at the Westin Bristol Place Toronto Airport Hotel, to attend the Hardlines Conference on October 21 and 22 and the ORA Gala Dinner on October 21. In addition, winners will receive an inscribed plaque; a write-up in Hardlines Home Improvement Quarterly magazine; and a customized video and photo ready to be sent to local media. For complete application information, please visit http://www.oras.ca.

You can also contact Michael McLarney, Editor of Hardlines, 416-489-3396 or mike@hardlines.ca for further information. 


Economic News

Canada’s GDP Shrinks 0.1% in January, Not as Bad as Feared

Canada’s economy stalled in January, as harsh winter weather and the oil shock took their toll on retail and wholesale trade, but the decline was not as “atrocious” as some economists had feared.

Bank of Canada Governor Stephen Poloz had warned a day earlier that the steep slump in oil prices was having an “atrocious” effect on Canada’s economy [see next article].

Statistics Canada reported on Tuesday that real GDP fell by 0.1% in January, slightly better than the 0.2% economists had anticipated, but a reversal of course from December’s 0.3% growth.

January marked the low point of the oil slump, with the North American benchmark West Texas Intermediate crude averaging just $47 (U.S.) a barrel. The month also marked the arrival of extreme cold and heavy snow in many key regions.

“There’s no denying that the Canadian economy had a poor start to 2015, but the drop in GDP wasn’t nearly as bad as some feared,” said Benjamin Reitzes, senior economist at Bank of Montreal, in a research note.

The broader impact of the oil shock, as well as inclement weather, was evident in two major segments of the services sector: wholesale (down 2.6%) and retail (down 1%). The weakness had been expected after disappointing January retail and wholesale sales reports were published earlier this month.

Notable retail decreases occurred in food and beverage stores, sporting goods, hobby, book and music stores and motor vehicle and parts dealers. In contrast, retailing activities at clothing and clothing accessories stores as well as gasoline stations were up.

The goods side of the ledger, on the other hand, showed growth of 0.3%, building on the 0.4% gain in December.

However, its strength was highlighted by a couple of temporary effects which will be hard to repeat.

Despite the lows in oil prices, oil and gas extraction actually experienced a rebound in the month, up a sharp 2.6%. Statscan attributed the gains to the resumption of production at some oil sands facilities following fourth-quarter maintenance shutdowns, while noting that conventional oil and gas output declined in the month.

A 1.4% rise in utilities output also contributed significantly to the strength in the goods sector – a gain that reflected the arrival of harsh weather in the month.

The manufacturing sector, which is widely expected to lead Canada’s economic recovery this year as demand grows from the accelerating U.S. market, took a step backward in January, slipping 0.7% after a strong 2.1% rise in December. Again, the weakness in manufacturing had been widely expected, in light of disappointing data released earlier in the month. A pause in the auto sector was a key factor, as motor vehicle and parts production fell 3.5%.

Construction fell 0.4% in January. Both residential and non-residential building construction was down, while engineering construction was up.

The output of real estate agents and brokers decreased 5.7% in January, a fifth consecutive monthly decline. The decline was mainly the result of weakness in the home resale
market in Alberta and Saskatchewan.

The finance and insurance sector was up 0.2% in January following a 1.3% gain in December. Both banking and insurance services increased while financial investment services declined.

The public sector (education, health and public administration combined) edged up 0.1%.

The agriculture and forestry sector was up 1.9% in January, as crop and animal production and the forestry sector grew.

Economists said that while the January GDP decline wasn’t quite as severe expected, the question now is whether February will look much better, given the continued poor weather and the lingering effects of the oil shock in the month. The Bank of Canada has said that it believes the oil effects have hit the economy earlier than expected and could dissipate earlier than initially thought, but that still suggests a heavy cloud over first-quarter growth, especially given the unusually harsh winter that appears to have slowed business activity on both sides of the Canada-U.S. border.

“For now, our call for Q1 GDP growth of 0.5% is reasonable, but there remains downside risk.With February activity likely to be weak as well, there’s a decent chance that first-quarter GDP could be negative,” Mr. Reitzes said.

“The soft data are consistent with [Bank of Canada Governor Stephen] Poloz’s expectations for the oil-shock-related weakness to be more front-loaded. That suggests the Bank of Canada will probably look through the current weakness. The big question is whether the second quarter rebounds as the BoC anticipates.”

Source: Statistics Canada, The Globe and Mail 


Stephen Poloz Warns of ‘Atrocious’ First Quarter for Canadian Economy

Canada's economy is closing out an “atrocious” quarter, slammed by the crash in oil prices, Bank of Canada Governor Stephen Poloz warns.

