CHHMA - EYE ON OUR INDUSTRY
Volume 16, Issue 29, August 4, 2016
Inside This Issue:
• TIMBER MART’s Bernie Owens to Speak to CHHMA Members in Montreal – October 26
• Join Us on September 13th for a Seminar on the Future of E-Commerce/Digital
• Industry Memorial Golf Classic - September 27th at Blue Springs G.C.
• CHHMA Announces Scholarship Program Recipients for 2016
• Canadian Tire Profit Beats Estimates as Sports Gear, Apparel Sales Rise
• Amazon Reports 31.1% Jump in Revenue as Cloud Sales, Prime Subscriptions Take Off
• Dollar General to Acquire Former Walmart Express Stores
• Loblaw Says Move to Cut Grocery Prices in Top-Tier Stores Starting to Pay Off
• HBC’s Bonnie Brooks Named New LCBO Board Chair
• Sears Canada Makes Top Executive Changes - Again
• Canada’s Economy is Growing at the Slowest Pace in 60 Years and the Only Thing Holding Us Up is Housing
• Vancouver’s New Residential Tax on Foreigners Now in Effect, Here’s What to Expect
• Canadian Economy Sees Biggest Monthly Drop Since 2009 on Alberta Wildfires
• Retail Sales in Canada Hit a Speed Bump
• High House Prices Spreading to More Markets, CMHC Warns
• Fort McMurray Set for Largest Home Building Boom in Decades: CMHC
• Latest U.S. Economic News
Association News
TIMBER MART’s Bernie Owens to Speak to CHHMA Members in Montreal – October 26
The CHHMA is pleased to announce that Mr. Bernie Owens, President of TIMBER MART, will be our next guest speaker at a CHHMA Breakfast Seminar to be held at the Hôtel Holiday Inn Montréal-Longueuil on the morning of October 26th.
Mr. Owens began his career in the building-supply industry over thirty years ago, serving a long tenure at building-material manufacturer, CertainTeed – a subsidiary of multinational corporation, Saint-Gobain.Throughout his 21 years at CertainTeed, Mr. Owens served various roles including, General Manager - Finish Products for North America and Vice President of Sales for the company’s gypsum and insulation business units. Over the years, Owens adopted global best practices and fostered relationships with buying groups and building-material suppliers nationwide. Owens also went on to further his studies in business at international business school, INSEAD and York University’s Schulich School of Business.
Today, as the president of TIMBER MART, Mr. Owens leads the organization with a global industry perspective, fresh ideas, clear vision, and a relentless drive to make TIMBER MART the buying group of choice for Canadian independent building material and hardware entrepreneurs.
We look forward to hearing from Mr. Owens and his update on the organization. Further details and registration information will be available next week.
Join Us on September 13th for a Seminar on the Future of E-Commerce/Digital
The digital world continues to transform retail in and out of the physical store and this trend will continue well beyond 2020. Traditional brick and mortar retailers are evolving their e-commerce operations and global third party marketplaces are fundamentally disrupting the retail landscape, resulting in a completely reshaped retail environment that will require distinct capabilities to compete.
In order to position for growth in this new seamless, digitally integrated retail environment, retailers and suppliers need to understand how fast e-commerce is growing, and get answers to crucial questions related to e-commerce and the digital transformation, including:
• How fast is e-commerce forecast to grow around the globe and in Canada?
• What is the size of the e-commerce opportunity?
• Which retailers are leading the change and driving the innovation?
• What capabilities will be critical for retailers and suppliers to win in the future digital landscape?
• How will e-commerce impact logistics and fulfillment business models of the future?
The CHHMA along with the Canadian Office Products Association (COPA) and RetailNet Group will be bringing the answers to you in a workshop on the future of e-commerce/digital on the morning of Tuesday, September 13, 2016, 9:00 a.m. – 11:00 a.m., at the Centre for Health & Safety Innovation, 5110 Creekbank Rd., Mississisauga, ON., CHHMA Members: $99.00 + HST.
The seminar will explore how fast e-commerce is growing, the top e-commerce initiatives that retailers around the globe are working on today, and the future prevalent e-commerce fulfillment models. Participants will learn why retailers and brands need to build their roadmap of the table stakes and differentiating capabilities to carry them through the e-commerce and digital transformation.
With such a huge shift taking place in the industry, you will not want to miss out on this game-changing information!
About the Speaker
Hannah Donoghue leads RNG’s advisory practice, specializing in global retail strategy, e-commerce, and planning. Through her advisory work, she supports global retailers, manufacturers and service providers on custom projects, presentations, and immersion programs focused on the future of retail, retailer growth initiatives and supplier capabilities. Donoghue also supports and presents at RNG’s Executive Education programs, which provide strategy and leadership courses through partnerships with leading universities.
Beginning her career at RNG as an analyst, Donoghue leads RNG’s research and forecasts for the Latin America region. She also leads RNG’s college graduate recruitment program, supporting the growth and development of RNG’s analyst team.
Check your email or the CHHMA website in the coming days for info on how to register plus future newsletters but in the meantime mark the date on your calendar and we hope to see you there.
Industry Memorial Golf Classic - September 27th at Blue Springs G.C.
The 15th Annual Industry Memorial Golf Classic is taking place on Tuesday, September 27th at the Blue Springs Golf Club in Acton, Ontario.
The event is held on behalf of the hardware and housewares industry and it honours stalwarts from the industry who have passed away. CHHMA members and non-members are welcome to attend.
This year’s honourees are: David Holden (Hamilton Beach), Leonard Lee (Lee Valley Tools) and Warren Parr (D.H. Howden/TSC Stores).
Past honourees include: David Fry, Ted Kennedy, Geoff Somers, Ray Ceolin, Tom Ross, Bruce Webster, Chris Hrushowy, Mike Pullen, Jim Ypma, Bill Caldwell, Brayl Copp, Ed Hardison, Stuart North, Joseph Kuchar, Shelly Lush, Jack Pountney, Christof Vanooteghem, Ian Hay, Trygve Husebye, Bernie Carpenter, Don McDonald, Les Groves, Bob Hilton, Doug Straus, Mel Boshart, George Giles and Ed Barnes.
The day allows family, friends and colleagues to honour these gentlemen while enjoying a fun day out on the golf course followed by a dinner and silent auction.
The event will start off with registration and breakfast at 8:00 a.m. with a 9:00 a.m. tee off. Dinner will commence at around 2:30 p.m.
Money raised from the event will go towards the CHHMA Scholarship Program which provides support for children of CHHMA member company employees to attend university or college.
Click here for a PDF registration form. Click here for a PDF silent auction pledge form.
Online registration will be open shortly.
CHHMA Announces Scholarship Program Recipients for 2016
The CHHMA Board of Directors is pleased to announce the Scholarship Award recipients for 2016. The finalists were chosen by ballot draw and this year we are pleased to award five scholarships.
Since 2001, the CHHMA has awarded $170,000 towards scholarships and some 85 young people have benefited from the scholarship program. Recipients receive $1,000 per year for the first two years of study at an accredited post-secondary institution.
Here are this year’s winners:
Victoria Denobrega – Ajax, Ontario
Victoria is the daughter of Chris Denobrega from IPEX Inc. She will be attending Western University in the fall to study Kinesiology. Victoria was on the honour roll all four years of high school and graduated with a final average of 87.5%. She would like to become either a doctor or a physiotherapist as she has a passion for learning as much as she can about the human anatomy.
Wynona Falcao – Mississauga, Ontario
Wynona is the daughter of Shaunon Falcao from Loxcreen Canada. She will be attending Wilfrid Laurier in the fall pursuing her bachelors degree in Communication Studies with Management. Wynona graduated with honours and plans to work in the Marketing and Advertising industry when she finishes school.
