CHHMA - EYE ON OUR INDUSTRY
Volume 17, Issue 27, July 12, 2017
Inside This Issue:
• Last Call for this Year’s CHHMA Scholarship Program Applications
• Plan to Attend Seminar on September 20: Critical Strategies for Winning in E-commerce and Real Time Retail
• Retailers Miscalculating GST/HST When Taking Early Payment Discounts
• Amazon Prime Day Breaks Record; Event Grew by More than 60%
• Sears Canada Seeks Court Approval for Restructuring; To Suspend Some Payments
• Sears Holdings to Close 43 More U.S. Stores to Cut Costs
• Home Depot Agrees to Purchase Compact Power Equipment
• Bank of Canada Raises Interest Rates for First Time in 7 Years
• Housing Starts Pick Up in June
• Canada Adds More than 45,000 Jobs in June as Unemployment Rate Drops to 6.5%
• Building Permits Up 8.9% in May Led by Residential Building Intentions in Ontario
• Canadian Dollar to Stop its Climb by Autumn if Rates, Oil Prices Weaken: Poll
• Greater Toronto Area Home Sales Plunge 37.3% in June Despite a Jump in Listings
• Montreal’s Hot Condo Market Drives 10% Rise in Home Sales in June
• Latest U.S. Economic News
Note: There will be no CHHMA Newsletter next week. Eye On Our Industry will return on July 26.
Association News
Last Call for this Year’s CHHMA Scholarship Program Applications
We would like to remind members that the deadline for applications for the CHHMA Scholarship Program is the end of this week (by Monday, July 17 is OK).
The CHHMA is once again pleased to be able to offer the opportunity for children of employees of our member companies to apply for a scholarship to help offset the cost of post-secondary education.
The Association recognizes the importance of education and therefore encourages children of our member companies to attend University or College. Successful candidates receive $1,000 CDN per year for the first two years of study leading to a diploma or degree from an accredited community college or university.
The scholarship program is available to the dependents of any current full-time employees of the CHHMA or member companies. The program is only offered to Canadian companies or divisions of companies based in Canada which are members of the CHHMA.
The member company must remain a member in good standing in order for the student to qualify for the second year of the scholarship. The student's parent or guardian must be an active full-time employee with at least one year seniority with the CHHMA or member company as of July 15th in the year of application. Applicants must be preparing to enter an accredited community college or university in the fall term, and attain a minimum average of 75% in the last year of high school (or CEGEP). The decision of the Selection Committee and the CHHMA is final and not open to appeals. The CHHMA reserves the right to withdraw a scholarship should the student's parent(s) or guardian(s) voluntarily leave the employment of the CHHMA or member company, or if employment is terminated for just cause prior to the start of the school year, or if the company terminates its membership in the Association.
Complete details, application forms and information sheets or bulletin board postings) in English and French can be found at http://www.chhma.ca/Public/Scholarship-Program. Please print off and post these notices in your lunch room or high traffic area.
Since 2001, the CHHMA has awarded $170,000 towards scholarships and some 85 young people have benefited from the scholarship program.
Plan to Attend Seminar on September 20: Critical Strategies for Winning in E-commerce and Real Time Retail
The global retail landscape is changing quickly and in order to prepare for this new future, it is critical to understand the drivers of change leading to this new environment and the key strategic initiatives retailers & brands will need to undertake in order to win. Many of these shifts are leading to heightened operational complexity, with new requirements for future success.
The CHHMA is pleased to offer our members an opportunity to attend a joint-seminar with COPA on Wednesday, September 20 from 1:00 p.m. to 3:00 p.m. at the Centre for Health & Safety Innovation (CHSI), 5110 Creekbank Rd, Mississauga, ON L4W 0A1.
The seminar will be presented by Hannah Donoghue of RetailNet Group (RNG) who will detail the company’s forecasts and future view on the retail landscape, addressing three critical topics:
E-commerce & Digital Ecosystem Management
Global marketplaces are fundamentally altering the future value chain and retail landscape. These retailers are positioning themselves to take over today’s digital and physical worlds, building digital ecosystems, and integrating new digital platforms to drive customer acquisition and retention. It is now more than ever imperative to understand the elements and revenue streams of the marketplace business models and how they differ from traditional store based operations. RNG will cover the key characteristics of a digital marketplace, detail how players like Amazon and Alibaba are and will continue to change the game and outline how brands can win in this new environment.
Demand Generation – Engagement & Retention
Demand generation is transforming through new, fragmenting digital mediums that will drive complexity for marketers in the future. RNG will detail the critical types of digital intermediaries that are reshaping the path to purchase and the impact of these platforms on demand generation in the future. They will highlight implications to & opportunities for suppliers & retailers and discuss the critical levers for engaging and retaining shoppers.
Supply Chain & Seamless Fulfillment
Supply chain will be the critical growth enabler for retailers and manufacturers in the future. As retailers battle for proximity and to win the last mile, they are building new fulfilment business models that are driving complexity and cost into their organizations. We are moving into a world where promiseable inventory and real time seamless inventory management will be tablestakes. In the supply chain of the future, there will be a need for improved real time inventory forecasting, management and replenishment capabilities. For many retailers and suppliers, the supply chain changes required to win in the future will also require organizational mindset shifts and alignment, as new supply chain business models, technologies and processes will require companies to move away from longstanding, optimized supply chains to new agile, on-demand, real time logistics & fulfilment networks.
About the Speaker
Hannah Donoghue leads RetailNet Group’s (RNG) 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.
Ms. 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, Hannah 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.
The cost to attend the seminar is $99.99 + HST per person.Coffee, tea and light snacks will be served.
Click here for a PDF registration form.
Online registration will be open shortly.
Industry News
Retailers Miscalculating GST/HST When Taking Early Payment Discounts
It has come to the attention of the CHHMA that some retailers are applying early-payment discounts incorrectly on invoices from vendors.
In accordance with the Canada Revenue Agency (CRA)’s RC4022 General Information for GST/HST Registrants guidelines, page 17, see the below copy or the following link: http://www.cra-arc.gc.ca/E/pub/gp/rc4022/rc4022-e.html#H3_306 on how early-payment discounts should be handled:
Early-payment discounts
If you offer an early-payment discount on credit sales, charge the GST/HST on the full invoice amount even if your customer takes the discount.
