Industry News
Sears Holdings CEO to Step Down for Family Reasons, Sears Canada Sales/Profit Fall
Sears Holdings Corp said late on Monday that Chief Executive Louis D’Ambrosio will step down next month for family health reasons. Mr. D’Ambrosio will remain on the board until the company’s annual meeting in May.
Sears Holdings also reported that pre-holiday sales and profit tumbled at Sears Canada Inc.
Current Sears Holdings Chairman and largest shareholder, Edward Lampert, will assume the role of CEO, the company said in a statement late on Monday. Lampert’s hedge fund, ESL Investments, had a 34.14% stake in Sears Holdings as of Nov. 30, according to Thomson Reuters data.
A person close to the situation told Reuters that D’Ambrosio’s decision was influenced by a close family member’s medical situation.
“In light of Lou’s decision to step down, the board feels it is important that there is continuity of leadership during this important period of transformation and improvement at Sears Holdings,” Lampert said.
Sears spokesman Chris Brathwaite told Reuters that Lampert’s decision to take over as CEO rather than pick an outsider was mainly at the request of the retailer’s board.
Brathwaite said the board wanted to make sure the operator of the namesake department stores and the Kmart discount chain did not lose the recent momentum it has had in its turnaround.
Sears faces stiff competition from Wal-Mart Stores Inc and Target Corp, especially in areas like electronics. While Kmart has managed to keep some budget-conscious U.S. shoppers, the Sears chain has been losing market share in appliances and apparel.
D’Ambrosio was hired in February 2011. He replaced Bruce Johnson, who had operated as interim CEO since 2008. Prior to joining Avaya in 2002, D’Ambrosio spent 16 years at International Business Machines.
In a statement issued to Reuters, D’Ambrosio said “2012 was a turnaround year for Sears Holdings. We were clear about areas that we would focus on and we delivered.”
While the former Avaya CEO was seen as having technology experience to help Sears’ online business, his lack of retail experience raised questions about his ability to turn Sears around.
“D’Ambrosio was good for online, but not the transformational CEO Sears needed,” analyst Paul Swinand of Morningstar told Reuters. Swinand added that Sears’ online business was a “bright spot” and that D’Ambrosio should get some credit for that.
Swinand said he expects Lampert to stay on for one to two years, but that Ronald Boire, chief merchandising officer, is a top candidate to be CEO later. Prior to joining Sears, Boire was the chief executive of specialty retailer Brookstone.
“D’Ambrosio helped champion a strategy that helped move Sears’ transformation in the right direction,” Brathwaite said, citing the improvement in the retailer’s financial health, apparel business, online segment and customer loyalty program during his tenure.
The company which operates Sears and Kmart stores in the U.S. reported that total U.S. comparable store sales for the nine-week period ended Dec. 29 declined 1.8% largely due to sales declines in the consumer electronics category at both Sears and Kmart, the company said.
Kmart recorded a 3.8% fall in comparable store sales for the nine-week period. Kmart’s quarter-to-date comparable store sales decline reflects a significant decline in consumer electronics, besides weak sales in the pharmacy, grocery & household and drug categories.
The growing popularity of smartphones as a multi-purpose device is eating into the sales of other best-selling electronic items such as digital cameras, MP3 players and camcorders, leading to a fall in their prices.
Reported net loss attributable to Sears Holdings’ shareholders for the quarter ending Feb. 2, 2013 will be between US$280 million and US$360 million, or between US$2.64 and US$3.40 loss per share, the company said.
Excluding items, net income is expected to be between $132 million and $212 million, or between $1.25 and $2 per share.
“Over the past 12 months the company increased liquidity by $1.8 billion, showed EBIDTA growth each quarter and lowered net debt by US$400 million,” D’Ambrosio said.
Sears has been closing stores, tightly managing inventory, selling some real estate and shedding assets to turn its business around.
Sears spun off its Orchard Supply Hardware Stores unit in December 2011. Last year, it announced plans to sell some prime real estate and spin off its Sears Hometown and Outlet businesses and certain hardware stores.
In November, Sears completed its previously announced spin-off of a portion of its interest in Sears Canada Inc.
Meanwhile, Sears Canada acknowledged that its fourth-quarter adjusted earnings before taxes, depreciation and amortization will be about half the level of last year’s fourth quarter of US$97-million. Same-store sales, a key measure of retail performance, slid 5.8% in the nine weeks ended Dec. 29.