Elias Jambari – Laval, Quebec
Elias is the son of Youssef Jambari from MTD Products Limited. He will be attending University of Montréal’s Polytechnique de Montréal this fall to study engineering. During high school and CEGEP, Elias was very active in community service and volunteer work including tutoring other students in several subjects. His entrepreneurial spirit was developed selling electronic accessories online.
Rebecca Malcolm - Aurora, Ontario
Rebecca is the daughter of Dale Malcolm from Lincoln Electric. She will be attending Queens University in hopes of getting a Bachelor of Science degree.Rebecca is passionate about medicine and would like to become either a medical surgeon or a medical lawyer. She was a very active and dedicated volunteer during her high school years and would like to continue to make difference when she enters University.
Kenneth Sun – Vancouver, British Columbia
Kenneth is the son of William Sun from Taymor Industries.He will be attending the University of British Columbia striving for a Bachelor of Arts degree. Kenneth was active in his community as a volunteer which led him to wanting to make the lives of others easier with his passion for business and economics. Kenneth hopes to one day open a business that will be beneficial to the community and create a positive impact on the world.
Congratulations to the winners for their outstanding achievements and to the member companies for encouraging their employee participation.
For a complete list of past scholarship winners, go to: http://www.chhma.ca/Public/Scholarship-Program
Industry News
Canadian Tire Profit Beats Estimates as Sports Gear, Apparel Sales Rise
Canadian Tire Corp. posted strong sales of sporting goods and beat analyst estimates in its second quarter results released Thursday, despite the surprise exit of its CEO.
Net income in the period ending July 2 rose 8% to $179.4 million, or $2.46 per share, compared with earnings of $166 million ($2.15) in the same period a year earlier.
That eclipsed average analyst estimates of $2.33, according to Thomson Reuters.
“Current initiatives, the collective strength of our brands, coupled with our leadership in and commitment to product innovation today, and for tomorrow, represent an incredible opportunity for growth,” said Stephen Wetmore, who was reinstated in the CEO role last month after Michael Medline abruptly exited the role after the board reportedly disagreed with the pace and direction of the retailer’s e-commerce initiatives.
The company’s revenue rose to $3.35 billion from $3.25 in the same period a year ago, beating analyst estimates of $3.31 billion.
Overall retail sales rose 3.1% to $3.98 billion from 3.86 billion a year ago. Sales at Canadian Tire’s 501 stores and 91 PartSource outlets rose 4.2% to $1.9 billion. Same-store sales climbed 2.9%.
Sales at its FGL Sports division, which includes Sport Check stores, rose 5.7% to $496.5 million, and same-store sales were up 5.8%.
Retail sales at its Mark’s apparel banner climbed 4.4% to $260.9 million and same-store sales rose 4.6%.
Source: The Financial Post
Amazon Reports 31.1% Jump in Revenue as Cloud Sales, Prime Subscriptions Take Off
Amazon.com Inc. reported a better-than-expected rise in quarterly revenue last Thursday, powered by blockbuster growth in its cloud services unit.
Amazon’s web retail sales in the U.S. and internationally, the core of the company’s business, also topped expectations, and it forecast revenue ahead of expectations for the third quarter. Shares of Amazon, the world’s biggest online merchant, were up 2% in after-hours trading.
“They crushed estimates,” said Michael Pachter, analyst at Wedbush Securities.
The Seattle-based company is riding a wave of retail sales moving to the internet and is using original videos in a Netflix-like service to win new customers. The cloud business, Amazon Web Services, is the company’s fastest growing business and is regarded by analysts as the next driver of growth for the company.
The expansion in so many areas requires substantial investment, though, and shares initially dipped in after-hours trade, as the company forecast relatively low operating income for the current quarter of US$50 million to US$650 million.
It earned US$857 million in the second quarter, or US$1.78 per share, compared with analysts’ average estimate of US$1.11 per share, according to Thomson Reuters.
“It was the largest June quarter profit in the company’s history, but we’re back to guiding barely any profitability,” BGC Partners analyst Colin Gillis said of the September quarter guidance.
Still, that period typically has higher costs for Amazon as the retailer ramps up for the holiday shopping season, Gillis said.
Amazon forecast current-quarter net sales of between US$31.0 billion and US$33.5 billion, factoring in sales from its Prime Day annual shopping festival. Wall Street on average had targeted US$31.6 billion, according to Thomson Reuters.
The company’s net sales in North America, its biggest market, jumped 28.1% to US$17.67 billion.
Revenue from Amazon Web Services surged 58.2% to US$2.89 billion. This beat the average estimate of US$2.83 billion, according to market research firm FactSet StreetAccount.
The company’s net sales rose 31.1% to US$30.40 billion in the second quarter ended June 30.
Source: Reuters
Dollar General to Acquire Former Walmart Express Stores
Following Dollar Tree's acquisition of Family Dollar in 2015, Dollar General has been fighting back to try and regain its leading position in the Dollar stores channel. It plans to open 900 new stores this year and 1,000 in 2017, both organically and through acquisitions. By opening stores at this rate it could match Dollar Tree's store numbers by 2018 and be back in the lead by 2019, depending on whether Dollar Tree also accelerates its openings.
Dollar General plans to relocate 40 of its existing stores into the purchased sites and enter one new market. This will give it slightly larger stores (around 12,000 sq ft compared to its average of 7,500 sq ft) and allow it to add meat and fresh produce into the stores, something that forms part of its strategic plan to drive shoppers into store more frequently. The retailer operates around 13,000 locations, with 120 of these currently offering fresh produce and it has plans to roll this out further.
Why has Walmart closed its smaller format?
In January 2015, Walmart announced plans to close all 102 of its Walmart Express stores. The smaller format launched in 2011 and was originally introduced to compete with dollar and convenience stores and help combat the slower growth of its larger formats. However in January 2016, Walmart closed all 102 locations, which it said was a necessary move to keep the company strong and positioned for the future, allowing it to focus on growing its supercenters, neighbourhood markets and online sales.
With other retailers expanding into new channels, such as Whole Foods Market launching its new 365 format, it will be interesting to see how successful this is, or whether it proves better to stick to core formats.
Remaining stores divided up
Of the remaining 61 stores, Brookshire Grocery Co has agreed to acquire 25 stores, 20 in Texas and five in Louisiana. It will convert them to a new banner, Spring Market. Harps Food Store's also announced it will purchase nine of the stores, six located in Arkansas and three in Missouri.
Source: IGD Retail Analysis
Loblaw Says Move to Cut Grocery Prices in Top-Tier Stores Starting to Pay Off
A move by Loblaw Cos. Ltd. to cut grocery prices in response to sliding food inflation is beginning to pay off, according to Galen Weston.
The country’s largest grocery and drug retailer began making strategic price cuts at its top-tier stores in the second quarter after customers became increasingly resistant to paying higher food prices, company president Galen Weston told analysts last Wednesday after Loblaw’s second-quarter results were released.
“We had successive years of inflation leading up to high food prices and consumers were starting to feel a ceiling,” in the first quarter of 2016, Weston noted, and shoppers were tightening their belts and shifting into more discount brands and banners, particularly in areas of Western Canada hard hit by a downturn in the oil economy.
Loblaw made moves to strategically cut prices on some goods in the second quarter, which ended June 18, and also sent its major suppliers a letter asking them to cut the amount they charge Loblaw for goods.
“We are well down the journey of investing (in price cuts) at this point,” Weston told analysts. “We will invest 100% of the proceeds that come from this supplier (request) back into the customer.”
Loblaw beat analyst estimates for adjusted net earnings in the period, which rose 20% compared with a year ago.
“Price wars are generally not something that we look forward to but we will certainly be ready if the marketplace heats up,” Weston said. “We are in a low inflation environment and we don’t expect that to change.” In order to be successful in deflationary periods, retailers need to find ways to drive up customer traffic and sales volume, he added “because volume is the only thing that will make sure that your sales stay in positive territory.”
