CHHMA - EYE ON OUR INDUSTRY
Volume 17, Issue 21, June 2, 2017
Inside This Issue:
• CHHMA & COPA Ontario Golf Tournament Recap
• Members Enjoy Fun Day at the CHHMA Quebec Golf Classic
• Industry Memorial Golf Classic to Take Place on October 4th – Mark Your Calendar
• Jacobs & Thompson Launches New “Polar Bear Products” Consumer Products Division
• Lowe’s Canada Announces Second RONA Store to Convert to Lowe’s Banner
• Lowe’s Q1 Results Miss Analysts’ Estimates
• Sears Holdings Reports Smaller than Expected Loss in Q1
• Wal-Mart Draws More Shoppers As Online Sales Jump in First Quarter
• As Amazon Continues its Canadian Push, Retailers are Being Forced to Step Up their E-Commerce Game
• Canada’s Economy Grows at 3.7% Annual Pace in First Quarter
• IMF Praises Infrastructure Bank Plan; Flags Housing Market Concerns
• U.S. Softwood Lumber Duties to Cost 2,200 Jobs Report Says
• Toronto Area Home Sales Sink after Cooling Measures
• Bank of Canada Holds Interest Rate Steady in Face of Uncertainty
• Autos Fuel Canadian Retail Sales
• Inflation Remains Unchanged at 1.6%
• Latest U.S. Economic News
Association News
CHHMA & COPA Ontario Golf Tournament Recap
The first combined CHHMA & COPA Ontario Golf Tournament (48th Annual CHHMA Ontario Golf Tournament) took place on Tuesday at the Angus Glen Golf Club in Markham.
After checking in and picking up an assortment of goodies, registrants enjoyed a BBQ lunch sponsored by 3M Canada on the patio with colleagues, customers and new friends. Spirits were high as a strong turn-out of golfers from both associations prepared to take on both the North & South courses. Unfortunately, Mother Nature would not cooperate and interrupted play after a few holes and due to lightening in the area, golf had to be cancelled for the day. However, full rain-checks were issued for all and everyone will have an opportunity to play again on their own at this top rate golf course at a future date.
Dinner was moved up and spirits remained good as attendees were treated to an excellent meal followed by draws for all the sponsored competition hole prizes.
The event passports that were sold at registration along with a silent auction helped raise money for both associations’ scholarship programs. We would like to thanks all the companies that donated items for the auction (and draws) as well as all the individuals who bid on them.
Thanks to Paul Publow of Logistics Solutions & Services who sponsored the cart signage plus provided a photo print of the famous “Lone Cypress at Pebble Beach” which is normally awarded to the low net golf scorer of the day. Instead it was auctioned off which raised additional money for the Scholarship Programs. Thanks to Bob Kendall of IPEX HomeRite Products for his generous high bid.
Photos from the day will be available on the CHHMA website at Past Events next week.
Finally, we would like to thank all the following sponsors for their support and help in making the event a success:
3M Canada, ACCO Canada, Avery Products Canada, Davis Group, Domtar, Dynamic Management Services, Envirogard/Rainfresh Water Treatment, Fellowes Canada, Groupe SEB Canada, IPEX HomeRite Products, Logistics Solutions & Services, Magtar Sales, Philips Lighting, Quest Brands, Recochem, Richelieu Hardware & Shop-Vac Canada.
Members Enjoy Fun Day at the CHHMA Quebec Golf Classic
The 42nd Annual CHHMA Quebec Golf Classic took place last Thursday at the club de golf Le Fontainebleau in Blainville, Quebec.
After enjoying a tasty breakfast and an opportunity to catch up with friends from the industry, attendees took to this excellent course, which has hosted Championship Tour events in the past, on a very pleasant afternoon for golf.
Participants enjoyed some friendly competition and camaraderie with colleagues, fellow vendors and customers.
As always, an excellent dinner followed the golfing and some lucky folks walked away with some great draw prizes. The closest to the pin winner was Eric Cantin from Honeywell Limited.
All the photos from the event will be posted on the CHHMA website at Past Events next week.