Example
You operate a business in Manitoba. You issue an invoice that shows the price of goods as $100, plus the GST. The credit terms of the invoice give the customer a 2% discount if the customer pays within 10 days. Your customer pays within 10 days. You calculate the amount owed as follows:
Purchase price: $100
Plus GST ($100 × 5%): 5
Less the discount: (2)
Customer pays: $103
Therefore, the GST/HST amount should not be included in the calculation of the early payment discount itself. The 2% discount is applied to $100 not $105 in the above example.
If you would like a copy of the full RC4022 document, see the below links for PDF or HTML versions:
http://www.cra-arc.gc.ca/E/pub/gp/rc4022/rc4022-17e.pdf
http://www.cra-arc.gc.ca/E/pub/gp/rc4022/rc4022-e.html
For further information on the handling of GST/HST, you can also contact CRA’s GST/HST Technical Services office at 1-800-959-8287.
Source: Canada Revenue Agency
Amazon Prime Day Breaks Record; Event Grew by More than 60%
Amazon’s third annual Prime Day ended with a bang.
On Wednesday morning, Amazon announced its Prime Day sales this year surpassed Black Friday and Cyber Monday altogether, with the event growing by more than 60% from 2016.
Prime members' most popular purchase on Prime Day was the Echo Dot, Amazon said, and "tens of millions of Prime members" rung up purchases over the 30-hour period, more than 50% higher than a year ago.
Amazon's stock jumped $9 higher Wednesday morning following the announcement, breaking the $1,000 mark.
Amazon said Prime Day this year was the biggest sales event ever for Amazon devices in the U.S. and around the world, with the event bringing in record sales for the Echo, Fire tablets and Kindle devices.
Last year, Prime Day was Amazon's biggest sales day ever, to date, setting the bar high this go-round. In 2016, Prime Day sales rose more than 60% from the prior year, and in the U.S., orders were up more than 50%, Amazon said.
On Tuesday morning, a few hours into this year's event, Amazon told CNBC that customers were shopping at "record levels" worldwide. At the time, Amazon didn't offer details on what it called record levels of shopping — whether it represented the number of shoppers or another measurement, such as sales or volume.
With nine hours of shopping left on Prime Day, Amazon offered another update, this time saying the event was on pace to be "the biggest global shopping event in Amazon history." As of 3 p.m. ET, small businesses had experienced a more than 50% increase in units sold worldwide compared to last year, the company said.
In the U.S., Prime members were ordering more than 6,000 deals every minute — everything from the Nintendo Switch to headphones to golf clubs.
Also in the U.S., the Amazon Echo was the best-selling item by 4 a.m. ET Tuesday, Amazon said. The Echo was selling for $89.99 on Prime Day, half the usual price. Other top-selling deals included those for Amazon's Echo Dot, a 23andMe DNA test and Amazon's Fire 7 Tablet with Alexa, the company said.
Later in the day, Amazon confirmed that it had already sold more than twice as many Echo-family speakers in America when compared to last year, and more than three times as many devices worldwide, compared to Prime Day 2016.
To take advantage of the discounts, shoppers had to be Amazon Prime members, which costs $99 a year, or $10.99 a month, and includes perks like free, two-day shipping and access to Prime Video and Prime Music.
The first Prime Day was held on July 15, 2015, as a way to mark the company's 20th anniversary, and it proved to be such a success in boosting sales and bringing in new Prime members that the company did it all again on July 12, 2016.
This year, Amazon declared July 11 to be Prime Day, but the savings kicked off even earlier for Prime members and were extended to last for 30 hours, up from the typical 24. Amazon.com was offering new deals as often as every five minutes, the company said, reaching 13 countries and making the day more of a global phenomenon.
Some of the best discounts included those on Amazon's own electronic devices, such as the Echo and the Kindle. There were also significant discounts on some of Amazon's private-label grocery and apparel products.
With an Amazon-Whole Foods deal in the works, more online shoppers are seen browsing Amazon.com for supermarket staples and everyday essentials, which notably haven't been best-sellers for the internet giant in past Prime Days.
"It's no secret that some of Prime Day's best deals have been on Amazon products – Audible, Kindle or even Prime memberships," Maya Mikhailov, co-founder of GPShopper, told CNBC.
Yet, considering how this year Amazon is using Prime Day to introduce customers to the company's newest grocery offerings, and with tens of millions of Prime members, traditional grocery retailers should be "very worried" this time around, Mikhailov said.
Early signs hinted that Amazon's annual shopping event would grow in 2017. In a nationwide survey of 1,200 U.S. consumers by Market Track, 58% said they would shop Prime Day deals, up from the 34% who said they would participate last year.
Internet Retailer projected that U.S. shoppers would spend $1.56 billion on Amazon during the 30-hour sale, representing a 20% jump from the trade publication's estimate of $1.30 billion spent on Prime Day last year. Shoppers around the globe, meanwhile, are believed to have spent a whopping $2.18 billion, Internet Retailer said.
Last week, J.P. Morgan analyst Doug Anmuth said Prime Day could generate roughly US$1 billion in revenue. While that figure is impressive, the anticipated 55% year-over-year growth is more so, as Amazon’s addition of China, India and Mexico, along with Prime Day’s extension from 24 hours in 2016, makes it an important event for the market to watch.
But more important than revenue generation is the opportunity Amazon has to use the event to acquire new Prime subscribers. The payoff from related investments won’t be immediate, but will play out over time.
“While the single-day numbers are likely to be impressive, we believe the true benefits of Prime Day are more meaningful across Amazon’s ecosystem,” Anmuth told clients.
He noted that Prime Day allows Amazon to better gauge customer demand for the second half of the year, serves a critical peak-day test to prepare fulfillment centres and logistics for the holiday season, and provides greater incentive for third-party sellers to join the platform. It also brings in new Prime members well ahead of the holiday shopping season, and drives Amazon device sales.
The summer is also a slower period for retail, so Prime Day creates a major shopping event to counter that impact, and likely pulls forward some back-to-school shopping.