Net income was $158 million or 39 cents per share, down from $185 million or 44 cents per share, largely due to higher interest expenses and financing charges.
Adjusted earnings rose to $412 million or $1.01 per share from $350 million or 84 cents per share in last year’s second quarter. That beat analysts’ mean estimates of 94 cents, according to Thomson Reuters.
Retail analyst Peter Sklar of BMO Capital Markets said one upside of the quarter was Loblaw’s turnaround on the amount of food being shipped to its stores.
“The earnings beat, driven by the reversal of a negative tonnage trend in the grocery business, continued solid sales growth at Shoppers, lower-than-expected expenses and higher-than-expected synergies, demonstrates a solid quarter for the company,” Sklar wrote in a note to clients.
Revenue rose 1.9% to $10.7 million. Food retail same-store sales growth was 0.7%, excluding gas bar sales. Shoppers Drug Mart was the strongest performer, with same-store sales climbing 4%. Weston said Shoppers has benefited strongly from the addition of Loblaw’s President Choice food brand into its stores, delivering higher sales and margins than the Shoppers’ now-discontinued food brands.
Source: The Financial Post
HBC’s Bonnie Brooks Named New LCBO Board Chair
The government of Ontario last week named Hudson’s Bay Co. vice-chairman Bonnie Brooks as the new LCBO board chair, one day after announcing the launch of an online site where customers will be able to order alcohol.
Bonnie Brooks, who has spent 40 years in fashion and retail marketing, has held senior roles with Hudson’s Bay Co. since 2008 when she joined the company and became its first female president and CEO. Brooks is known for engineering a turnaround for the retailer, dropping its moribund apparel brands and bringing in mid-to-high end fashion products.
Brooks was set to retire from her role as vice-chairman before agreeing to take on LCBO role. She said this new opportunity would allow her to help “build on the great work that has already been done, and to take this exciting retail powerhouse to the next level,” with its expansion online and its new role as wholesaler to grocers.
Finance Minister Charles Sousa called Brooks a “visionary business leader” and said she was chosen for the role because of her “incredible track record.”
Brooks had previously spent 12 years at Holt Renfrew in merchandising and marketing. She spent another 11 years in Hong Kong as the president of Lane Crawford.
The announcement continues a period of change and innovation at the LCBO. Last Tuesday, the retailer announced customers would soon be able to buy from a selection of 5,000 beer, wine and liquor products online and have them delivered to their homes.
If her appointment is confirmed by the Lieutenant Governor in Council, Brooks would begin working in her new position as of Aug. 28, 2016.
Source: The Financial Post
Sears Canada Makes Top Executive Changes - Again
Sears Canada’s revolving door reputation is only getting worse after announcing last week that Carrie Kirkman is on the way out less than a year into her role as president of the retailer.
Kirkman, an experienced fashion executive formerly with Nine West Canada, Jones Apparel Group and Hudson’s Bay, was named president and chief merchant of Sears Canada in November.
At the time, she was keen to discuss the retailer’s latest strategies to draw in its two target customers, nicknamed ‘Linda’ and ‘Amy’, the former a longtime Sears customer in her 50s with grown kids, the latter a younger mother of school-aged children.
But the shrinking department store chain shifted course yet again last Monday, when Kirkman’s pending exit was announced in the middle of a statement to reaffirm the company’s strategic objectives of real estate development, ongoing cost controls, and an overhaul of its digital commerce and IT platform.
Kirkman had been “brought aboard to focus on strategic brand partner development,” the statement said, adding new brands will debut this fall. Kirkman will end her official tenure in the C-suite and as a board member in August, but will still be available to the retailer in an advisory capacity to help with brand development.
At the same time, Sears said, retail veteran Heywood Wilansky, a former CEO of U.S. retailers including Bon Ton Stores Inc. and DSW Inc. who joined Sears Canada’s board just last month, will take on a new position at Sears Canada, but his role and title are somewhat different from Kirkman’s — Senior Adviser for Merchandising, Marketing and Retail.
"Since joining the Board, Heywood has provided instrumental support and guidance, and helped us enhance and deepen relationships with existing vendors and develop relationships with new vendors," said Mr. Stranzl in the statement."It is an honour to have Heywood now working more directly with our team to execute on our business plans."
“This is a really bad management practice,” said Alan Middleton, a marketing professor at York University (and a past CHHMA Conference speaker).
“With all the change and confusion about titles and everything else, these repeated executive shifts create an immense amount of confusion about who is doing what,” he said.
“Suppliers and investors certainly will look at this and wonder. And for employees who make the business work on a day-to-day basis, it creates a sense of uncertainty and confusion about who is in charge. Think about what leadership is all about. This looks like they can’t make up their mind about what to do.”
Sears Canada, whose sales have dwindled to $3.1 billion from $6.5 billion in 2002, has been without a CEO since the company began earning the reputation of going through too many of them.
Ronald Boire, the fourth and last in a string of short-stint CEOs, left in July 2015 after just six months in the top spot to run U.S. book retailer Barnes & Noble. At the same time, Brandon Stranzl became the ostensible public face running the company when he was named executive chairman.
Kirkman was one of multiple new recruits Stranzl had brought into the company, explaining in an April interview that many senior leaders that had been at Sears Canada “for a very, very long period of time,” had been replaced. “We have new people in almost all of those roles.”
The exits included that of chief operating officer Klaudio Leshnjani, who left in December and was replaced in April by Becky Penrice, former head of human resources, and CFO E.J. Bird, who left the company in April. Bird has been replaced by interim CFO Billy Wong as the company searches for a new finance head.
“I am not really surprised by this news because pretty much every year Sears Canada changes its top person, but I am surprised it happened this quickly,” said Bruce Winder, partner in Toronto-based Retail Advisors Network.
“Every time they bring in someone to grow or reform the business it fails to materialize. Kirkman was not given much of a chance if (merchandising) was her true mandate.”
He noted former CEO Calvin McDonald left in 2013 amidst reports he clashed with the retailer’s board about how much capital to use to help Sears reinvent its business.
“But it doesn’t make any sense to allocate capital to the Canadian business, because they look as though they are trying to sell off as many assets as they can before they wind it down,” Winder added, noting the retailer’s ongoing bid to sell off its leases and cut its costs.
In its most recent quarter ended April 30, same-store sales declined at Sears Canada declined by 7.4% over the prior year, while the company cut $80 million in annualized costs during the period. But the retailer still has cash on hand, ending the first quarter with $349.8 million in cash.
It also announced another in a long line of real estate asset sales, a sale-leaseback agreement for $23.4 million for its National Logistics Centre in Port Coquitlam, B.C.
Last week’s press release included the following statements on the organizational alignment:
“The Company remains fully committed to the re-engineering strategies formulated over the past year under the guidance of Brandon G. Stranzl, who continues to lead the organization as Executive Chairman.As announced on June 8, 2016, the re-engineering of Sears Canada focuses on four primary workstreams:
• Sears 2.0, which is reinventing Sears Canada's retail store format with a more customer-focused and relevant assortment architecture, designed to increase inventory turnover and enable a more compact in-store layout;
• Initium Commerce Lab, a technology and software development initiative focused on building new I.T. architecture both to run all of Sears Canada and to facilitate new business ventures, including an updated digital commerce experience and expanded commercial logistics capabilities;
• Real Estate Development, which will match the Company's real estate portfolio to better suit its needs under the Sears 2.0 designs to operate a profitable store-based retail business; and
• Cost Structure, which will bring the Company's Selling, General and Administrative expense structure in line with its business.”