The first quarter of the year ended on Tuesday, and economists have already warned it’s going to look ugly when the numbers come in. Indeed, some observers have suggested the economy may actually contract, though modestly, this quarter.

In an interview with The Financial Times from Monday, Mr. Poloz underscored those concerns, highlighting why he cut his benchmark interest rate by one-quarter of a percentage point in a move that surprised the markets in January.

“When the oil shock came, it was clear we would no longer be able to close the output gap by 2016, but by 2017,” the central bank chief told the news organization.

“Since we had some firepower, we took some insurance and cut rates.”

Statistics Canada data on Tuesday showed that overall GDP declined 0.1% in January, setting the first quarter up for a lame showing.

“The first quarter of 2015 will look atrocious, because the oil shock is a big deal for us,” Mr. Poloz said, citing the fact that the oil industry is slashing spending.

“In theory lower oil prices mean [putting] more money in consumers pockets, but ... if an oil company cancels [an investment] project, laying off a worker, that guy will not have the money to buy a new pickup truck,” the Bank of Canada governor is quoted by the news organization as saying.

“That spreads pretty quickly.”

Some observers, of course, have pinned at least some of their hopes on the oil-induced decline of the Canadian dollar, but that, Mr. Poloz said, is slow to work its way through the system.

It is however, still expected to have an impact.

“Now that the Canadian dollar has depreciated and U.S. investment is starting to fire on all cylinders, we are reasonably confident the export side will recover,” Mr. Poloz said.

“The manufacturing sector is turning around nicely,” he added.

“We were losing a lot of the auto parts manufacturing to Mexico.  That calculus has shifted.”

Source: The Globe and Mail, Reuters


Executives Increasingly Gloomy About Oil Shock’s Impact on Economy

Canadian executives are increasingly gloomy about the prospects for Canada’s economy, and are fearful that the recent drop in oil prices will stunt the country’s growth in the coming year.

The latest quarterly C-Suite survey reveals the most pessimistic mood in the corner office since mid-2009, when the country was still in the grips of a deep recession.

Almost 40% of the executives surveyed said they expect the economy to decline in the next year, a sharp increase from the 23% who felt that way in December. Last summer, only 3% thought a decline was in the offing.

The main culprit is the precipitous fall in oil prices, which has knocked the wind out of the oil patch, put Alberta’s finances in a precarious position, and caused economic ripples across the country.

“We are certainly going to have a slow-growth year,” said Arni Thorsteinson, president of Shelter Canadian Properties Ltd., a Winnipeg-based company that owns commercial and residential real estate across the country, including some in Fort McMurray, Alta. “The impact from the decline in oil prices is substantive because capital investment in the energy market has really been the main driver [of the economy] for the last five years.”

Lower oil prices and the lower Canadian dollar should help consumers and exporters, Mr. Thorsteinson said, but many of those benefits can take months or years to come to fruition.

He noted that his firm has investments in hotels, which will theoretically gain if more foreign tourists are attracted by the lower loonie.

“But those booking patterns take two years or longer to kick in,” he said. “By the time they get around to coming, it could be 2017.”

On the other hand, the impact of low oil prices was felt almost instantly in the oil patch, which was stunned by the sudden plunge.

“None of us saw it coming,” said Murray Toews, chief executive officer of Bonnett’s Energy Corp., a Grande Prairie, Alta-based oil-field services company. As late as last December, he said, the general view was that 2015 would be similar to 2014. Instead, “Boom. The rug was pulled from underneath us.”

While some may benefit from lower oil prices, “I don’t think that this is good for the country at all,” he said. “Whenever you get someone stumbling in any sector of our country it is going to affect us east to west.”

Having learned its lesson from the 2008-09 recession, Bonnett’s quickly cut back, trimming 15% of its work force in February.

Bonnett’s is certainly not alone, as many oil-sector firms swiftly trimmed staff and reduced spending plans. Indeed, the C-Suite results showed that 41% of companies surveyed have taken specific initiatives in light of the drop in oil prices. The top moves include reducing capital spending, shifting investments and cutting staff.

While there is a broad consensus that Canada’s economy is weakening as a result of lower oil prices, the survey also underlines significant regional differences in attitudes. Far more western-based executives – about 46% – say the national economy will shrink in the next year, compared with Ontario where 29% expect a decline.

There is an even greater divide concerning the state of provincial economies; 56% of executives located in the West think their provincial economy will slip in the next year, while only 20% of those based in Ontario feel that that way.

That’s no surprise, said Shawn O’Brien, CEO of Cipher Pharmaceuticals Inc., a specialty drug company based in Mississauga. With western energy companies hurt by lower prices, and eastern manufacturers helped by the lower dollar, the impact is clearly uneven.