Amazon didn’t reveal how many subscribers trialed the service on Prime Day last year, but in 2015, hundreds of thousands of new members tested it out – more than any day in the company’s history.
“Many of these new members will convert to paying subs, and Amazon captures them well before the holidays,” Anmuth said.
With Amazon estimated to have more than 70 million global Prime subscribers, including 35 million to 40 million in the U.S., it appears to have lots of room for growth ahead.
Mark Mahaney at RBC Capital Markets thinks that number could be more than 60 million in the U.S. and above 80 million globally. That’s partly based on a recent survey of online shoppers showing that adoption of Amazon Prime in the U.S. has risen to 55% from 49% a year ago.
It’s worth noting that at $80 per year for 80 million members, Prime would generate US$6.4 billion for Amazon.
The survey also provided some interesting metrics on spending by newcomers to the service, versus long-time members.
Only 16% of non-Prime customers spend more than $800 per year with Amazon, whereas 30% of Year One members do, and 59% of those in their fourth year or longer do.
RBC also found that just 19% of non-Prime customers make two to three purchases with Amazon each month, compared to 62% for Year One members, and 84% for Year Four-plus members.
Source: CNBC, The Financial Post
Sears Canada Seeks Court Approval for Restructuring; To Suspend Some Payments
Sears Canada will go to court this Thursday to seek approval to suspend benefits for its retired employees as well as special payments to its defined benefit pension plan, three weeks after the Canadian retailer filed for creditor protection.
The ailing retailer says it will also ask the Ontario Superior Court on July 13 to extend court protection from creditors to Oct. 4, giving it time to seek out potential investors and buyers and consult with its landlords, employees, suppliers and creditors.
Sears Canada had indicated in its initial court filings on June 22 that it planned to suspend life insurance, health and dental benefits to certain employees during the restructuring.
The company set Oct. 4 as the deadline to obtain court approval of successful bids, while the company’s sale and investment solicitation process has an expected completion date of Oct. 25.
Seeking court protection from paying creditor debts is a common way for companies to gain breathing room in order to help revive their business, and Sears Canada has appealed for the same to implement the latest of its many revival efforts over the years. The transformation plan includes an aggressive push into e-commerce, sales of off-price merchandise and a revamped private label collection.
The company’s cash position on its balance sheet fell to $164.4 million in the first quarter of 2017 from $349.8 million in the first quarter of 2016, and the struggling retailer announced in June that it had serious doubts about being able to continue as a going concern as it struggled to meet its obligations coming due over the next 12 months. The retailer’s sales have dwindled to $2.6 billion in 2016 from $6.7 billion in 2001.
Sears Canada had already indicated on June 22 that it planned to suspend life insurance, health and dental benefits to certain employees during the restructuring process. The company is also asking the court to approve some $7.6 million in retention payments to ensure 43 key employees remain with the retailer during the restructuring process.
The scenario is an all too familiar echo of the demise of Eaton’s for Marinella Gonzalez, who had worked at Sears’ head office for the past 17 years until she was laid off with other head office employees last month. She was an employee of Eaton’s when that department store chain folded in 1999, leaving many employees without severance or benefits. Sears employees that were laid off have been encouraged to make court claims along with other unsecured creditors, as the Eaton’s employees ended up doing.
“Over about five to seven years, we received about 40 cents on the dollar of what we were owed,” said Gonzalez.
Whether Sears Canada’s resurrection strategy will work is a matter of debate, experts say.
“I don’t know if they are doing this to buy time, to see how all the pieces fit together and what they can get for certain (assets),” said insolvency expert Ira Smith, founder of Toronto-based Ira Smith Trustee & Receiver Inc. “The jury is still out as to whether this is going to be a restructuring, or if it will be a liquidation like Target, which filed CCAA but came out up front and said it was going to be a liquidation.”
Employees and retirees typically suffer the biggest downside of bankruptcy protection.
“The sudden recent CCAA filing by Sears Canada and the proposed sales process for its assets appears to be a liquidation of what remains of Sears Canada,” Andrew Hatnay, of Koskie Minsky LLP, representative counsel for the retailer’s retirees, said in a statement.
“The process that Sears Canada is following offers no protection for the retirees’ pension losses, and Sears Canada now also seeks to cut off retiree health and life insurance benefits. This is a totally unacceptable situation for Sears retirees who earned their pensions and benefits during their employment service for the company.” He added counsel is “actively involved” in protecting the retirees’ pensions and benefits.
“Landlords are typically secured and bankers are always secured,” said retail consultant Jim Danahy of Customer Lab. “Employees and retirees and the large and small companies who employ people to make the goods that are sold at (insolvent retailers) are typically the victims in this situation.”
Lawyer Lior Samfiru of Toronto employment law firm Samfiru Tumarkin LLP has negotiated several severance packages for former Sears Canada employees in recent years, said while the law allows companies to do so, most companies do not leave their employees with zero severance.
“In many situations, companies provide the statutory minimum severance entitlements without employees having to file as unsecured creditors (in court) — that is not something you usually have to file for,” Samfiru said.
“But our bankruptcy laws are such that a company can do that. That is where the problem lies. We can talk about Sears Canada’s actions being unfair and inequitable, but it is certainly not illegal.”
Top Shareholders Explore Possible Deals with Sears Canada
Meanwhile, two groups of major U.S. shareholders in Sears Canada have hired legal counsel to explore possible deals with the struggling retailer as it undergoes the court-supervised restructuring.
ESL Partners LP and entities affiliated with its principal shareholder, Edward S. Lampert, announced Monday that it is working with Fairholme Capital Management on potential proposals to make to Sears Canada.
ESL and Lampert currently own 45.3% of common shares in Sears Canada and Fairholme owns about 20.8% of Sears Canada’s shares as of early May — a total of about two-thirds of the company’s total common stock.
However, under a court-supervised restructuring, shareholders are ranked lower than most creditors and major decisions must be approved by the presiding judge.
ESL and Fairholme, both based in Florida, say they are considering a potential negotiated transaction with Sears Canada and its subsidiaries and may work together or independently to considering financing, purchase and sales or restructuring deals.
ESL says there’s no assurance it will pursue any proposal or that such a proposal would result in a transaction, or that Fairholme will participate.