The retailer’s shares fell 2% to $9.80 in morning trading on the Toronto Stock Exchange.
The declines came as a result of unseasonably warm weather in the pre-Christmas period and slower sales of electronics. Sears also noted it reports in Canadian currency. Final fourth-quarter results will be made public on Feb. 27.
“Regardless of reporting currency or the accounting standard utilized (U.S. GAAP or IFRS in Canada) we believe [Sears Canada’s] fourth-quarter results will be below our prior expectation of 60¢ per share,” Keith Howlett, retail analyst at Desjardins Securities. His target price on the stock is $9 and his rating is a hold.
The news comes at a troubling time for Sears Canada, whose annual sales and profits have fallen since 2006. It announced the unexpected departure of CFO Sharon Driscoll on Christmas Eve and is about to face fierce competition when rival Target Canada begins opening its first stores in two months.
Sears Canada CEO Calvin McDonald has been implementing sweeping changes to the company’s merchandise lineup, store execution and marketing, but acknowledged in November that the “pace of execution” on his turnaround plan was slower than expected. The retailer cut its net loss in half in the third quarter, but its sales fell.
Source: Reuters
Target Unveils Year-Round Online Price Match
Target Corp. said Tuesday that its pledge to match prices of select online rivals this past holiday season is now a year-round promise.
The retailer said it will match prices that customers find on identical products at top online retailers, all the time. The online list includes Amazon.com as well as the websites of Wal-Mart, Best Buy, Toys R Us and Babies R Us.
Target's holiday price match program with online retailers began Nov. 1 and ended Dec. 16. Target is also making permanent its holiday offer of matching prices of items found at its stores with those on its website. And for the first time it will include products that are out of stock on Target.com.
The moves follow a disappointing holiday shopping season for the company, hurt by stiffer competition from online rivals and stores like Wal-Mart that have hammered its low prices.
It's also the latest step from brick-and-mortar stores to combat "showrooming" — a growing trend for customers to browse their stores to check out products, and then go online to buy the same products for less elsewhere.
Mark Schindele, Target senior vice president of merchandising operations, noted the discounter monitors prices of 30,000 items, and thousands more online, to make sure it's competitive. But Target says it had to do more to give shoppers more confidence.
"We believe that our prices are competitive year round," Schindele said in an interview. "We also know that our guests shop in many ways."
Many major stores have offered price matching guarantees for local competitors' brick-and-mortar stores, but it wasn't until this past holiday season that the focus was on matching online prices. That can be difficult, since online prices tend to be lower and fluctuate often.
Best Buy is matching prices with 20 online retailers on electronics and appliances at its physical stores through Jan. 31. Best Buy spokeswoman Amy von Walter declined to "speculate" on whether it would make that plan permanent.
Since last summer Toys R Us has been matching online prices for all identical items or models of baby gear merchandise from selected national competitors like walmart.com, target.com, sears.com, Amazon, buybuybaby.com and diapers.com. Like Target's policy, it excludes Amazon's third-party Marketplace items.
Wal-Mart has trumpeted its low price message but stopped short of matching prices with online rivals.
Joel Bines, managing director and co-head of the retail practice at AlixPartners, praised recent moves by retailers to have an online policy.
"Retailers have finally gotten the message," he said. "You can't put an impediment between consumers and consumption." But he said that the policies can backfire. Stores have to make it easier for shoppers to get the price match. And he noted the move could also turn out to be "profit draining" as more people are encouraged to shop the Web to get the lowest price.
Bines and other analysts say the online price match policies are also tough to implement given the constant fluctuation of online prices, even in the same day. That was particularly evident around Thanksgiving week. From Nov. 19 to Nov. 30 Amazon.com doubled the average number of promoted products it changed prices on each day compared with the same period a year ago, according to Dynamite Data, which tracks online prices.
Still, having a price match policy in place is essential for cheap chic Target, analysts say. The discounter, known for selling trendy merchandise and staples like toothpaste under the same roof, has seen uneven sales growth since the economic downturn as it tries to convince frugal shoppers it has good prices. This past holiday season, Target chose to limit promotions to preserve profits. That resulted in muted sales in November and December. However, Target expects fourth-quarter earnings to meet or possibly top the low end of its previous outlook.