Source: Sears Canada Inc., The Financial Post
Economic News
Canada’s Economy is Growing at the Slowest Pace in 60 Years and the Only Thing Holding Us Up is Housing
Canada is in the midst of one of its weakest expansions ever, and only the housing boom keeps it from getting worse.
That’s one of the key takeaways from Friday’s GDP report. Two years since oil prices started plunging, Canada’s economy is almost completely reliant for growth on bank lending and the hot Vancouver and Toronto housing markets generating fees for brokers.
Real estate and financial services now account for 20% of the economy, levels not seen in the data since the early 1960s. That could be a problem, with household debt at a record and policy makers scrambling to slow price gains that are making homes unaffordable for all but the wealthiest buyers.
While Bank of Canada policy makers expect a sharp second-half rebound as oil production resumes and exports pick up, some investors are hedging their bets. Swaps trading suggests an almost 30% chance Governor Stephen Poloz will cut interest rates by the October meeting to give the economy another jolt.
At the very least, the economy’s lethargy will add urgency to efforts by Prime Minister Justin Trudeau and Finance Minister Bill Morneau to bolster long-term growth ahead of the 2017 budget.
Based on last Friday’s report, here’s what else we know about how Canadian economic output has changed over the past two years:
Stasis
Since May 2014, Canada’s economy has expanded 1.2%. That’s the slowest two-year pace outside a recession in at least six decades, according to Statistics Canada monthly data back to the early 1960s. Until recently, the country typically mustered growth of least 5% over two years.
Over the past 10 months, Canada’s economy has stalled altogether with zero growth. That’s mostly due to Alberta wildfires in May shutting down oil production. But there appear to be deeper forces at play. Averaging GDP over three months in order to reduce the effect of the wildfires still produces the same result: the worst two-year expansion outside a recession in decades.
Oil Industry
Output of mining companies, oil and gas producers and their support sectors plunged 14% in May from the same month two years earlier. Averaged over three months, the decline is only 9%. Excluding the May figures, oil production has held up relatively well in volume terms, even with the oil-price drop.
The same can’t be said for investment into new capacity. Engineering-related construction — closely associated with oil company investments — is down 21% over that time.
The decline in resource production, coupled with the fall in engineering works, has shaved about 1.7% off Canadian GDP in the two years through May, according to Bloomberg calculations.
Manufacturing
One of the big economic mysteries for Canadian policy makers has been manufacturing’s recent poor performance, in spite of a weaker exchange rate. Manufacturers had their worst month in May since the recession, with factory output down 2.4%.
A big part of that monthly decline is temporary, led by a 13% drop in refinery output because of the oil-supply disruptions. But even averaging over the last three months produces just a 1% gain for manufacturing over two years, which is slower than the rest of the economy. Jobs data shows a similar trend; the sector has lost 30,000 jobs over the past two years.
Real Estate
The biggest contributor to Canadian growth since oil prices began their decline is real estate. The sector was 6.8% larger in May from two years earlier, adding about 0.8% to national GDP over that period. That’s pretty much in line with growth rates over the past 15 years for a sector that even escaped the 2008-2009 recession largely unscathed. Real estate has become the country’s biggest industry at 12.4% of GDP, or 13.2% if you include leasing.
Another Canadian industry experiencing a boom is finance and insurance. Unlike the real estate sector however, banks have actually been accelerating their pace of growth. Output for this sector is more than 9% over the past 24 months.
Retail
Retailers have been making a comeback after struggling initially to build momentum from the recession, spurred by the same low interest rates driving real estate and financial services. The sector has been the third biggest contributor to growth over the past two years. In May, retail output was 6.2% above levels two years ago, adding around 0.3% to national output over that time.
Public Administration
While governments are still not the biggest contributors to growth, the fact they are adding to it at all marks a change. This partly reflects part Trudeau’s renewed emphasis on public spending and the federal government’s return to deficits. Public administration is up 3.1% over the past two years.
Source: Article by Bloomberg News
Vancouver’s New Residential Tax on Foreigners Now in Effect, Here’s What to Expect
The new tax on purchases of residential property in metro Vancouver by foreigners that took effect Tuesday is expected to cause further disruption to Canada’s most expensive housing market.
Vancouver realtors spent the past week and much of the holiday weekend scrambling to close deals to beat the 15% tax — at one time bringing British Columbia’s land registration system to a near halt, forcing people to close deals by hand.
Dan Morrison, president of the real estate board of Greater Vancouver, which decried the lack of the notice given to the industry about the new tax, said the sudden shift in policy announced July 25 pushed many deals forward to Friday.
“At this point in time, there is not much we can do,” said Morrison, about trying to close more deals before Tuesday. Provincial officials say Land Tile and Survey Authority Internet portal was open on the weekend, but reported traffic was down.
Still, unclear is what will happen with deals negotiated before Tuesday but that close afterwards and are subject to the new tax. That charge is in addition to the property tax transfer rate of 1% on the first $200,000, 2% on the portion greater than $200,000 up to and including $2 million, and 3% on the portion of the fair market value greater than $2 million.
Some industry observers expect deals to fall apart as foreign buyers simply walk away from deposits that in many cases will be lower than the tax they will now face to close a deal.
“I’m not arguing with the provincial government about the merit of a 15% tax, that’s a different conversation,” said Morrison. ” Our No. 1 concern is they did not grandfather existing contracts.
“Some were written two years ago and some might have been two weeks ago. People made good faith decision and the government changed the rules. A 1% increase, people might have been tolerated. But a 15% increase has given foreign buyers an incentive to walk away. Sometimes (the tax) is two or three times the deposit.”
Tony Spagnuolo, a Vancouver real estate lawyer, said he expects a domino affect in which people waiting to close on a house they are selling will come up short of cash when it’s time to buy because their first deal falls apart.
“A lot will rather walk than close,” Spagnuolo said. “I have a friend who sold his house for $3-million. The guy wasn’t going to close. He’s offshore, so he loses his $100,000 deposit but saves $350,000 not paying the tax.
“(His friend) was going to buy a $1.5 million condo. He needed that guy to close. Thankfully, everything got moved up and done by (Friday). We had to talk (the offshore buyer) into closing.”
Data showed that more than 9,200 transactions were filed last Friday, breaking the 2007-2008 record of more than 8,400 in a single day, according to the B.C. Land Title and Survey Authority. It also reported over 5,800 transactions on Thursday, representing nearly as many deals registered at month’s end in April.
The demand was so heavy that it crashed the land titles office’s electronic filing service on both days, the authority said.
Elton Ash, executive vice-president of Re/Max Western Region, said it is too early to accurately quantify how many deals fell apart, but he’s heard from realtors in some of the company’s 30 Metro Vancouver offices of cases where foreign buyers who couldn’t rearrange previously negotiated closing dates have already walked away.
“Our expectation is that there will be a percentage of transactions collapse due to the buyer basically defaulting on the contract,” Ash said.
He and other realty experts say it may take up to two or three months to gauge the full effect of the new tax.
The tax could also be challenged in court. Barry Appleton, a managing partner at Appleton and Associates International Lawyers in Toronto and the author of two treatises on the North American Free Trade Agreement, said the tax violates NAFTA, and Americans will be able to sue the federal government. He said the tax would also be in violation of the Canada-China Bilateral Investment Treaty.
“Who needs Donald Trump if you can create youown trade wars,” said Appleton, who believes, the Chinese government itself will be able to seek compensation from Ottawa which would then have to go after B.C. for the money.
Appleton said some jurisdictions that are governed by the treaty — such as Prince Edward Island, which taxes out-of state residents higher, and Mexico, which restricts ownership along the coast — were specifically exempted. There are other local tax agreements that were essentially grand-fathered under NAFTA and other trade deals.
“They needed to have a lawyer look at the policy before they started targeting foreigners,” said Appleton.