“I’m not totally negative,” about lower oil prices and the low dollar, he said, noting that Cipher’s financial results will improve because 90% of its income is generated in the United States, while operating expenses are in Canada. “It’s a good thing for us.”

Mr. O’Brien is enthusiastic about a possible further rate cut from the Bank of Canada, which trimmed its key lending rate by a quarter percentage point in a surprise move on Jan. 21. “Any easing the bank can do to help build confidence … will help,” he said.

Overall, the C-Suite participants are divided on the interest rate issue; 51% support an additional 25 basis point cut, while 44% oppose it. Proponents underline the benefits of a lower cost of capital and the resulting stimulative effects. Those opposed note the impact on the dollar and the impetus for Canadians to go further into debt.

Bill Thomas, CEO of KPMG’s Canadian operations, said the divergence of views reflects the fact that interest rates are just “one tool in the tool box” for fuelling the economy. There are other options that can help, he said, such as boosting infrastructure spending – his preference for giving a “jolt” to the economy.

Mr. Thomas said he is confident that most companies in Canada’s oil patch will use what they have learned from past shocks to make it through these tough times. “The best balance sheets will weather the storm, and they will come out of this not only with a stronger business, but lots of great opportunities to grow,” he said. “We have some of the strongest, best run organizations on the globe.”

The quarterly C-Suite survey was conducted for Report on Business and Business News Network by Gandalf Group, and sponsored by KPMG. The survey interviewed 152 executives between Feb. 23 and March 16, 2015.

Source: Article by Richard Blackwell, The Globe and Mail


Canadian Consumer Confidence Gains for Fourth Week

Canadian consumer confidence rose for a fourth week in the longest string of increases since September on optimism the outlook is improving for the economy and home prices.

The Bloomberg Nanos Canadian Confidence Index advanced to 55.6 in the week ended March 27, from 55.0 a week before. That was the highest reading since the end of January. The gauge is recovering after it fell to a 21-month low of 53.6 at the end of February on concern about the effects of falling crude prices.

Oil is stabilizing and non-energy exporters are benefiting from a weaker currency and rising U.S. orders, Bank of Canada Governor Stephen Poloz said March 26, adding he’s hopeful the economy will regain momentum by midyear.

Consumer optimism may be tested by reports this week with Statistics Canada reporting the economy shrank in January and the trade deficit growing to $2 billion, versus a five-year average of $420 million, according to median forecasts in Bloomberg surveys.

Nanos Research asks Canadians each week about their views on personal finances, job security, the economic outlook and where real estate prices are headed. This is what the survey data, which is compiled for Bloomberg News, captured for the week through March 27:
Source: Bloomberg News


Retail Sales in Canada Still in Good Shape … Except for Gasoline Stations
(Article by Ed Strapagiel, Consultant)

Reports that the sky is falling in Canadian retail sales are greatly exaggerated. Almost all the recent decline in total retail growth is due to lower gas prices, while other retail sectors are performing within or better than their normal range of variation. Gasoline stations account for about 12.5% of total retail, so a major sales decline in this subsector is a significant drag on the overall total.

Gasoline station retail sales declined 21.3% in January 2015 versus a year ago on a not seasonally adjusted basis, so that total retail was up only 0.5% for the month. Excluding gas stations however, the rest of retail was up 4.2% in January year-over-year, and up 4.9% for the 3 months ending January.

The underlying 12 month trend for total Canadian retail sales is now headed downward. The 3 month trend has weakened considerably, indicating more of the same ahead, at least until gas prices recover.

While Automotive & Related suffers however, the Food & Drug and Store Merchandise sectors are actually stable or strengthening.

Food & Drug Stores
The Food & Drug sector continues to crawl along, but at least it's crawling in the right direction. The underlying 12 month trend has been slowly improving for about a year and a half, and is up to 3.0% for the 12 months ending January 2015. This is hardly spectacular, but it is a 4 year high.

Food & beverage stores had a good January, with retail sales up 5.2% year-over-year, which is almost double their average. On the other hand, health & personal care stores had a relatively slow month, up 1.6% from January last year, or roughly half their previous average. These ups and downs are typical for the sector.

Store Merchandise
The Store Merchandise sector is emerging as the place to be for 2015. The 3 month trend is still running ahead of the underlying 12 month trend, which has been improving for about 18 months and is now at a 5 year high.

Almost all store types had respectable sales gains in January 2015 compared to the same month a year ago, particularly clothing stores, jewellery, luggage & leather goods stores, and electronics and appliance stores. Only miscellaneous store retailers turned in a decline for the month.