As for the holiday price match plan, Schindele noted that shoppers like the plan. Price matches may be requested at Target's guest services desk prior to purchase, with proof of an online competitor's current price or after purchase with the original Target receipt and proof of the lower online price.
"This has been a seamless experience," Schindele said. "There have been a lot of positives."
Source: Associated Press
Amazon Brings Two-Day Shipping Service to Canada
Amazon is bringing its unlimited, two-day shipping service to Canada.
The world’s largest online retailer says starting Tuesday, Amazon Prime will be on offer to Canadian customers for an annual fee of $79.
The service is already available in the U.S. and six other countries.
Amazon says the two-day shipping guarantee will be offered in most of Canada. Customers in rural areas, particularly in the North or the Maritimes, can get unlimited shipping but without the two-day guarantee.
Some areas will also get the option of upgrading to one-day shipping for an additional fee starting at $3.99 per item.
Steve Oliver, the country manager for Amazon.ca, says the shipping guarantee will apply to millions of products sold by the online store, including everything from DVDs to baby strollers.
“We have been working on (it) over the last year and we’re very excited to launch,” said Oliver from the retail giant’s headquarters in Seattle.
Oliver says the company knows that consumers are not only looking for selection and value when shopping online, but convenience.
He said selection and price are important and the “other critical piece of convenience is knowing you can get products quickly and when you want them.”
Amazon Prime has been offered in the U.S. since 2005, and recently expanded to include a free e-book lending service for Kindle users and a television and movie streaming service to its subscribers.
At this point, Oliver says there are no plans to offer these options in Canada.
He says the company was ready to bring Amazon Prime to Canada once its second fulfillment facility was opened in Delta, B.C., south of Vancouver in the fall.
It also operates a similar facility in Mississauga that assists with filling Canadian customer orders.
Amazon.ca sells millions of items including English and French books, CDs, DVDs, electronics, sports and outdoors products, as well as baby, home and garden products.
Source: Canadian Press
M-D Building Products Acquires Loxcreen Company
Last week, Oklahoma City-based M-D Building Products, Inc. announced that it has acquired the assets of West Columbia, South Carolina based Loxcreen Company, Inc., a privately held precision manufacturing company founded in 1946 on patents for fabricating window screens. The acquisition includes Loxcreen’s Canadian flooring group operated under the Bengard Manufacturing name in Mississauga, Ontario. The two companies did not disclose terms of the sale for competitive purposes.
The two privately held companies, with approximately 800 employees at nine manufacturing and distribution facilities in the United States and Canada, specialize in customized aluminum and plastic extrusion manufacturing in connection with producing and marketing a variety of window, flooring, door and tool products and accessories used in commercial and residential construction and renovation.
“The Loxcreen acquisition and its related manufacturing, engineering and products presents a unique opportunity for us to bring two complementary and compatible businesses with strong market presence together to drive long-term growth,” said Loren Plotkin, chairman and president of M-D Building Products. “For many years, we have admired Loxcreen as a quality competitor with a strong line of well-engineered and manufactured building products. We know them well and realized early in the due diligence process that the combined companies would be synergistically stronger with greater opportunities given our ability to increase our vertical manufacturing capabilities and expand product lines to meet our customers' evolving needs.”
Loxcreen’s chief executive officer, Wayne Parrish, said, “While our emotions are mixed with selling the business after a successful 65 years of operation, we recognize the acquisition by M-D Building Products offers expanded opportunities long-term for our employees and customers.”
Parrish said other companies have approached him through the years about buying Loxcreen. He elected to pursue the opportunity with M-D Building Products because both companies shared similar histories, products and core values. “M-D Building Products has a rich history of engineering and manufacturing expertise and producing market-leading products, particularly in the weatherization category. The company is a superbly run operation, and they always have been a tough, but fair, competitor. In M-D Building Products, we have found a fine home for our business where it will live on and flourish for decades to come.”
In addition to operations in Canada, Loxcreen also operates manufacturing and distribution facilities in Georgia, Oregon, Texas, Ohio, Missouri and South Carolina. M-D Building Products operates manufacturing and distribution facilities in Oklahoma and Georgia.
“We respect Loxcreen’s management team and its established product lines,” Plotkin said. “The integration of the two companies represents an ideal strategic fit and will allow us to draw upon the talent of both companies in management, manufacturing, product development, marketing, sales and customer service to pursue opportunities from a greatly expanded product line.”