A spokeswoman for B.C.’s ministry of finance said the constitution provides that provinces may impose taxes within the province to raise revenue for provincial purposes.
“All legislation goes through constitutional and legislative analysis, and the changes presented in this bill build upon tax policy that has been in place for almost 30 years,” she said.
Keith Head, a professor at Sauder School of Business at the University of British Columbia, there is a specific section in NAFTA that addresses disputes and in most cases it is used to protect companies from unfair treatment.
“What we are talking about here is individual real estate buyers that have to pay an extra tax. That to me does not look like that kind of case we’ve seen in the past. It’s not at all to me an obvious match to intent in past practice to these investment agreements,” said Head.
Local real estate boards are urging the BC to grandfather already-signed deals.
“At the very least they should have grandfathered the existing deals. Politically, we all knew that the government had to do something,” Ash said. “We’ve got an election coming up next year and it would have been very difficult for the current government not to have done anything and hope to get re-elected. It is just that it was ill thought out.”
Jonathan Cooper, vice-president of operations at MacDonald Realty, said the tax, rather than stabilizing the market, appears to be harming it.
“When the government intervenes in the market this way and imposes costs that are retroactive … that almost by definition introduces an element of instability in the market.”
Vancouver Real Estate Tax Sparks Concerns for Toronto Housing Market
Meanwhile, Toronto’s red-hot real estate market could get even hotter as foreign nationals looking to dodge the new 15% tax on properties in Vancouver seek new places to invest, realtors say.
“Where are those foreign investors going to go?” said Derek Ladouceur, a Toronto real estate agent.
“They’re not going to want to pay that 15%, so they’re going to now dump it into the Toronto real estate market, which is already hot.”
Ladouceur predicts that all segments of Toronto’s housing market will get pricier, from condos to detached single-family homes, but the luxury segment — where many foreign investors park their money — could see the biggest lift.
Dianne Usher, a Toronto-based realtor with Royal LePage, says some foreign buyers have already been flocking to Toronto as soaring home values have priced them out of Vancouver’s market.
“With an additional tax it will grow exponentially, in my view,” says Usher.
Ontario Finance Minister Charles Sousa has said he is examining the tax “very closely” as a possible measure to address Toronto home prices.
The average cost of a home in the city in June was $746,546, up nearly 17% from the same month last year, according to the Canadian Real Estate Association. In comparison, Vancouver home prices averaged $1,026,207, a rise of more than 11%.
Mayor John Tory said he hasn’t ruled out a similar tax for foreigners buying property in Toronto. But he stressed he would want to know more about its efficacy before bringing in such a levy.
“I think in the end what people want to know is this: they want to know that if we’re going to do anything, that it’s going to be effective, not that we’re going to do something for kind of show business or political purposes or even for revenue-generating purposes,” he said last week.
The B.C. government released data that showed one in 10 property sales from June 10 until July 14 in Metro Vancouver involved foreign nationals.
In Toronto, information on foreign buyers is more scarce, although a report from Canada Mortgage and Housing Corporation in April pegged the rate of foreign ownership in the city’s condo market at 3.3%.
Brad Henderson, president and CEO of Sotheby’s International Realty Canada, said some foreign nationals could also snatch up properties in parts of British Columbia that aren’t subject to the tax, such as Victoria.
“Certainly I think Toronto and potentially other markets like Montreal will start to become more attractive, because comparatively speaking they will be less expensive,” said Henderson.
The country’s stable political environment, the low loonie and rock-bottom mortgage rates have also helped lure overseas investors, he said.
The rapid rise in house prices in Toronto and Vancouver has caught the attention of the Bank of Canada, which declared two months ago that they were not sustainable.
In recent years, Ottawa has implemented several measures to restrict mortgage lending in the face of rising house prices. Most recently, it increased the minimum down payment in February for new government-backed insured mortgages from 5% to 10% for a portion of a house price over $500,000.
Source: The Canadian Press, The Financial Post
Canadian Economy Sees Biggest Monthly Drop Since 2009 on Alberta Wildfires
Alberta wildfires torched the Canadian economy in May, driving the country into its worst one-month performance since the darkest days of the Great Recession seven years ago.
Statistics Canada’s latest reading for real GDP last Friday showed a contraction for the month of 0.6%, a number that revealed the extent of the economic fallout caused by the blazes that roared through the heart of oil sands country.
The dip in the economy was a little deeper than expected. Economists had predicted real GDP to recoil 0.4%, according to Thomson Reuters.
The number, Canada’s worst monthly figure since real GDP fell 0.8% in March, 2009, supported the already-dismal growth prospects for the second quarter.
The wildfires led to the evacuation of Fort McMurray, destroyed more than 2,000 structures and shut down key crude operations.
The decline in real GDP for May was largely due to a 22% drop in non-conventional oil extraction, which Statistics Canada said was the sector’s lowest level of output since May, 2011.
The agency said the disaster was the main contributor to the 6.4% drop in the overall natural resources sector and the 2.8% decline in the output of all goods-producing industries.
Manufacturing output was also hurt. The industry was knocked back 2.4% in May in large part due to a 15% drop in output at petroleum refineries, which was created by a shortage of crude oil. Both non-durable (-2.8%) and durable-goods manufacturing (-2.1%) recorded significant decreases during the month.
Even without the negative consequences of the fires, the economy still had disappointing results in other sectors.
Excluding the decline in non-conventional oil extraction, real GDP moved backwards in May by 0.1%, Statistics Canada said.
CIBC chief economist Avery Shenfeld pointed to a weakness in capital spending by businesses, a letdown in exports and a
decline in construction.
“There were fires raging in Alberta, but the rest of the economy wasn’t so hot,” said Mr. Shenfeld.
But he suggested the feeble number for May should be put into perspective. “Excluding that one (non-conventional oil) sector, GDP was down 0.1% – that is not the worst month we’ve seen,” he said.
The May headline number for real GDP followed a slim economic growth reading of 0.1% in April. Before that, the Canadian economy limped through contractions of 0.2% in March and 0.1% in February.
After growing at a sturdy annual rate of 2.4% in the first quarter, the economy is widely expected to churn out a significantly worse result in the second quarter.
Krishen Rangasamy, senior economist with the National Bank, said that due to a poor real GDP, numbers in recent months mean the economy will likely contract by between 1% and 1.5% in the second quarter.
But Rangasamy did highlight a bright spot in the May data: the resilience of the services sector, which grew by 0.3%.
“Fortunately for Canada, there is still a buoyant services sector, which hit an all-time high after registering its eighth consecutive gain in output,” he wrote in a research note to clients.
Wholesale trade rose 1.0% in May, a third consecutive monthly increase, as most subsectors posted a gain. Output growth was notable for wholesalers of food, beverage and tobacco, motor vehicles and parts, and personal and household goods. The output of miscellaneous wholesalers and, to a lesser extent, farm product wholesalers declined.
Retail trade grew 0.4% in May, mainly as a result of increases in output at food and beverage stores, clothing and clothing accessories stores, and gasoline stations. Conversely, output declined at motor vehicles and parts dealers, general merchandise stores (which include department stores), and furniture and home furnishing stores.
Construction decreased 0.7% in May, after essentially no change in April. Residential building construction fell 1.2% in May as fewer single-family dwellings were built. After five straight months of gains, repair construction has declined for three consecutive months. Engineering construction was also down in May, while non-residential building construction was up.
The real estate and rental and leasing sector edged up 0.1% in May, partly as a result of higher output from lessors of real estate. The sector's rise was tempered by a 2.4% decline in the output of real estate agents and brokers, as home resale activity dropped in most markets, led by those in British Columbia and Ontario.