Automotive & Related
The Automotive & Related sector appears to have fallen off a cliff. This is almost all due to lower gasoline prices, particularly as compared to the very high prices in place a year ago.

At the same time, new car dealers' sales were up "only" 4.7% in January 2015 year-over-year. This would be a good result for most retailers, but it is well off the 8.5% gain new car dealers recorded for 2014 overall. Used car dealers and other motor vehicle dealers also had an off month in January.

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Latest U.S. Economic News

U.S. Home Prices Climb 4.6%
U.S. home price increases continued to rise at a steady pace in January, as the housing market deals with affordability problems and few properties listed for sale.

The Standard & Poor’s/Case-Shiller 20-city home price index rose 4.6% in January compared with 12 months earlier, S&P said Tuesday. That is up from growth of 4.4% in December.

Few Americans have listed their homes for sale, with the tight inventory keeping prices higher. Robust hiring and low mortgage rates have raised the possibility of stronger sales, yet home prices have appreciated at a significantly faster pace than earnings.

“Home prices are rising roughly twice as fast as wages, putting pressure on potential homebuyers and heightening the risk that any uptick in interest rates could be a major setback,” said David Blitzer, chairman of the index committee for S&P Dow Jones Indices. The Case-Shiller index covers roughly half of U.S. homes. The index measures prices compared with those in January 2000 and creates a three-month moving average.  The January figures are the latest available.

Housing inventories have been tight since December. The number of homes for sale in February was equal to just 4.6 months of sales, compared to an average of 5.2 months last year. Six months of supply is typical for a healthy housing market.

All 20 cities reported higher prices than a year earlier. Denver reported the largest gains, with prices up 8.4%. Miami prices jumped by 8.3%, while Dallas homes appreciated at 8.1%. Home appreciation nearly plateaued in Washington, DC, where prices rose just 1.3%.

Signed contracts in February suggest that sales will rebound after a sluggish start to 2015, when sales were running below last year’s relatively pace.

The number of signed contracts rose 3.1% last month, which should be reflected by more sales being completed in March and April, according to the National Association of Realtors.

A new housing indicator by the insurer Nationwide suggests that the U.S. housing market was stable at the end of 2014. That index released Tuesday said the housing market is at its healthiest level since 2001, with few regional markets at risk of a downturn.

Source: The Associated Press

U.S. Pending Homes Sales Rise in February, Point to Stronger Spring Sales
More Americans signed contracts to buy homes in February, evidence that the spring buying season could open strong after sluggish sales for much of the winter.

The National Association of Realtors (NAR) said on Monday that its seasonally adjusted pending home sales index climbed 3.1% to 106.9 last month, the highest reading since June 2013.

Buying activity jumped in the Midwest and West, while dipping slightly in the Northeast and South. The gains suggest that housing should overcome the recent hurdles of freezing weather and blistering snowstorms, as both buyers and potential sellers return to the market.

Pending sales are a barometer of future purchases. A one- to two-month lag usually exists between a contract and a completed sale.

Source: The Associated Press

U.S. Consumer Spending Tepid in February; Savings at Two-Year High
U.S. consumer spending barely rose in February as households boosted savings to their highest level in more than two years, the latest sign that the economy hit a soft patch in the first quarter.

Economic growth has been undercut by bad winter weather, a strong dollar, a now-settled labour dispute at busy West Coast ports and softer demand in Europe and Asia. The slowdown in activity, however, is expected to be temporary.

“Even if the first quarter is weak, the outlook for consumption over the remainder of this year looks good,” said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

“Households are still flush with the money saved from the big drop-off in gasoline prices and, with the labour market still on fire, incomes should continue to increase at a solid pace.”

The Commerce Department said on Monday that consumer spending edged up 0.1% after dropping 0.2% in January. Households cut back on purchases of big-ticket items like automobiles, but a cold snap lifted spending on utilities.

Economists polled by Reuters had expected consumer spending, which accounts for more than two-thirds of U.S. economic activity, to increase 0.2% last month.

When adjusted for inflation, consumer spending dipped 0.1% last month, the weakest reading since April of last year, after rising 0.2% in January.

Consumption has cooled since the fourth quarter, when it hit its fastest pace in more than eight years.

The soft consumer spending data could see economists further lower their first-quarter growth estimates, which currently range between a 0.9% and 1.4% annualized pace. The U.S. economy grew at a 2.2% in the fourth quarter.

While households appear to have pocketed the bulk of their savings from lower gasoline prices or used the money to pay down debt, economists expect improved household balance sheets and a tightening labour market to boost consumer spending this year.