We would like to acknowledge the CHHMA Quebec Committee members for their hard work in organizing this fantastic event: Christine Papineau, Robert Begin, Alain Bourdages, Marc Gagliardi, Richard Guindon, Richard Lepine, David Mayhew and Richard Paradis.
Finally, we would also like to thank the following companies for sponsoring the tournament and helping make this event such a success:
A. Richard Tools, BMR/Unimat, Canadian Technical Tape, Davidson Sales & Marketing, EAB Tool, Garant GP, Henkel Canada, Imperial Manufacturing Group, IPEX HomeRite Products, J.L. Gagliardi & Associates, Kaz Canada, Laplante & Associés, LM2 Marketing, Moen, PPG Architectural Coatings, T.S. Simms & Co., Thomas & Betts, TIMBER MART & Water Pik.
Industry Memorial Golf Classic to Take Place on October 4th – Mark Your Calendar
The 16th Annual Industry Memorial Golf Classic will take place on Wednesday, October 4, 2017 at the Blue Springs Golf Club in Acton, Ontario.
The event is held on behalf of the hardware and housewares industry and it honours stalwarts from the industry who have passed away.CHHMA members and non-members are welcome to attend.
This year’s honourees will be announced over the coming months but as always we continue to remember all past honourees at the event which include: David Holden, Leonard Lee, Warren Parr, David Fry, Ted Kennedy, Geoff Somers, Ray Ceolin, Tom Ross, Bruce Webster, Chris Hrushowy, Mike Pullen, Jim Ypma, Bill Caldwell, Brayl Copp, Ed Hardison, Stuart North, Joseph Kuchar, Shelly Lush, Jack Pountney, Christof Vanooteghem, Ian Hay, Trygve Husebye, Bernie Carpenter, Don McDonald, Les Groves, Bob Hilton, Doug Straus, Mel Boshart, George Giles and Ed Barnes.
Money raised from the event will go towards the CHHMA Scholarship Program which provides support for children of CHHMA member company employees to attend university or college.
Look for further details and registration info in the coming weeks.
Member News
Jacobs & Thompson Launches New “Polar Bear Products” Consumer Products Division
National Foam fabricator and weatherproofing manufacturer Jacobs and Thompson is pleased to announce the launch of their new consumer products division, Polar Bear Products. Jacobs and Thompson has 4 facilities across North America (2 in Canada and 2 in the U.S.) and has a 70+ year track record supplying weatherproofing products to the industrial market. Now they have branched out with their own consumer product line under the Polar Bear Products brand.
The product line consists of over 150 SKUs and includes a wide range of products such as Window Film Kits, foam tapes, door sweeps and thresholds, eavestrough foam, A/C accessories, specialty tapes, and felt floor protection pads to name a few.The Polar Bear line has also come out with a unique line of exclusive products such as their Environmentally Friendly Thermal Insulating Foam Tape made from Zotefoam material, Patented Reloadable U-Shaped Door Bottoms and Patented Eavesdropper Eavestrough Foam.
During their recent product launch at the 2017 National Hardware Show in Las Vegas, Polar Bear Products was selected out of approximately 50 other U.S. and Canadian manufacturers to receive the Silver Award in the NRHA Packaging and Merchandising Competition.
Polar Bear is committed to providing high quality products that are both sourced and manufactured right here in North America. They use rigorous A2LA testing on all of their adhesive products to ensure maximum performance. The products are designed to bring comfort to your home while helping you save up to 20% on your energy bill.
Polar Bear Products is proud to be a socially conscious brand that promotes sustainability, energy efficiency and carbon footprint reduction not only through their line of weatherproofing products but also through their bronze corporate sponsorship of Polar Bears International – an organization that is fighting to reduce climate change and protect polar bears whose ecosystem is at risk due to the negative effects of global warming.
Learn more at http://www.polarbearproducts.com.