Source: From Articles by The Canadian Press, The Financial Post
Sears Holdings to Close 43 More U.S. Stores to Cut Costs
Sears Holdings Corp. is closing eight of its namesake department stores and 35 Kmart locations as part of its effort to cut costs and square footage to return to profitability, Chief Executive Officer Eddie Lampert said last Friday.
The store closings are in addition to 150 that the company announced in January. Once the largest U.S. retailer, Sears has struggled with years of losses and declining sales as shoppers shift online. The company said in February it would cut costs this year by at least $1-billion.
Shares of Sears were down 3% at $7.60 in afternoon trading after the announcement.
Sears expects to open more smaller-format stores while shrinking its large, less-competitive ones, Lampert wrote in a blog post.
“We reached the point in the past 12 months where some of our vendors have reduced their support, thereby placing additional pressure on our business,” Lampert said.
Sears suppliers told Reuters in March that they were doubling down on defensive measures, such as reducing shipments and asking for better payment terms, to protect against the risk of non-payment.
Lampert said that Sears was on track to meet its cost-cutting targets.
A Sears spokesman declined to say how many jobs would be lost from these store closures. He said employees who are eligible would receive severance and be able to apply for open positions at area Sears or Kmart stores.
Source: Reuters
Home Depot Agrees to Purchase Compact Power Equipment
Home Depot bulked up its tool rental offerings with the acquisition of Compact Power Equipment.
The company chain said last Thursday that it would pay $265 million for the equipment rental and maintenance services company.
The deal bolsters Home Depot's position in the market for equipment rental to both professional and do-it-yourself customers.
Compact Power Equipment has had ties to Home Depot since 2009 and currently rents equipment through more than 1,000 locations across the U.S. and Canada.
The company also maintains equipment for many customers, including Home Depot.
"We've worked closely with the talented team at Compact Power Equipment for many years and are delighted to welcome them to The Home Depot family," said Craig Menear, chairman, CEO and president of The Home Depot. "The acquisition allows us to further improve the customer experience – in particular for Pros – through enhanced equipment and tool rental offerings. It also allows us to grow Compact Power's best-in-class building services capabilities."
Home Depot said the cash acquisition would close in the company's fiscal second quarter.
The Home Depot offers tool and equipment rentals at more locations across the U.S. and Canada than anyone else, providing easy access for both Pro and Do-It-Yourself customers. Its large assortment of rental offerings saves customers from the cost and hassle of maintenance and storage.
"With a collective focus on convenience and execution, together our companies will be even stronger to serve customers while remaining on the cutting edge of life-cycle management for commercial equipment," said Roger Braswell, CEO, Compact Power.
"This acquisition creates many exciting opportunities for our employees and customers as we enter the next stage in our company's history. We are thrilled and truly look forward to joining The Home Depot team and growing this business," added COO Richard Porter.
Revenue for the U.S. equipment rental industry was expected to increase by 3.4% to $49 billion in 2017, according to an American Rental Association report conducted with IHS Markit.
Tool rentals are expected to grow by 4.3% annually from 2016 through 2020, according to the projection.
Source: Home Depot, USA Today
Economic News
Bank of Canada Raises Interest Rates for First Time in 7 Years
The Bank of Canada is hiking its key interest rate for the first time in seven years, joining the U.S. Federal Reserve in starting the process of undoing nearly a decade of easy money.
The bank raised its overnight lending rate to 0.75% from 0.5% Wednesday, citing “bolstered” confidence that the Canadian economy has finally turned the corner after years of sputtering growth.
“Growth is broadening across industries and regions and therefore becoming more sustainable,” the bank said in a statement.
“The current outlook warrants [Wednesday’s] withdrawal of some of the monetary stimulus in the economy.”
Meanwhile, the bank dismissed the recent fall in inflation as mainly temporary, dragged down by lower gasoline prices, electricity rebates in Ontario, intense food price competition and unexpectedly weak car prices.
Bank of Canada Governor Stephen Poloz and his central bank colleagues aren’t yet ready to pull the trigger on a second rate hike this year. The bank insisted that any future rate hikes would be guided by the effect of “incoming data” on inflation, according to the statement.
Many economists are expecting at least one more rate hike this year, most likely in October, when the bank releases its next quarterly forecast.
The bank said that the 3.5% annual pace of GDP growth in the first quarter will “moderate” over the rest of the year, but remain “above potential.” Among other things, the bank expects consumer spending, exports and business investment to drive growth in the months ahead.
But Wednesday’s quarter percentage-point rate increase could cool one of the key sectors that has been driving the economy – housing. Lenders have already started pushing some mortgage rates higher, which will discourage home buying.
The bank pointed out that housing activity has already abated, particularly in the Toronto area, where homes sales have fallen sharply.
The central bank also noted that while the global economy is getting stronger and spreading to new regions, “elevated geopolitical uncertainty still clouds the global outlook.” For example, the bank has removed from its forecast an expected bump to the U.S. economic growth from future personal and corporate tax cuts, which now appear less likely.
Today’s ultra-low interest rates have encouraged many Canadians to load up on mortgage debt, driving home prices and home construction, particularly in and around Toronto and Vancouver. But they have also penalized savers and made it tough for pension funds to generate healthy returns.
Inflation remains one of the puzzles facing central banks – not just in Canada, but globally. Canada’s Consumer Price Index (CPI) currently sits well below the bank’s 2% target and continues to drift lower.
Economists will no doubt raise questions about why the central bank is raising rates while inflation is still falling.
But the Bank of Canada is apparently looking ahead to conditions that will likely prevail a year or two from now. Inflation may weaken further in the months ahead before getting back to the 2% target by the middle of next year as excess capacity in the economy fades, according to the bank’s Monetary Policy Report, released Wednesday.
The bank now estimates that the so-called output gap – a measure of excess labour, factory capacity and the like – will close “around the end of 2017.” That’s significantly sooner than its assessment in April that the gap would disappear in the first half of next year.
The Bank of Canada cut rates twice in 2015, taking out what Mr. Poloz called “insurance” against the fallout from the collapse in the price of oil and other commodities.