Plotkin announced Joe Comitale, president of Loxcreen Canada and COO of the Loxcreen Company, will continue in his role as president of Loxcreen Canada and will join M-D Building Products as executive vice president.
“For the past 12 years, it has been a personal pleasure to work with Wayne Parrish and Curt Rone to grow the flooring operations and participate in the management of the entire organization,” said Comitale. “I am pleased with our accomplishments to date and look forward with excitement to the future as part of M-D Building Products, a pioneering company in our industry for more than 90 years.” The combined sales of both companies will exceed $200 million annually.
Loxcreen is a leader in the production of aluminum extrusions, plastic extrusions and building products. The company’s range of specialty products includes aluminum storm doors, screen doors and commercial window screens as well as foam weatherstrip and components for the door and window market. The acquisition of Bengard Manufacturing in Toronto, Canada in 2000, and the addition of the Kinkead product line in 2004, allowed Loxcreen to position itself as the leading supplier of residential and commercial transitional floor mouldings and related products in North America with plants located in Canada and Missouri.
M-D Building Products designs, manufactures and markets a range of residential and commercial weatherproofing products, including door and window weather-stripping, garage door weather-stripping, pipe insulation and a complete line of interior and exterior caulk marketed under both the Tower Sealants and DuPont ™ brands. The company also produces aluminum and wood flooring transitions as well as installation tools. In 2007, the current management team bought out the founding Macklanburg family after three generations. Led by majority shareholder Loren Plotkin, the management team has continued to grow and expand the company’s product lines and upgraded manufacturing and distribution capabilities and facilities.
Knape & Vogt Acquires Diamond Storage Concepts & CompX Furniture Components
Last Thursday, Knape & Vogt, (Grand Rapids, MI) announced that they have acquired the assets of Diamond Storage Concepts LLC, marketers of the Hyloft brand of storage products. The acquisition was the second in two days for the hardware and storage-related components company.
Knape & Vogt said integration activities for the companies would begin immediately.
“The acquisition of Diamond Storage Concepts and the Hyloft brand of products adds exciting new products to KV’s line of garage and utility storage products business” Knape & Vogt President and CEO Peter Martin said in a statement. “Garage storage is one of the fastest growing categories in home storage and organization. The addition of Hyloft products and the Diamond Storage team to our company will provide opportunity to further penetrate this important category.”
The acquisition of Diamond Storage Concepts follows on the heels of last week’s earlier announcement of Knape & Vogt's purchase of the Furniture Components Operations of CompX International Inc. for approximately $59 million. Chief in that acquisition are the Waterloo Furniture Components and Dynaslide divisions.
Located in Kitchener, ON, Waterloo Furniture Components manufactures ball-bearing slides for use in office furniture and other products. The company also provides components for ergonomic office and healthcare workstation products, including adjustable keyboard platforms, computer monitor supports, wall mounted workstations, and other accessory products.
Hardware producer Dynaslide is located in Taipei, Taiwan.
“The acquisition of Waterloo Furniture Components and Dynaslide will provide Knape & Vogt with access to new customers and markets and an expanded presence in our office OEM and distribution channels” Martin said in a separate statement. “The combined resources of KV and these two companies provide an enhanced slide product line, a full array of ergonomic accessory products and an exciting new growth opportunity through the addition of wall mounted workstation products for hospitals, medical clinics, and other health care providers. Our rapidly growing international business will be enhanced by combining Dynaslide’s wide range of slide products with GSlide’s existing product line allowing for business expansion within both companies’ current customers and through new customers around the world.”
Based in Grand Rapids, MI, Knape & Vogt manufactures and distributes functional hardware, storage-related components and ergonomic products, including drawer slides marketed under the KV and GSlide brand; KV kitchen and bath storage products; KV and John Sterling brand wall-attached shelving units, closet hardware, and specialty hardware products; and Workrite brand ergonomic office products. Its hardware and components are sold to OEMs as well as distributors, office products dealers, hardware chains and home centers throughout the United States and Canada.
Source: Woodworkingnetwork.com
Stewardship News
Key Changes for Ontario Blue Box and Orange Drop/MHSW Programs
Please find below information regarding changes to the revised 2013 rules and 2013 fee schedule for the Ontario Blue Box Program and the revised 2013 rules for the Ontario Orange Drop/Municipal Hazardous or Special Waste (MHSW) Program. Please read the revised rules to ensure your company remains in compliance.