Source: Statistics Canada, The Canadian Press
Retail Sales in Canada Hit a Speed Bump
Well, it had to happen. Total year-to-date Canadian retail sales were up a revised 5.8% on a not seasonally adjusted basis after 4 months of 2016. This really was higher than the market could bear, given less than sterling economic conditions. The latest data from Statistics Canada show that May retail sales were up just 1.5% year-over-year. The initial surge in 2016 retail sales has now hit a speed bump.
The 3 month trend softened considerably in May, although it is still well ahead of 2015 levels. The underlying 12 month trend, which had been improving since late last year, has stalled somewhat. The outlook for 2016 nevertheless still looks positive and is running ahead of last year.
The retail speed bump is apparent in all retail sectors and is not caused by just one store type. Every province and region also had lower sales growth in May than in the first 4 months of 2016.
Food & Drug
Retail sales in the Food & Drug actually declined in May, down 0.7% year-over-year. After a strong start to 2016, the trend lines have now cooled off to more typical levels.
Supermarkets & other grocery stores had a particularly tough May, with sales down 4.4% from a year ago. This wiped out almost all the gains made at the start of 2016. Specialty food stores also had a bad month, with retail sales off 4.5% year-over-year.
As usual, health & personal care stores came to the rescue, with a 7.0% retail sales gain in May. No speed bump here. In fact, drug stores and pharmacies' sales growth has beaten the overall retail average in each of the last 12 months.
Store Merchandise
The Store Merchandise sector also shows a cooling off after a hot start to 2016. May retail sales were up 2.8% year-over-year, after gains of 6%-plus in each of the first 4 months of the year. The 3 month trend however is still at a relatively high level, and is still running ahead of the underlying 12 month trend.
Almost all retailer types hit the speed bump in May. Some of the most affected included clothing stores (up 1.8% in May versus up 7.6% for the first 4 months of 2016), furniture stores (down 0.5% in May versus up 10.0% previously), and sporting goods, hobby, book & music stores (up 0.6% in May versus up 7.7% previously).
General merchandise stores' retail sales gained 6.2% for the first 4 months of the year but also fell off in May to a 2.8% gain. On the other hand, that's still better than the 2.1% they gained in retail sales for all of 2015.
Electronics & appliance stores ran contrary to the general trend affecting most retailers. Their retail sales improved in May with a gain of 2.9%, after being down 1.1% for the first 4 months of the year.
Automotive & Related
The automotive & related sector generally features strong gains in vehicle sales offset by continuing sales declines at gasoline stations. The interplay of these two trends makes for a wild ride.
After gaining 13.5% year-to-date to April, automobile dealers' sales were up "only" 4.9% in May. That however was still 3 times the overall retail average.
At gasoline stations, May retail sales were down "only" 4.8%, after declining 7.7% in first 4 months of the year and 13.9% in 2015.
For May at least, it appears that auto dealer sales are becoming "less good", while gasoline station sales are becoming "less bad". Both still have a way to go before performing like the rest of retail.
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Source: Article by Ed Strapagiel, Consultant
High House Prices Spreading to More Markets, CMHC Warns
Canada’s federal housing agency has raised new alarms about Canada’s housing market, warning that euphoria over real estate is spreading beyond detached homes in Toronto and Vancouver to townhouses and condos, and to other cities.
The Canada Mortgage and Housing Corporation (CMHC) said in its quarterly market assessment released last Wednesday that it sees what it calls “moderate evidence of problematic conditions” in the housing market after months of soaring demand have pushed national home prices up 14% compared with a year earlier, faster than what economic drivers such as employment and income growth should support.
While CMHC said most of the problems in the housing market remain concentrated in Toronto and Vancouver, it also raised red flags about Hamilton and the national market.
The CMHC uses the assessments when it makes its decisions on whether to approve mortgage insurance for home buyers who do not have a 20% down payment.
The federal housing agency joins a growing chorus of voices that have raised concerns about the Canadian housing market.
The Bank of Canada warned in June about the “increased riskiness” of mortgage debt. Last week, the Office of the Superintendent of Financial Services said it would require lenders to stress-test their mortgage portfolios to ensure they could withstand a drop in home prices of 50% in Vancouver and 40% in Toronto. Earlier last month, the banking regulator issued an open letter pointing to record levels of household borrowing and saying it felt the “risks and vulnerabilities for financial institutions have increased.”
Market analysts for the Crown corporation said they found signs that prices are starting to climb for traditionally more affordable condos and townhouses in addition to single-family homes. They said the pace of growth in home prices has started to pick up outside the Greater Toronto and Vancouver areas, with demand spreading to other regions of British Columbia and Ontario. It offered new warnings about strong price gains in Hamilton.
“What we’re also detecting now is a spreading of those price pressures to neighbouring communities,” said Bob Dugan, CMHC’s chief economist.
The federal housing agency also said it finds “strong” evidence of what it described as “vulnerabilities” in Vancouver’s housing market, with prices becoming unaffordable in relation to local incomes and demand exceeding supply. Average prices in the region have soared more than 30% from the same time last year. CMHC also indicated increasing demand for more affordable properties in suburban neighbourhoods.
“We have started to see … both townhomes and apartments also moving into overheated conditions,” said CMHC Vancouver analyst Robyn Adamache, “whereas before it was mostly on the single-family side.”
The B.C. government is attempting to cool the Vancouver market by adding 15% to the property transfer tax for people who are not citizens or permanent residents who buy homes in Metro Vancouver. The province released new estimates showing that one in 10 homes sold in the region between June 10 and July 14 went to international buyers, with the majority in the City of Vancouver. The figures translate into more than $885-million worth of home sales.
CMHC’s Mr. Dugan said it was too early to tell how the new tax would affect Vancouver’s housing market, or whether it would significantly curb demand from foreign investors for Canadian housing, which remains relatively inexpensive compared with some global real estate markets, such as Shanghai.
“How much that affects the relative price advantage of Vancouver versus Shanghai real estate for example, we just haven’t had enough analysis yet to be able to determine that,” he said.
CMHC says it intends its quarterly market assessment to be an “early warning system” for home buyers, developers and mortgage lenders to consider the state of the local market when they make their decisions, rather than a signal that any area is headed for a crash.
However, in the past, CMHC has found that combinations of problem conditions in a market have corresponded with spikes in claims for its mortgage-default insurance. The Crown corporation’s local market assessments are among the factors it considers when deciding whether to approve an individual application for government-backed mortgage insurance.
Here is a look at what CMHC found in the housing markets of major census metropolitan areas across Canada in its third-quarter report:
Vancouver and Victoria
CMHC upgraded its assessment the Vancouver regional market to “strong evidence of problematic conditions” up from “moderate” in April and “weak” in January. It pointed to home prices that have soared over the past year, eroding affordability for local buyers, along with a dwindling supply of homes on the market to meet demand.
In particular, CMHC flagged a shift in demand toward more affordable properties and away from expensive detached homes at a time when listings for single-family homes have started to increase in the region. In West Vancouver, for instance, CMHC said the sales-to-new-listings ratio – a measure of supply and demand – was 121% for condos. In other words, for every 100 condos put on the market in May there were 121 sales (including earlier listings), signalling a hot sellers’ market. For detached homes the ratio, was just 48%, or a balanced market. “The results show that the single detached market has cooled somewhat in some of the more expensive locales,” CMHC wrote, adding that high demand for less expensive properties has narrowed the gap between single-family and multi-family homes.
It saw “weak” evidence of problems in Victoria, despite what it said were signs the market is beginning to overheat as sales have outpaced new listings.
Calgary and Edmonton
While home prices in Calgary have fallen this year, they are still higher than the city’s weakened oil economy can support, CMHC said. The vacancy rate jumped above 5% in October and has continued to rise, leading to what CMHC said was a concern about overbuilding and “strong evidence of problematic conditions.” In Edmonton, the risks remained “moderate,” largely because home prices have not fallen enough to reflect the slowing economy.