Recently, Mr. Poloz has said that those cuts “have largely done their work” as the effects of the oil shock receded in Canada’s oil patch.
Overall, the bank’s latest projection of where the economy is headed is little changed from its April forecast. It now expects the economy to grow 2.7% this year, compared to its earlier estimate of 2.5%. But its forecast for GDP growth in 2018 and 2019 remains virtually unchanged.
The bank did, however, significantly underestimate the strength of consumption this year – most notably the hot housing markets in Ontario and B.C.
Likewise on inflation, the bank said CPI inflation will average just 1.6% this year, versus its April estimate of 2.1%. But its forecasts for 2018 and 2019 (2% and 2.1%) remain roughly in line with earlier projections.
The central bank warned of a series of risks that could derail its latest forecast. These include rising trade protectionism, a house price correction in Toronto and Vancouver and weaker than expected exports and business investment. The bank likewise cited a number of factors that could cause the economy to grow faster than expected, including stronger U.S. growth and more debt-fuelled consumption in Canada.
Source: The Globe and Mail
Housing Starts Pick Up in June
Canada Mortgage and Housing Corporation (CMHC) said the annual pace of housing starts in Canada picked up in June.
The agency reported on Tuesday that the seasonally adjusted annual rate (SAAR) of housing starts in June came in at 212,695 units, up 9.1% from 194,955 units in May.
Economists had expected the annual rate to come in at 200,000, according to Thomson Reuters.
The overall increase came as the pace of urban starts increased by 9.6% to 194,773 units. Multi-unit urban starts increased by 9.4% to 127,944, while single-detached urban starts increased by 10.1% to 66,829.
Rural starts were estimated at a seasonally adjusted annual rate of 17,922 units.
The six-month moving average of the monthly seasonally adjusted annual rates increased slightly to 215,459 in compared with 214,570 in May.
“The trend in housing starts for Canada reached its highest level in almost five years”, said Bob Dugan, CMHC’s chief economist. “So far this year, all regions are on pace to surpass construction levels from 2016 except for British Columbia, where starts have declined year-to-date after reaching near-record levels last summer.”
Monthly Regional Highlights:
Prince Edward Island
Prince Edwards Island’s housing starts continued to trend up during the month of June. Starts of single family homes have been particularly strong the first six months of this year, up 97% compared the same period in 2016.
Quebec CMA
In June, housing starts trended higher in Quebec as a result of the construction of a large condominium project. However, in the conventional rental housing segment, year-to-date results show a 22% decrease in housing starts compared to the same period in 2016. This decrease can be explained, in part, by the period of strong activity observed in this segment in 2015 and 2016 and the rise in the vacancy rate.
Toronto
The total housing starts trend in the Toronto Census Metropolitan Area (CMA) remained virtually unchanged in June compared to the previous month. The pace of new home construction has been stable across all housing forms. A minor decline in the single-detached starts trend was offset by gains in the multi-family sector. Glancing further back, construction of ground-oriented homes, which includes single-detached, semis and town homes, have gained momentum throughout 2017, as housing starts so far this year have reached a five-year high. Limited resale supply in combination with strong home buying demand in Toronto have led more buyers to purchase pre-construction units.
Barrie
Higher trending single-detached and row starts have pushed Barrie’s total housing starts up for the second month in June. Demand for new homes continued to fuel home starts in the town of Innisfil instead of the land-scarce city of Barrie. The town of Innisfil has become the prime location for the construction of low and medium-density homes in the Barrie CMA.
Oshawa
Oshawa had a record level of seasonally adjusted starts in June 2017, the pace of construction being nearly three times higher than the average seen over the past three years. While all housing types saw increases in June, the row and apartment segments were the clear leaders. Price weary buyers from the Toronto CMA continue to fuel demand for new homes in Oshawa.
Fort McMurray/Wood Buffalo
Fort McMurray has experienced strong rebuilding activity after the wildfires last May. Since January, 785 housing starts have been recorded, twice as many as in the last two years combined. The majority of these new starts have been replacement single detached homes.
Victoria
Housing starts trended higher in the Victoria CMA last month as new rental projects were initiated in Langford. Total starts for 2017 remain elevated but reduced from the record-setting pace last year. Multi-unit starts have been sluggish to date compared to singles, which are slightly above expectation. However, multi-unit construction remains elevated at 30% above the five-year average. Developers will be keeping an eye on how the market responds to a higher completion rate going forward.
Vancouver
Vancouver CMA housing starts trended downwards in June, driven by a decrease in apartment starts. In the first six months of 2017, there were 880 ownership apartment starts in the City Vancouver, compared with 3,290 in the first half of 2016. Given the strong housing starts activity in the past year and the record number of units now under construction, it is not surprising to see starts trend downward according to industry capacity.
Source: CMHC, The Canadian Press
Canada Adds More than 45,000 Jobs in June as Unemployment Rate Drops to 6.5%
Canada’s unemployment rate is down to 6.5% after the economy churned out a better-than-expected 45,000 jobs in June Statistics Canada reported last Friday.
A consensus of economists had expected an increase of 10,000 jobs in June and for the unemployment rate to stay at 6.6%, according to Thomson Reuters.
Most of those gains, however, were in part-time positions.
Still, over the course of 12 months, Canada has created 351,000 jobs (+1.9%), most of them full-time.
And notably, employment gains in the second quarter, of 103,000, mark the strongest quarterly showing since 2010.
The jobless rate dipped one notch, from 6.6% in May.
Ontario and British Columbia, the jobs powerhouses in Canada of late, led the way again in June, according to the federal agency.
Particularly strong was B.C., which pumped out 20,000 new jobs as unemployment declined by a hefty half of a percentage point to 5.1%.
By sector, professional, scientific and technical services led the charge where employment rose by 66,000 (+4.7%) compared with 12 months earlier, making it the fastest-growing industry over this period. Most of the increase was in computer system design services.
Employment in agriculture increased by 12,000 in June. Employment in this industry was at virtually the same level as it was 12 months earlier.
There were 15,000 fewer people working in business, building and other support services in June, bringing year-over-year losses to 23,000 (-3.0%). This industry is broad and includes administrative and cleaning services to businesses and buildings, as well as employment services.