For Blue Box Stewards:
The 2013 Blue Box Rules and Fee Schedule have now been approved by Stewardship Ontario’s Board of Directors and the Board of Waste Diversion Ontario (WDO) and can be
found here.
Key changes are outlined below:
•
Reporting deadline is now June 30, 2013, as outlined during the Blue Box consultation on September 27, 2012.
•
2013 fees are based on stewards’ 2012 reports containing 2011 sales data. Your Submission Detail Report is available to view on the WeRecycle portal, and your first invoice, representing 25% of the fees owing, will be emailed on April 1, 2013, and will be due on April 30, 2013. The 2013 Fee Schedule and Fee Calculation Model can be
found here.
For MHSW Stewards:
The 2013 Rules for the Orange Drop/MHSW Program have been approved by Stewardship Ontario’s Board of Directors and the Board of WDO and can be
found here.
• Please note that there have been some minor clarifications to the material examples and notes since revised material definitions came into effect on October 1, 2012. These changes were made for oil containers and pressurized containers and are intended to provide clarity. No changes have been made to the material definitions.
For Both Blue Box and MHSW Stewards:
•
Proxy Reports – stewards of both the Blue Box and MHSW Programs are obligated to report accurately in a timely manner. The use of proxy reports by Stewardship Ontario staff enables the business process to continue in a fair manner but does not exempt stewards from their obligation to report actuals. A percentage increase in quantities will be applied to successive proxy reports created by Stewardship Ontario that allows for any potential increases in quantities supplied. Report adjustments will be made by Stewardship Ontario once stewards report actual quantities.
•
Administrative Fees – the application of administrative fees ensure that costs incurred by Stewardship Ontario to manage non-compliance are born by non-compliant stewards and are not levied on compliant stewards.
•
Dispute Resolution Process – for administrative purposes, the Dispute Resolution Process has been removed from both the Blue Box and the MHSW Rules and a revised version will be posted online January 1, 2013.
If you have any questions regarding the new rules and fees for either Blue Box or MHSW, please contact Steward Services at
1-888-288-3360, or 416-323-0101, or email:
WeRecycle@StewardshipOntario.ca
You can also contact
CHHMA’s stewardship consultants for information or assistance:
Al Marks, 416-282-0022 ext. 24,
steward@chhma.ca or
Duncan Deans, 416-282-0022 ext. 22,
ddeans@chhma.ca.
Economic News
Canadian Housing Starts Slow in December
Canadian housing starts slowed in December, but not as sharply as expected, as rural starts declined but urban starts held steady, the Canada Mortgage and Housing Corporation (CMHC) reported on Wednesday, providing further evidence that a housing market slowdown is underway.
The agency said there were 16,352 actual starts in December which translates into a seasonally adjusted annual rate of housing starts across the country of 197,976 units for the month, down slightly from 201,376 in November but above an average forecast of 195,000 among analysts.
The November figure was revised up from 196,125 units reported previously.
“As expected, housing starts remained below their recent trend in Canada. The decrease recorded in December was due to a decline in rural starts, while urban starts remained stable. Housing starts were below their trends in all regions except Ontario,” said Mathieu Laberge, Deputy Chief Economist at CMHC.
The seasonally adjusted annual rate of urban starts remained relatively stable in December (-0.1%), reaching 178,870 units. Single urban starts rose by 8.6% to 67,419 units, while multiple urban starts fell by 4.7% to 111,451 units.
December’s seasonally adjusted annual rates of urban starts decreased in the Prairies (23.9%), Quebec (-11.8%) and British Columbia (-8.2%). Urban starts remained relatively unchanged in Atlantic Canada (-1.6%) and increased in Ontario (+33.4%).
Rural starts were estimated at a seasonally adjusted annual rate of 19,106 units in December, down 14.3% from 22,298 units in November.
Royal LePage: Canadian Housing Market Headed for Mild Correction
The latest Royal LePage quarterly
House Price Survey and Market Survey Forecast released on Tuesday expects Canada’s housing market to go through a mild correction in the coming months, but is predicting that the average national home price will be 1% higher by the end of this year.
The real estate agency believes sales in the first half of this year will be slower than last year, tempering the pace at which prices have been rising.