Regina and Saskatoon
CMHC reiterated its “strong” concerns about Regina and Saskatoon, driven by high levels of new-home construction and a rising vacancy rate, even as home prices have fallen amid the fallout from a weakened commodities sector.
Winnipeg
Winnipeg continued to show “moderate” evidence of problems, mainly because of high levels of new condos sitting unsold on the market or under construction, CMHC said. It also predicted the city’s vacancy rate would rise because of a surge in new rental apartment construction.
Toronto and Hamilton
The federal housing agency has long warned of “strong” evidence of problems in the Toronto market, although it raised red flags about Hamilton for the first time.
In Toronto, it pointed to a tight market, with new listings falling even as sales have continued to surge. Sales of homes priced above $2-million soared 41% in the first three months of the year compared to the previous quarter. Toronto’s market has been supported by low mortgage rates and strong employment growth, particularly in jobs connected to the housing market, CMHC said. Still, home prices have outpaced even the city’s relatively robust economic growth. “The growth in house prices persistently outpaced economic and demographic fundamentals,” the housing agency wrote.
CMHC also warned of “moderate” evidence of problems in the Hamilton market as home sales have boomed even though immigration to the city has slowed and job growth has been weak. “Hamilton’s employment growth has been consistently slowing since the third quarter of 2014, while house prices have grown faster,” the Crown corporation wrote.
Ottawa
Ottawa’s market turned a corner in the early part of the year and CMHC said it now saw “weak” evidence of problems, down from “moderate” in the second quarter. Rising levels of unsold, newly built condos began to drop after the first three months of the year and rental vacancy rates have also increased, but home prices have slowed in line with a softer economy, CMHC said.
Montreal and Quebec City
CMHC said it found “moderate” evidence of problems in the housing markets of both Montreal and Quebec City. Home prices in both cities are higher than supported by slowing income growth and a drop in the population of workers aged 25-34, who are most likely to be first-time home buyers. The two markets are also grappling with unsold newly built condos languishing on the market, aggravated by high levels of condo construction, although it said the supply of new homes has begun to come down.
Atlantic Canada
The federal housing agency said it saw little cause for concern in Atlantic Canada’s urban housing market, pointing to “weak” evidence of problems in Halifax, Moncton and St. John’s.
Source: Article by the Globe and Mail
Fort McMurray Set for Largest Home Building Boom in Decades: CMHC
Fort McMurray’s fire-ravaged housing market could see a resurgence as returning homeowners snap up empty rental units and the community undergoes largest home building boom in decades, Canada’s federal housing agency predicted.
Housing starts in the heartland of Canada’s oil industry could soar to 2,500 as large-scale efforts get under way to rebuild after wildfires swept through the region in May, the Canada Mortgage and Housing Corporation (CMHC) recently said, although much of the rebuilding isn’t likely to start until next year.
“This is expected to be the highest new home construction activity Fort McMurray has seen in twenty years,” wrote market analysts Tim Gensey.
The fires destroyed nearly 10% of structures in Fort McMurray, almost 2,000 buildings, many of them homes. The rebuilding effort could do much to reverse the sagging fortunes of Fort McMurray’s housing market, which had suffered from the drop in oil prices that began in late 2014.
In the months leading up to the fire, sales had plunged to half the five-year average while average resale prices in the first quarter were down 17% from the same period two years earlier. Builders had started construction on just 13 new homes. The community’s rental vacancy rate had soared to nearly 30%.
Much of the city’s rental stock was spared the worst of the blazes and CMHC said it expects returning homeowners to rent while they wait to see when – or if – their homes are rebuilt, helping fill the glut of empty apartment.
While some local oil companies have opened 3,000 rooms in their work camps to displaced residents, many sit unused because they are too remote for commuters and not family-friendly, which is helping to push more residents toward Fort McMurray’s rental market.
Homes in the suburban neighbourhoods of Waterways, Beacon Hill and Abasand were the hardest hit, with 90% of homes in some areas wiped out by the blaze. Mayor Melissa Blake has said that some of the most devastated neighbourhoods may not be rebuilt, a decision that may push more buyers into the resale market, CMHC said.
Many of the listings on the resale market before the fire have since expired and sellers have not relisted. Wood Buffalo real estate board reported that just 8 homes were sold in May, and 79 in June.
A rising number of buyers, coupled with a drop in new listings, could help push up prices on the resale market, CMHC predicted, although it said it’s too early to tell how long both buyers and sellers will sit on fence.
The future of Fort McMurray’s resale housing market will also depend on how much of the $300-million in aid offered by the federal government goes toward rebuilding private homes not covered by insurance, CMHC said, along with the outlook for oil prices.
Source: The Globe and Mail
Latest U.S. Economic News
U.S. Consumer Spending Exits Second Quarter with Strong Momentum
U.S. consumer spending rose more than expected in June as households bought a range of goods and services, suggesting consumption will likely remain strong after surging in the second quarter.
Despite healthy consumer spending, Tuesday’s report from the Commerce Department showed inflation still muted. This could see a cautious Federal Reserve keeping interest rates at current low levels for while.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.4% in June after a similar gain in May. Economists polled by Reuters had forecast consumer spending advancing 0.3%.
When adjusted for inflation, consumer spending rose 0.3% after climbing 0.2% in May.
The June data was included in last week’s second-quarter GDP report, which showed that consumer spending rose at a 4.2% annual rate, the fastest in nearly two years. That jump accounted for almost all of the economy’s 1.2% growth pace during the period.
While the second-quarter’s robust pace of consumer spending will probably not be sustained, economists are optimistic that spending will remain solid, underpinned by steadily increasing wages as the labour market tightens, as well as rising house and stock market prices.
There was little sign of inflation in June. The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, rose 0.1% in June after a 0.2% gain in May.
In the 12 months through June the core PCE increased 1.6%. It has risen by the same margin since March. The core PCE is the Federal Reserve’s preferred inflation measure and is running below the U.S. central bank’s 2% target.
Consumer spending in June was lifted by a 0.7% rise in purchases of non-durable goods. Spending on services increased 0.5%, but outlays on long-lasting manufactured goods such as automobiles fell 0.3%.
Spending increased despite personal income rising only 0.2% in June after a similar gain in May. Wages and salaries advanced 0.3% after rising 0.2% in May. With spending outpacing income, savings fell to $732-billion, the lowest level since March 2015.
Source: Reuters
U.S. Economic Growth Falls Short in the Second Quarter; Inventories Weigh
The U.S. economy grew far less than expected in the second quarter as inventory investment fell for the first time in nearly five years, but a surge in consumer spending pointed to underlying strength.
U.S. GDP increased at a 1.2% annual rate after rising by a downwardly revised 0.8% pace in the first quarter, the Commerce Department reported last Friday.
“Once the impact of a downward inventory adjustment is considered, the underlying pace of growth looks healthier than the headline number,” said Chris Williamson, chief economist at IHS Markit in London.
The U.S. economy was previously reported to have expanded at a 1.1% pace in the first quarter. Economists had forecast GDP growth rising at a 2.6% rate in the last quarter.
While the inventory drawdown weighed on GDP growth, that is likely to provide a boost to output for the rest of the year. Excluding inventories, the economy grew at a 2.4% rate. A measure of domestic demand grew at a 2.7% pace.
The Federal Reserve said on Wednesday that near-term risks to the economic outlook had “diminished.” With the second-quarter GDP report, the government also published revisions to data going back to 2013 through the first quarter of 2016.
The revisions partially addressed measurement issues, which have tended to lower first-quarter GDP estimates. GDP growth in the first quarter of 2015 was revised sharply higher to a 2.0% rate from the previously reported 0.6% pace.
Prices for longer-dated U.S. government bonds pared losses after the data, while the dollar fell against a basket of currencies. U.S. stock futures extended losses.