In June, the number of employees was little changed in both the private and public sectors. Compared with 12 months earlier, the number of private sector employees increased by 227,000 (+1.9%), while the number of public sector employees increased by 105,000 (+2.9%).
Self-employment edged up in June (+21,000), but was little changed on a year-over-year basis.
Meanwhile, the Canadian dollar shot up last Friday after the Statistics Canada report, buoyed by mounting speculation that Bank of Canada Governor Stephen Poloz and his colleagues will raise their benchmark rate [this Wednesday].
“We had held on to our October forecast for a Bank of Canada rate hike, but concede that’s likely to end up off the mark, as today’s jobs numbers cement the case for the central bankers to raise rates in the coming week,” said CIBC World Markets chief economist Avery Shenfeld.
“June’s job gains were widely spread across goods and services, split evenly between paid jobs and self-employment, with the only disappointment being a leaning to part-time jobs, although full-time jobs are still up a heady 1.7% in the past year,” he added.
“In sum, the jobs market is tightening, and not far from what historically has been judged as full employment. Over to you, Governor Poloz.”
Source: Statistics Canada, The Globe and Mail
Building Permits Up 8.9% in May Led by Residential Building Intentions in Ontario
The value of Canadian building permits issued in May jumped 8.9% from April on plans for more construction of residential buildings, particularly in the red-hot market of Ontario, Statistics Canada reported last Thursday. The amount of $7.7 billion was the third highest value on record.
Analysts in a Reuters poll had expected a 2.6% increase. Statscan also revised April's data to show a 0.5% advance, compared with an initially reported fall of 0.2%.
The value of residential building permits issued by Canadian municipalities increased 10.8% from April to $5.0 billion in May. Six provinces registered gains in the month, with Ontario reporting the largest increase, followed distantly by Alberta and British Columbia.
The multi-family component rose 15.0% in May to $2.3 billion, following a 6.9% gain in April. Construction intentions were up for every type of multi-family dwelling, led by row houses. Meanwhile, the value of single-family building permits rose 7.4% to $2.7 billion in May, stemming mainly from single homes in Ontario.
Canadian municipalities approved the construction of 18,037 new dwellings in May (up 7.2% compared with April), consisting of 12,032 multi-family units (+11.8%) and 6,005 single-family units (-1.0%). Ontario contributed the most to the increase in new dwellings approved in May, bringing the year-to-date number of new dwellings approved in that province to 35,860. In comparison, Ontario approved the construction of 30,661 new dwellings from January to May 2016.
British Columbia reported a second consecutive monthly gain in new multi-family units approved following a notable decrease in March 2017, while over 100 new multi-family units were approved in Prince Edward Island for just the fourth month since January 1989.
The value of building permits issued for non-residential structures rose 5.6% in May to $2.7 billion, marking a third consecutive monthly increase. Alberta and New Brunswick led the five provinces that posted gains in the non-residential sector in May.
The commercial component rose 12.9% in May to $1.5 billion, as increases were registered across several building categories, led by retail and wholesale construction intentions. Every province except Nova Scotia and Alberta reported gains in the value of commercial building permits.
The industrial component rose for a third consecutive month, up 9.8% in May to $545 million. This increase was mainly due to higher construction intentions for maintenance buildings in Ontario.
In contrast, the value of building permits issued for institutional structures fell 9.1% to $719 million in May. This followed notable construction intentions in April for government administration buildings and medical facilities.
Regionally, the total value of building permits rose in seven provinces in May, led by Ontario and Alberta. Meanwhile, construction intentions were up in 22 of 36 census metropolitan areas (CMAs), led by Hamilton, Toronto, Calgary, and the Ontario part of Ottawa–Gatineau.
In Ontario, the gain in May stemmed primarily from the residential sector, the result of increases in both the multi-family and single-family components in the Toronto CMA. The industrial component in Ontario rose for a third consecutive month, with the gain in May mostly attributable to higher construction intentions for maintenance buildings in the Hamilton CMA. The commercial component, specifically the hotel and restaurant category, led the increase in the total value of building permits in the Ontario part of the Ottawa–Gatineau CMA.
The increase in construction intentions in Alberta in May stemmed from institutional structures, as well as multi-family dwellings. This gain coincided with a notable increase in the multi-family component in the Calgary CMA, but was moderated by the Edmonton CMA, which registered lower construction intentions in all building components for the month, except institutional structures.
May 2017 marks the one year anniversary of the start of the 2016 Fort McMurray wildfire.
During this period, the municipality of Wood Buffalo issued record levels of both the unadjusted number of building permits and the unadjusted value of building permits for residential dwellings.
In the 12 months to May, 1,817 residential building permits worth $493 million were issued for Wood Buffalo, compared to an annual average of 1,311 residential building permits totalling $194 million since the beginning of the 21st century. In May 2017 alone, Wood Buffalo issued 305 residential building permits worth $92 million, the highest monthly levels for this municipality since January 2000.
Source: Statistics Canada, Reuters
Canadian Dollar to Stop its Climb by Autumn if Rates, Oil Prices Weaken: Poll
The Canadian dollar is expected to weaken over the coming months, a Reuters poll of 47 foreign exchange strategists showed last Thursday, as a rally driven by expectations for higher interest rates runs out of steam and lower oil prices weigh.
The median forecast is for the currency to retreat in three months to C$1.32 to the U.S. dollar, or US76¢, before recovering some ground to C$1.31 in about a year. It was trading last Wednesday at C$1.2960, nearly its strongest in 10 months.
The loonie has soared more than 6% since early May, boosted by a strengthening domestic economy and rising expectations the Bank of Canada will hike interest rates this week.
The central bank’s top two officials asserted in June that a pair of 2015 interest rate cuts had done their job in cushioning the economy from collapsing oil prices.
But the currency’s rally may get long in the tooth if the Bank of Canada does not indicate it is prepared to tighten beyond taking back the two cuts from 2015, termed “insurance” at the time, by raising rates.
“Unless the (central) bank comes out overtly hawkish this week and the market starts pricing in a third hike for the coming year,” it will be difficult for the Canadian dollar to strengthen further, said Bipan Rai, senior macro strategist at CIBC Capital Markets.