Source: Jacobs & Thompson
Industry News
Lowe’s Canada Announces Second RONA Store to Convert to Lowe’s Banner
Lowe’s Canada announced on Monday that its Langford RONA Home and Garden store will be the second RONA big box location set to convert to the Lowe’s banner. The Langford store, located at 850 Langford Parkway (in Victoria), will undergo an extensive renovation and re-merchandising of the existing store which is expected to be completed by Fall 2017.
This follows the announcement earlier in February that the Namao RONA Home and Garden store, located at 9603 165 Ave NW (in the northern part of Edmonton), will be the first store to undergo an extensive renovation and remerchandising to the Lowe’s banner by summer 2017.
Starting on June 5, 2017, the Langford store will undergo a 16-week physical transformation which involves an extensive process including construction, departmental sequencing of new racking and re-merchandising, branding and IT conversion. As well, Lowe’s is investing in people with extensive training that is focused on new product knowledge and customer service.
“The store will remain open during the conversion and we are committed to minimizing any impact on customers so that we can continue to offer the best shopping experience possible during the conversion process,” confirmed Jim Caldwell, Executive Vice President, Lowe’s Canada Big Box Retail, in a press release.
Customers of the Langford store can look forward to an enhanced shopping experience including expanded assortment, the introduction of new categories such as appliances and a superior online program which includes Click & Collect for in-store pickup and local truck delivery and parcel shipping.
The new Langford Lowe’s will feature 73,349 square feet of retail sales space, an adjacent Garden Centre with 28,315 square feet, as well as an outdoor lumber yard with 24,155 square feet and a covered (drive-thru) lumber yard with 14,217 square feet. The store will account for more than 130 permanent jobs and approximately 30 seasonal positions, and is currently looking to hire an additional 30 permanent and seasonal employees.
Source: Lowe’s Canada
Lowe’s Q1 Results Miss Analysts’ Estimates
Lowe’s Companies, Inc. reported quarterly profit and same-store sales on May 24 that missed analysts’ estimates, in contrast to the strong results reported by larger rival Home Depot the week prior.
Home Depot had cited higher demand for expensive items such as flooring and roofing materials amid a strong housing market for its bigger-than-expected sales for the first quarter.
Lowe’s focus on do-it-yourself customers has led it to lag Home Depot, whose focus on high-spending professional contractors has helped it benefit more from the strength in the housing market.
Home improvement has remained a bright spot in the gloomy U.S. retail industry, as a strong labour market and historically low mortgage rates drive demand for housing.
Lowe’s is trying to catch up with Home Depot’s lead on professional contractors and said on May 18 that it would buy wholesale retailer Maintenance Supply Headquarters for $512-million.
Sales at Lowe’s stores open at least for a year rose 1.9%, below the 2.6% rise expected by analysts polled by research firm Consensus Metrix.
Net income fell to $602-million, or 70 cents per share, in the first quarter ended May 5, from $884-million, or 98 cents per share, a year earlier.
Lowe’s recorded a $464-million pre-tax loss on extinguishment of debt in connection with its $1.6-billion cash tender offer.
Excluding items, the company earned $1.03 per share, missing the average analysts’ estimate of $1.06, according to Thomson Reuters.
Net sales rose 10.7% to $16.86-billion, slightly below the average analysts’ estimate of $16.96-billion.
The company maintained its sales forecast for the year ending Feb. 2, but reduced its profit forecast to $4.30 per share from $4.64 to reflect loss on extinguishment of debt.
Up to May 23rd’s close, Lowe’s stock had risen about 16% this year.
Source: Reuters
Sears Holdings Reports Smaller than Expected Loss in Q1
Sears Holdings Corporation reported a narrower-than-expected first-quarter loss last Thursday, sending shares of the stock climbing in premarket trading.
But revenue and same-store sales continued to decline at a double-digit pace, as Sears and Kmart stores suffered weak foot traffic and tough price competition.
Sears also announced last Thursday that it's boosting its cost-cutting efforts to $1.25 billion, from a prior target of $1 billion, and reviewing its fleet of stores while it tries to regain its financial footing.