The report showed that the average price of a home in Canada increased year-over-year between 2.0 and 4.0% in the fourth quarter of 2012. Compared to 2012, fewer homes are expected to trade hands in the first half of 2013, which should slow the pace at which home prices are rising. However, by the end of 2013, Royal LePage expects the average national home price to be 1.0% higher compared to 2012.
While home sales volumes slowed in the second half of 2012, house prices, for the most part, held firm. Some consumers delayed their entry into the market during 2012, faced with economic uncertainty. In the fourth quarter, standard two-storey homes rose 4.0% year-over-year to $390,444, while detached bungalows increased 3.6% to $356,790. National average prices for standard condominiums increased 2.0% to $239,374.
“More home buyers moved to the sidelines as 2012 progressed, as economic uncertainty abroad and reduced affordability became a drag on the market, however house prices proved resilient,” said Phil Soper, president and chief executive of Royal LePage. “Our sturdy domestic economy and encouraging employment trends have emboldened sellers, and some have opted to let market conditions adjust before listing. Simply put, fewer home owners listed their properties in the second half of the year, which kept inventory levels lower, and supported home values.”
Soper noted that in the absence of a serious economic event, many Canadians would adjust their short-term buying or selling timing according to prevailing market conditions, but that it was rare for engaged, qualified families to hold out for very long. Buyers are much more likely to make purchasing decisions based on trigger events such as marriages, growing families, salary or wage increases or the need to relocate for a new job. Royal LePage expects the trend towards slower sales volumes seen in the second half of 2012 to continue through the first half of 2013. Expectations are that year-over-year comparisons will begin to show improvement in the third quarter 2013, with sales volumes that are relatively flat versus 2012, and return to growth in the final quarter of the year.
“Canada is a realm of sizable, fairly independent regional economies. Some housing markets, such as those in Alberta and Saskatchewan, are poised to expand significantly in 2013. We will see a decline in unit sales and a flattening of home prices in our largest urban markets of Vancouver and Toronto and that will have a significant dampening effect on reported national averages,” said Soper.
Soper noted that the housing market is well into a cyclical correction and that fears of a sharp or drawn out collapse are unwarranted. Home prices have risen faster than salaries and wages for three years and the market requires time to adjust.
While some first-time buyers have been sidelined by new federal mortgage insurance rules introduced in 2012, the cost of mortgage financing remains at historical lows and the desire to own property has not diminished. First-time buyers are adjusting to the new requirements by opting for cheaper homes or saving longer.
Royal LePage expects that very modest home price appreciation will be the norm for the next two years, as North American economies gradually improve and family incomes climb slowly. Improving, but still tepid growth, in the United States should allow central banks in both countries to sustain the current low interest rate environment, which is very supportive of housing market activity.
Some key regional summaries:
Average home prices in Montreal were up year-over-year in the fourth quarter of 2012, as higher end units being sold to an active move-up buyer demographic skewed average prices upward, while first-time buyers adjusted to meet new mortgage regulations. At the end of 2013, average house prices in Montreal are forecast to be 3.8% per cent higher than 2012.
Lack of inventory creating pent-up demand in Toronto produced strong year-over-year price appreciation in 2012. Detached bungalows posted an average increase of 4.9%, while standard two-storey homes increased on average of 6.2%. Standard condominiums posted a more modest average gain of 2.6%. At the end of 2013, average house prices in Toronto are forecast to increase a more modest 1.0% over 2012.
Increased demand and low inventory resulted in healthy year-over-year price gains for standard two-storey homes and detached bungalows in Calgary and Edmonton, while price appreciation for standard condominiums were relatively flat in both cities compared to the fourth quarter of 2011. At the end of 2013, average house prices in Calgary are forecast to increase 2.5%, while Edmonton house prices are expected to increase by 0.6% compared to 2012.
Low market activity resulted in modest price declines across all three housing types in Vancouver ranging from 1.3 to 3.6%. At the end of 2013, average house prices in Vancouver are forecast to further decline 3.0% compared to 2012.
Leading Bankers Expect ‘Soft Landing’ for Canadian Housing Market, Including Condos
Canada’s leading bankers expect the country’s real estate market, including condominium development, faces a “soft landing” even though the slowdown is affecting mortgage lending.
Speaking to a RBC banking conference in Toronto on Tuesday, the country’s top bankers said they don’t expect a dramatic downturn like one experienced by the United States about five years ago.