The central bank may want to see more progress on reaching its 2% inflation target before it goes further than taking back the insurance cuts, Rai said.
Inflation has held well below the target, even as Canada’s economy grew at an annualized 3.7% rate in the first quarter after a strong expansion in the second half of 2016.
The drop in the price of oil adds to the risk of a “near-term correction to the recent trend” for the Canadian dollar, said Nick Bennenbroek, head of currency strategy at Wells Fargo.
Oil has slumped 16% in price since the start of the year, including 4% last Wednesday after Thomson Reuters Oil Research data showed exports by the Organization of the Petroleum Exporting Countries climbed for a second month in June.
The latest Reuters oil poll showed analysts slashing price expectations for this year and next.
RBC Capital Markets chief technical strategist George Davis expects the Bank of Canada to hike in July and October and for the loonie to touch C$1.27 in the third quarter.
But he said the rally will fade as the central bank pauses and as renegotiations of the North American Free Trade Agreement get underway.
Talks on NAFTA, which could start as soon as mid-August, could hurt Canada’s economy as the Trump administration tries to win better terms for U.S. workers and manufacturers.
While NAFTA renegotiations are “the most clear and present danger,” a slowdown in the country’s housing market could also weigh on the country’s economy due to elevated borrowing by Canadians, CIBC’s Rai said.
The Bank of Canada had long said interest rates are too blunt a tool to tackle the country’s housing market. But it may have finally decided to act and at least limit its role in fuelling a potential bubble with low interest rates after home prices soared in Toronto and Vancouver.
Meanwhile, the median estimate in a recent Bloomberg survey predicts a 3.3% weakening of the Canadian dollar to $1.34 by the end of 2017, which would be the steepest drop after New Zealand’s dollar.
For some analysts, including Klarity FX Inc.’s Amo Sahota, the second-most accurate predictor of the loonie’s moves last quarter, the reasons for remaining a bear are simple: traders are wildly overestimating the Bank of Canada’s desire to raise rates next month, he says.
Expectations for tightening this week have surged to 87%, from just 4% a month ago, according to overnight index swap data compiled by Bloomberg.
“The market has largely run its course and we’ll probably have a summer of choppiness,” said Sahota, director of risk management at San Francisco-based Klarity FX, who predicts the Canadian dollar will end 2017 at $1.32. “Staying long in the loonie is not as clear-cut as everyone thinks; it’s dangerous.”
While the Bank of Canada will raise its benchmark rate to 0.75% from 0.5% this week, further increases will be limited to one, most likely in October, said Bipan Rai, Toronto-based senior foreign-exchange and macro strategist at CIBC, who came third in the Bloomberg ranking. He predicts the loonie will end 2017 around current levels.
“There could be enough juice to test the important support level of $1.2830,” Rai said. “Beyond there it might be a little tough given how far the currency has come over such a short period of time.”
Source: Reuters, Bloomberg News
Greater Toronto Area Home Sales Plunge 37.3% in June Despite a Jump in Listings
The average price of a home sold in the Greater Toronto Area was $793,915 in June, an 8% decline from a month earlier, according to data released last Thursday from the Toronto Real Estate Board (TREB).
On a year over year basis, June average prices were still up 6.3% from a year ago. Using the board MLS HPI Composite Index prices were 25.3% on a year over year basis despite a 1.3% decline between May and June. The index showed that condos, however, still rose 1% in price.
“We are in a period of flux that often follows major government policy announcements pointed at the housing market,” said Tim Syrianos, president of the board in a statement, referencing the province’s 16-point housing plan to cool the market in the Greater Golden Horseshoe (GGH). Among key measures were a 15% non-resident speculation tax for the GGH and a rent control for the entire province.
Syrianos said survey results commissioned by the board show many households are very interested in purchasing a home in the near future but some are sitting on the sidelines waiting to see the real impact of the Ontario Fair Housing Plan.
“We have existing homeowners who are listing their home because they feel price growth may have peaked. The end result has been a better supplied market and a moderating annual pace of price growth,” he said.
TREB said there 7,974 sales through the Multiple Listing Service in June, down 37.3% from a year ago. New listings rose to 19,614, up 15.9%.
“While this annual rate of growth was sizeable, it represented a more moderate annual rate of growth compared to May 2017, when new listings were up by 48.9% year-over-year,” TREB said it its release.
The board noted its benchmark compose rate, intended to smooth out anomalies in the market, remains strong but has moderated over the past two months. The benchmark is considered the more accurate measure of home prices because it compares homes of similar size, location and age and isn’t as skewed by gains or losses in one or more particular categories.
“Recent Ipsos survey results suggest that home buying activity in the GTA will remain strong moving forward. The year-over-year dip in home sales we have experienced over the last two months seem to be the result of would-be buyers putting their decision to purchase temporarily,” said Jason Mercer, director of market analysis and service channels for TREB. “It certainly looks as though buyers will benefit from more choice in the second half of 2017 compared to the same period in 2016.”
TREB has issued a new 13% to 18% forecast for home sale prices.
At the start of this year, TREB had been predicting an annual 10% to 16% price growth — between $800,000 and $850,000.
The new forecast puts the average price between $825,000 and $860,000, in part because of strong gains in the first four months of the year. Prices grew 33% year over year in March.
“While an annual growth rate in this range will still be very strong from a historic perspective, it is important to note that it will also represent a moderation in year-over-year average price growth in the second half of the year. This moderation will be due to both more balanced market conditions and a change in the mix of homes purchased,” said TREB.
More buyers, challenged by the high cost of housing in the region, are already opting for starter homes in the townhouse and condo categories.
The board said its amended forecast is based on the temporary impact of the Ontario Liberal government’s Fair Housing policy and the likelihood that the Bank of Canada will raise mortgage rates at least once in the second half of the year.
It has lowered the number of home sales it expects this year to between 89,000 and 100,000 transactions. It had originally anticipated between 104,500 and 115,500 sales in 2017.
The province’s announcement last week that only 4.7% of home sales that closed in the Golden Horseshoe area between April 24 and May 26, involved foreign buyers, confirmed that most home consumers are domestic buyers, said TREB. Its own earlier research indicated a similar 4.9% of non-resident activity.