Last month, income rose 0.4% after a similar gain in January. Savings jumped to $768.6-billion from $728.7-billion in January, the highest level since December 2012.

The saving rate rose to 5.8%, also the highest since December 2012, from 5.5% in January.

There was a slight uptick in prices last month, suggesting a recent disinflationary trend had run its course, but inflation remains well below the Federal Reserve’s 2% target.

Fed Chair Janet Yellen signalled last Friday that the U.S. central bank would likely start raising interest rates later this year, even with inflation running low. The Fed has held its key short-term interest rate near zero since December 2008.

A price index for consumer spending increased 0.2% in February after falling 0.4% in January. In the 12 months through February, the personal consumption expenditures (PCE) price index rose 0.3%.

Excluding food and energy, prices edged up 0.1% after a similar gain in January. The so-called core PCE price index increased 1.4% in the 12 months through February.

Source: Reuters

U.S. Fourth-Quarter Growth Unrevised at 2.2%; Corporate Profits Fall
U.S. economic growth cooled in the fourth quarter as previously reported and after-tax corporate profits recorded their biggest drop since early 2011, as a strong dollar dented the earnings of multinational corporations.

U.S. GDP expanded at a 2.2% annual rate last quarter, the Commerce Department said last Friday in its third estimate of GDP.  That was unrevised from the forecast last month.

Businesses throttled back on inventory and equipment investment, but robust consumer spending limited the slowdown in the pace of activity in the fourth quarter. The U.S. economy grew at a 5% rate in the third quarter.

After-tax corporate profits declined $57.1-billion, the biggest fall since the first quarter 2011, after rising $52.4-billion in the third quarter. Corporate profits from outside the United States decreased $36.1-billion after increasing $16.5-billion in the previous quarter.

Multinationals such as technology giant IBM, semiconductor maker Intel Corp, industrial conglomerate Honeywell and Procter & Gamble, the world’s largest household products maker, have warned that the dollar will hurt profits this year.

The U.S. dollar gained 7.8% against the currencies of the main U.S. trading partners between June and December.

Weak profits could undermine business spending on equipment and hiring. For all of 2014, profits fell 8.3%, the largest annual drop since 2008.

Economists polled by Reuters had expected fourth-quarter GDP growth would be revised up to a 2.4% rate.

Slower economic growth together with benign inflation could prompt the Federal Reserve to delay raising interest rates until later this year. The U.S. central bank has kept its short-term lending rate near zero since December 2008.

Fed officials last week lowered their individual growth estimates for this year through 2017.

The moderate pace of the U.S. economic expansion appears to have persisted through the first quarter.

The sturdy dollar, lingering weakness in Europe and Asia, harsh winter weather in the United States and a now-settled labour dispute at busy U.S. West Coast ports dampened activity in first two months of the year.

With temperatures rising, there are signs of some pick-up in activity. But the dollar will likely provide a challenge for domestic manufacturers.

First-quarter growth estimates range between a 0.9% and 1.4% rate.

Businesses accumulated $80-billion worth of inventory in the fourth quarter, less than the $88.4-billion the government had estimated last month.

As a result, inventories subtracted 0.10 percentage point from GDP growth in the fourth quarter. Restocking was previously reported to have added 0.1 percentage point to output.

The weak pace of restocking, however, removes the threat of an inventory overhang, giving businesses scope to place more orders for goods, which should help to stimulate manufacturing.

Business investment on equipment was revised to show it rising at a 0.6% rate instead of the previously reported 0.9% pace.

The slower rate of expansion in equipment spending likely reflected the strong dollar and lower crude oil prices, which caused a drop in drilling and exploration activity.

But consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 4.4% rate in the fourth quarter instead of the 4.2% rate reported last month.

It was the fastest pace since the first quarter of 2006.

Despite the strong consumption, inflation pressures were muted. The personal consumption expenditures price index fell at an unrevised 0.4% rate – the weakest reading since early 2009.

Excluding food and energy, prices rose at an unrevised 1.1% pace, the slowest since the second quarter of 2013.

Consumer spending, however, moderated early in the first quarter as cold and snowy weather kept shoppers at home.  Households also appear to have opted to save the bulk of their savings from lower gasoline prices.

Despite slower global demand, export growth was revised higher. But with consumer spending so strong, more imports than previously estimated flowed into the country, resulting in a trade deficit that weighed on GDP growth.

Trade lopped off 1.03 percentage points instead of the 1.15 points reported last month.

Residential construction spending in the fourth quarter was revised up, while government spending was a touch weaker than previously reported.

Source: Reuters

  

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