The bursting of the U.S. housing bubble is considered a major cause of the credit crunch that swept Wall Street and then the global economy in the fall of 2008, after interest rates on sub-prime mortgages rose and defaults soared.
By contrast, sub-prime mortgages have been less common in Canada and real-estate prices have trended upward for the most part — except for a few months during the 2008-9 recession and in some economically disadvantaged areas.
“Our expectation is that the overall real estate market in Canada is still relatively solid,” Royal Bank CEO Gord Nixon said Tuesday.
Despite reports that suggest Canadian housing is in crisis, he said the pullback is limited to a couple of markets, notably Vancouver.
“We have seen a slowdown in sales and we’ve certainly seen a slowdown in mortgage demand but price levels are relatively stable,” he added, noting that by most metrics other than debt to disposable income indicators are in line with historic standards.
The head of Canada’s largest bank said he expects RBC’s consumer lending growth will slow to mid single digits but it should see an increase in commercial loans.
Nixon said the bank has relatively small exposure to the condominium market at $1.2-billion of a $700-billion loan portfolio and has requirements that protect it from troubled lenders.
However, Nixon noted that a significant decline in the overall real estate market would have broader impact across the economy which would hurt the banking industry.
Bank of Montreal CEO Bill Downe told the conference that BMO limited its exposure to the Canadian condo construction market at $700-million after watching some of the problems surface in the United States in 2007 and 2008.
The bank is active in the U.S. mortgage lending market in the Midwest through its Harris Bank subsidiary.
He doesn’t expect Canadian homeowner debt to keep growing at previous levels but not an “outright collapse in the market.”
“In fact, house prices may just stagnate. Condominium prices may just stagnate for a couple of years. And that’s the definition of a soft landing,” Downe said.
Downe predicted the overall U.S. housing market will show considerable strength this spring, stimulating commercial loans.
After a strong fourth quarter with U.S. mortgages, Downe’s anticipating that the American economy will be much stronger this year, which will put upward pressure on interest rates in both countries.
Scotiabank CEO Rick Waugh said he also foresees a soft landing for the Canadian condo market, which poses the greatest risk.
He watches 90-day delinquencies very carefully for signs of deterioration.
“It’s elevated above 2007 levels but only a bit…it probably will come up a little bit but at levels that are well within our risk appetite.”
The Scotiabank president denounced suggestions that Ottawa could privatize the Canada Mortgage and Housing Corp., which he described as an integral part of the Canadian housing system that helped to ensure the country survived the housing crisis unlike a similar U.S. entity.
“It ain’t broke, it worked, it met the biggest stress test in our lifetime. Why fool around with it? It’s not a Fannie Mae.”
Ed Clark, president of TD Bank, said in an interview that he doesn’t see Canada having a housing meltdown like they had in the U.S.
“We haven’t been doing subprime lending like in the United States, so we don’t have a whole population that bought houses in which it is obvious that they will never pay back the mortgage” he said.
In commenting on other housing busts around the world, Mr. Clark said: “I think [most were victims of] a combination of both low interest rates and poor lending policies. We had the advantage in Canada that the bulk of mortgage lending is done by regulated banks and those banks hold those mortgages on our balance sheet.”
“It’s very hard to run an economy with very low interest rates and not have asset bubbles. So if you’re not going to have asset bubbles, you’re going to do exactly what the [Canadian] government then did. And that’s start to lean against it and tighten up the [mortgage] rules and say, we’re going to just keep touching the brake to try to offset the fact that we’re running on an unusually low interest rate environment. So I completely agree with that … I think that [the government] so for got it about right. And there are people in my own organization that say they’ve gone too far and they’re going to risk pushing this over into stopping it too quickly. I haven’t seen evidence of that yet, so I think they’ve done exactly the right thing,” Clark said.
Source : Canadian Press, Financial Post
Canada’s Job Growth Surprises Again in December, Unemployment Rate Falls
Canada’s job growth momentum to strengthen in December, confounding forecasters who expected hiring to slow after an unexpected surge a month earlier.
Employment rose by almost 40,000 in December, the fourth increase in five months, Statistics Canada reported last Friday.
Most surprising, all of last month’s new positions were full-time, and most of those were in the private sector.
The unemployment rate fell 0.1 percentage points to 7.1%, the lowest since December 2008 when the rate was 6.8%.