“This, taken along with the strong buyer intentions reported by Ipsos, suggests that we will see many households moving back into the home ownership market over the next 12 months,” TREB CEO John DiMichele said.
The biggest declines in home sales were higher-priced detached houses, where the number of transactions was down 45% year over year in June. The smallest declines in the number of sales was in condos, which dropped 23.4% across the region.
Source: The Financial Post, The Toronto Star
Montreal’s Hot Condo Market Drives 10% Rise in Home Sales in June
The Greater Montreal Real Estate Board says area home sales increased by 10% in June, driven by a hot condo market.
There were 3,952 properties sold last month, the highest level for June in eight years.
The data comes amid concerns that a 15% foreign buyers’ tax in the Greater Toronto Area could have a spillover effect on Canada’s second-largest city.
Quebec’s finance minister has said he has no plans in the near term to introduce such a tax since foreigners accounted for only about 1.5% of all Montreal-area sales in the first nine months of 2016, according to the Canada Mortgage Housing Corp.
Housing sales in June were aided by a 17% increase in sales on the Island of Montreal.
Condominium sales were up 20%, marking a steady increase for a second consecutive month, while sales of single family homes rose 4%.
The average price of Montreal area homes was $362,207 for June, up 6% from a year ago. The average price for single family homes rose 9% to $396,367.
Source: The Canadian Press
Latest U.S. Economic News
U.S. Households See Spending Up, Job Prospects Improving: Fed Survey
U.S. consumers expect to boost spending in the months ahead and voiced confidence they are more likely to find a job and less likely to lose one in a strong labour market, the New York Federal Reserve reported Monday in its latest monthly survey of consumer expectations.
Nearly 35% of the 1,300 heads of household included in the June poll said they were better off economically than a year go, a record in the four years the survey has been conducted.
The results bolster the current Fed outlook of an economy that continues to generate jobs despite tepid overall growth and some concern about a recent dip in inflation, improving chances the central bank can follow through with plans for a further interest rate increase later this year.
Though household expectations of inflation for the year ahead did dip slightly from the May survey, to 2.5% from 2.6%, respondents expect strong price increases of 2.8% over the coming three years. That’s consistent with the Fed’s current outlook that the recent weakness in inflation will prove temporary.
The survey also bolstered the view of continued strong consumption growth. Half of those polled said they expected to spend at least 3.3% more in the coming year, compared to median expected spending growth of 2.6% in the May survey. One-year-ahead expected earnings growth increased to 2.5% in the June survey from 2.2% in May.
Respondents also showed broad faith in the strength of the labour market, with a slight dip to 13.5% from 13.6% in the perceived probability of losing a job in the next year, and a jump to 59.2% from 56.7% in the probability of finding employment.
More than a fifth of respondents said they might leave a job voluntarily in the next year, up from 19.4% in May. Voluntarily job exits are considered a sign of a strong labour market that offers employees choices.
The online poll is designed to be a representative sample of the U.S. population. The New York Fed did not provide the margin of error for the poll.
Source: Reuters
U.S. Job Growth Accelerates in June, but Wages Continue to Lag
U.S. job growth surged more than expected in June and employers increased hours for workers, signs of labour market strength that could keep the Federal Reserve on course for a third interest rate increase this year despite benign inflation.
Nonfarm payrolls jumped by 222,000 jobs last month, the Labor Department reported last Friday, beating economists’ expectations for a 179,000 gain. Data for April and May was revised show 47,000 jobs created than previously reported.
While the unemployment rate rose to 4.4% from a 16-year low of 4.3%, that was because more people were looking for work, a sign of confidence in the labour market. The jobless rate has dropped four-tenths of a percentage point this year and is near the most recent Fed median forecast for 2017.
The average workweek increased to 34.5 hours from 34.4 hours in May. Labour market buoyancy could also encourage the U.S. central bank to announce plans to start reducing its $4.2-trillion portfolio of Treasury bonds and mortgage-backed securities in September.
The Fed raised its benchmark overnight interest rate in June for the second time this year. But with inflation retreating further below the central bank’s 2% target in May, economists expect another rate hike only in December.
June’s employment gains exceeded the 186,000 monthly average for 2016, reinforcing views that the economy regained speed in the second quarter after a sluggish performance at the start of the year.
But the pace of job growth is expected to slow as the labour market hits full employment. There is growing anecdotal evidence of companies struggling to find qualified workers.
As a result, companies are gradually raising wages in an effort to attract and retain their employees. Economists expect worker shortages to boost wage growth, which has remained stubbornly sluggish despite the tightening labour market.
Average hourly earnings increased four cents or 0.2% in June after gaining 0.1% in May. That lifted the year-on-year increase in wages to 2.5% from 2.4% in May.
Republican President Donald Trump, who inherited a strong job market from the Obama administration, has pledged to sharply boost economic growth and further strengthen the labour market by slashing taxes and cutting regulation.
But Republicans have struggled with healthcare legislation and there are also worries that political scandals could derail the Trump administration’s economic agenda.
The U.S. economy needs to create 75,000 to 100,000 jobs per month to keep up with growth in the working-age population.
But there is still some labour market slack. A broad measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, rose to 8.6% last month from 8.4% in May, which was the lowest since November 2007. The labour force participation rate, or the share of working-age Americans who are employed or at least looking for a job, rose one-tenth of a percentage point to 62.8%.
Employment gains were broad in June, with manufacturing payrolls increasing 1,000 after factories shed 2,000 jobs in May.
But the automobile sector lost a further 1,300 jobs as slowing sales and bloated inventories force manufacturers to cut back on production.
The sector has purged jobs for three straight months.
Ford Motor Co has announced plans to slash 1,400 salaried jobs in North America and Asia through voluntary early retirement and other financial incentives. Others, like General Motors are embarking on extended summer assembly plant shutdowns, which will temporarily leave workers unemployed.
Construction added another 16,000 jobs last month.
Retailers hired 8,100 workers, a surprise respite for a sector which had shed employment for four straight months.
Department store operators like J.C. Penney, Macy’s and Abercrombie & Fitch are struggling against stiff competition from online retailers led by Amazon.
Government employment rebounded by 35,000 jobs last month.
Source: Reuters
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