Consumer spending, which makes up more than two-thirds of U.S. economic activity, increased at a 4.2% rate – the fastest since the fourth quarter of 2014 and accounting for the rise in GDP growth in the second quarter.
Although that rate of growth is probably unsustainable, a tightening labour market, rising house prices and higher savings should underpin spending for the rest of 2016.
In the second quarter, income at the disposal of households after adjusting for inflation increased to a $13.92-billion rate from a $13.81-billion pace early in the year.
A separate report from the Labor Department last Friday showed labour costs increasing at a steady 0.6% rate in the second quarter, matching the prior quarter’s rise.
Inventory accumulation by businesses fell at a $8.1-billion rate in the second quarter, the first drop since the third quarter of 2011, down from a $40.7-billion increase in the first quarter.
As a result, inventory investment subtracted 1.16 percentage points from GDP growth in the last quarter, the largest drag in more than two years. It was the fifth straight quarter that inventories weighed on output.
Despite the lingering effects of the dollar’s rally and weak global demand, exports rose in the second quarter, helping to narrow the trade deficit. Trade added 0.23 percentage point to GDP growth.
Business spending on equipment contracted for a third consecutive quarter, the longest stretch since the 2007-2009 recession, though the pace of decline slowed. Business spending on equipment fell at a 3.5% rate after declining at a 9.5% pace in the first quarter.
Business spending has been hurt by lower oil prices, which have squeezed profits in the energy sector, forcing companies to cut capital spending budgets. Economists say uncertainty over global demand and the upcoming U.S. presidential election are also making companies cautious about spending.
Investment in non-residential structures declined at a 7.9% pace. There were also decreases in investment in residential construction and spending by the government.
Source: Reuters
Federal Reserve Leaves Interest Rates Unchanged, Says Risks to U.S. Economy Have Diminished
The Federal Reserve left interest rates unchanged while saying risks to the U.S. economy have subsided and the labour market is getting tighter, suggesting conditions are getting more favourable for an increase in borrowing costs.
“Near-term risks to the economic outlook have diminished,” the Federal Open Market Committee said in its statement last Wednesday after a two-day meeting in Washington, before repeating language from June that the panel “continues to closely monitor” inflation and global developments. Job gains were “strong” in June and indicators “point to some increase in labour utilization in recent months,” the Fed said.
U.S. central bankers are taking stock of the economy’s progress in the wake of the U.K.’s vote to leave the European Union, as well as the large swing from May’s soft labour report to June’s rebound. While Chair Janet Yellen has repeatedly stated that the Fed is likely to raise interest rates gradually, market volatility and the unexpected dip in job gains have delayed such plans.
The committee repeated that it expects “economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.” There was no reference to the specific timing of the next potential rate hike.
Data since the Fed’s June meeting indicate “that the labour market strengthened and that economic activity has been expanding at a moderate rate,” the Fed said. The statement contained three references to recent improvement in the labour market.
The central bank left the target range for the benchmark federal funds rate at 0.25% to 0.5%, where it’s been since a quarter-point increase in December that ended seven years of near-zero rates.
Household spending “has been growing strongly,” while business investment “has been soft,” the FOMC said. The Fed reiterated that it expects inflation to rise to its 2% target over the medium term.
Yellen is defining her term at the central bank with a cautious policy aimed at steering the U.S. economy through domestic headwinds such as tight credit and low productivity gains as well as global shocks. The unexpectedly long pause in interest-rate increases has suggested she’s waiting for overwhelming evidence of a strong economy and for international risks to subside.
The statement contrasted June’s jobs report with “weak growth in May.” Non-farm payrolls rose by 287,000 jobs in June, dispelling some concern that hiring had slowed, after May’s gain of 11,000. Recent reports on retail sales, housing starts, capacity utilization, and service industries have all beat economists’ expectations.
Yellen wasn’t scheduled to hold a press conference after this week’s meeting. Fed officials next meet Sept. 20-21, and will publish new forecasts and rate projections at the
conclusion of that gathering.
Esther George, president of the Kansas City Fed, dissented, reinstating her preference for a quarter-point increase after supporting the decision in June to leave rates unchanged.
All but two of 94 analysts surveyed by Bloomberg News expected the Fed to leave interest rates unchanged at the meeting. Federal funds futures ahead of Wednesday’s statement suggested that traders see close to a 50-50 chance of a rate hike at or before the FOMC’s final meeting this year, in December.
Yellen will speak at the Kansas City Fed’s Jackson Hole, Wyoming, symposium on Aug. 26. That will provide her with an opportunity to discuss the committee’s sense of the economy’s progress.
Source: Bloomberg News
U.S. Pending Home Sales Rise Slightly in June
Contracts to buy previously owned U.S. homes rose far less than expected in June, another sign that a lack of inventory is crimping activity despite mortgage rates being at near-record lows.
The National Association of Realtors (NAR) said last Wednesday its pending home sales index, based on contracts signed last month, nudged up 0.2% to 111.0.
Economists polled by Reuters forecast pending home sales rising 1.4% last month. Contracts usually become sales after one or two months.
The index was 1.0% higher than in June 2015. Contracts rose in the Northeast and Midwest last month but fell in the South and West.
Pending home sales for May were unrevised. The U.S. housing market has continued to strengthen amid historically low mortgage rates and almost six years of monthly job gains.
However, a lack of supply has pushed up house prices and offset some of the stimulus of low mortgage rates.
Last Tuesday, separate data on new single-family home sales showed moderate gains in house prices.
Source: Reuters
U.S. Consumer Confidence Steady; New Home Sales Near 8-Year High
U.S. consumer confidence held steady in July and new single-family home sales hit their highest level in nearly 8-1/2 years in June, suggesting sustained momentum in the economy.
Other data last Tuesday showed moderate gains in house prices in May, which should support consumer spending and keep home purchasing affordable, especially for first-time buyers who have started venturing into the housing market.
The Conference Board said its consumer index was 97.3 this month after a reading of 97.4 in June. The largely unchanged data followed Britain’s stunning vote last month to leave the European Union, which rattled global financial markets and led to a dip in other sentiment measures.
A recent rally on Wall Street, strengthening U.S. labour market and lower gasoline prices are supporting consumer confidence, helping to underpin economic activity.
In a separate report the Commerce Department said new U.S. home sales increased 3.5% to a seasonally adjusted annual rate of 592,000 units last month, the highest level since February 2008. Economists polled by Reuters had forecast new home sales, which account for about 9.6% of the housing market, rising to a rate of 560,000 units last month.
Sales were up 25.4% from a year ago. Last month’s increase left new home sales in the second quarter well above their average for the first three months of the year.
The U.S. housing market is gaining speed with a report two weeks ago showing home resales vaulted to near a 9-1/2-year high in June. At the same time, single-family housing starts increased solidly in June.
The housing market, which is being buoyed by tightening labour market conditions and mortgage rates near record lows, is helping to power the U.S. economy. New home sales are likely benefiting from a persistent shortage of previously owned houses available for sale.
New single-family homes sales jumped 10.4% in the Midwest and soared 10.9% in the West, which has seen a sharp increase in home prices amid tight inventories. But sales fell 5.6% in the Northeast and slipped 0.3% in the populous South.
Last month, the inventory of new homes on the market increased 1.2% to 244,000 units. At June’s sales pace it would take 4.9 months to clear the supply of houses on the market, down from 5.1 months in May.
A third report Tuesday showed the S&P CoreLogic Case-Shiller composite index of 20 metropolitan areas rose 5.2% in May on a year-over-year basis. Prices rose 5.4% in April.
Prices in the 20 cities fell 0.1% in May from April on a seasonally adjusted basis. They increased 0.9% from April on an unadjusted basis.
Source: Reuters
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