Economists had anticipated job growth of around 5,000 for December, after a surge of 59,000 in November. Analysts also had forecasted a slight rise in the jobless rate to 7.3%.
Compared with 12 months earlier, employment in Canada has increased 312,000 (+1.8%), all in full-time work, while the unemployment rate has fallen from 7.5% to 7.1%.
Year-over-year, the number of private sector jobs have gained by 242,000 (+2.2%), while public sector employment has risen by 92,000 positions (+2.6%). Over the same period, the number of self-employed was little changed.
The number of new net jobs reached 39,800 during December, with full-time hiring up by 41,200. Part-time positions declined by 1,400 during the month.
The bulk of those additional jobs, 59,400, were in the private sector, while the number of public sector workers rose by 3,200 and the number of self-employed fell 22,800 from November to December.
By sector, many of the December jobs were added in the transportation and warehousing sector (+22,000), bringing employment in this industry to a level similar to that of December 2011. Also seeing increases was the construction sector (+18,000), which despite the pick-up, is also little changed from a year ago. Manufacturing employment was up 9,300 from November and is up 53,600 (+3.1%) year-over-year. The number of people working in retail and wholesale trade was up 13,900 monthly and 28,600 (+1.1%) yearly.
Meanwhile, employment was down by 42,000 in professional, scientific and technical services in December and 69,000 (-5.1%) from a year ago. There were 13,000 fewer public administration jobs during the month and 23,000 less (-2.3%) over the past 12 months.
Over the past year, the highest employment growth rates were seen in educational services (+8.5%); finance, insurance, real estate and leasing (+6.4%); business, building and other support services (+5.5%); manufacturing (+3.1%); and healthcare and social assistance (+2.9%).
As in November, Ontario put in the strongest performance, with 33,000 new jobs in December. Employment was also up in Manitoba, Saskatchewan, Newfoundland and Labrador and Prince Edward Island. Job creation was stagnant in Quebec, Alberta, B.C. and New Brunswick, while Nova Scotia saw a decline in jobs.
Employment in December rose by 41,000 among core-aged men (25 to 54), bringing their gains for the year to 97,000 (+1.6%). The unemployment rate for this group was the lowest in four years at 5.9%.
Employment among women aged 25 to 54 was little changed in December but was up 60,000 (+1.1%) on a year-over-year basis.
Employment among youths (15 to 24) was unchanged in December and is similar to a year ago. Their unemployment rate has hovered around 14% for the past two years and was 14.1% in December.
Among persons aged 55 and over, employment was little changed in December but was up 164,000 (+5.3%) from a year ago, driven in part by an aging population.
What the economists had to say:
Douglas Porter, deputy chief economist, BMO Capital Markets:
“My initial response is not only are they defying expectations, they are defying gravity. Right across the board, this is a very strong result. It is very tough to reconcile this with a lot of the other indicators we are seeing on the economy, but we have to accept the numbers as presented. Almost every aspect of this report was strong — most of the gains were in full-time, private-sector employment, a lot were in the goods-producing sector. Even the expected reversal in the accommodation and food services didn’t happen, so this is quite the surprise — quite the pleasant surprise.”
“The Bank (of Canada) responds to a whole series of events and they’ve been less focused on the job market than say the Fed would be, but still, I think the decline in the unemployment rate to a new cycle low 7.1 percent will catch their eye. It also hints that there is a bit more strength to the underlying economy than the latest GDP numbers would suggest. But with inflation running at less than 1 percent and GDP in the 1 percent zone recently, I don’t think the Bank will be in any rush to do anything. But it likely means they’ll keep a mild hawkish bias in place.”
Avery Shenfeld, chief economist, CIBC World Markets:
“The December gains were broadly based and continued a trend of solid hiring. The 40,000 jobs gain seems out of line with the weak GDP numbers seen in recent quarters … we continue to question the sustainability of this hiring trend in the absence of the output gains that would typically be needed to require all that labour input.”
Dawn Desjardins, assistant chief economist, RBC Economic Research:
“The economy’s lacklustre performance is likely to curb any further decline in the unemployment rate in the near term. But economic growth prospects for Canada in early 2013 have risen, given lowered risks of a U.S. recession and a more positive global outlook. In the near term, the Bank of Canada will likely keep monetary conditions accommodative to ensure that growth pick up pace.”