Here's what the company reported vs. what the Street was expecting:
• Earnings per share: an adjusted loss of $2.15 vs. an expected loss of $3.05, according to two Thomson Reuters analysts who continue to cover the company
• Revenue: $4.3 billion vs. a Thomson Reuters forecast for $4.05 billion
• Same-store sales: an 11.9% decline vs. a FactSet estimate for a decline of 12%
Shares of Sears' stock were climbing by as much as 25%, up nearly $2, at one point last Thursday morning.
Sears posted its first quarterly profit in almost two years, with net income attributable to Sears' shareholders that was $244 million, or $2.28 per share, compared with a loss of $471 million, or $4.41 per share, a year earlier.
The company's profit was boosted by the sale of its Craftsman brand to Stanley Black & Decker, which happened in March, for an upfront payment of $525 million.
Adjusted for these types of significant items, Sears lost $230 million, or $2.15 per share, compared to a loss of $199 million, or $1.86 per share, one year ago. A survey of two analysts by Thomson Reuters had forecast an adjusted loss of $3.05 a share.
Meanwhile, Sears' total sales declined a whopping 20.3%, to $4.30 billion, coming in slightly higher than what analysts were anticipating.
Revenue was hurt by lower demand for groceries, household items, pharmacy and apparel at Kmart stores, and fewer sales of home appliances at Sears, the retailer said. Sears also saw weakness in its apparel and lawn and garden categories.
Sears' U.S. stores saw their same-store sales drop 12.4%, while at Kmart stores they fell 11.2% during the first quarter. Overall, Sears comparable sales fell 11.9% — a narrower decline that what Wall Street was expecting.
"While this was certainly a challenging quarter for our company, it was also one that clearly demonstrated our commitment to return Sears Holdings to solid financial footing," CEO Eddie Lampert said in a statement. "We recognize that we need to accelerate our efforts to improve our operational performance and are moving decisively with our $1.25 billion restructuring program."
Sears said it has rung up $700 million in cost savings to-date.
This was accomplished by closing 150 non-profitable Sears stores, which the company announced earlier this year. Sears has also started closing 92 under-performing pharmacy operations in some Kmart stores, and 50 Sears Auto Center locations, the company said.
"We continue to evaluate ways to improve our financial position by unlocking value from our asset base, including our Kenmore and DieHard Brands, as well as our Home Services and Auto Centers businesses," Sears Chief Financial Officer Rob Riecker said in a statement.
"We will continue to closely evaluate the stores where a clear path to return to profitability is not in sight. We are determined to take necessary actions to improve the performance of Sears Holdings and will leverage our lease optionality to reconfigure our stores and reduce capital obligations."
Earlier last week, Sears inked a deal to extend a portion of a $500 million secured loan facility and annuitize $515 million of its pension obligations. The retailer said it's now targeting a reduction in its outstanding debt and pension obligations of $1.5 billion this fiscal year.
Sears ended the first quarter with $264 million in cash and cash equivalents, compared with $286 million in the fourth quarter.
Short-term borrowings totalled $551 million at the end of the first quarter of 2017, consisting of $536 million of revolver borrowings and $15 million of commercial paper outstanding, Sears said. The retailer had no short-term borrowings on hand last quarter.
As of April 29, Sears said it's used $1 billion of its $1.5 billion revolving credit facility due in 2020, with $70 million still available for use.
Total long-term debt — including current portion of long-term debt and capital lease obligations — totalled $3.7 billion in the latest period, down from $4.2 billion in the fourth quarter. Sears also reported total liquidity of $3.7 billion in the first quarter, something the company has been working to improve.
Meanwhile, Sears hasn't reported positive cash flow from operations since 2010.
Sears' deteriorating financial conditions forced it to disclose in a filing with the Securities and Exchange Commission in March that there was "substantial doubt" about its ability to "continue as a going concern."
The statement spooked investors and reignited fears that a bankruptcy was imminent. Sears countered by saying it remained focused on trying to improve its business, and stated the language was simply its effort to adhere to regulatory standards.
Sears has been shuttering stores, selling off assets like its Craftsman brand and borrowing money from CEO Eddie Lampert — what's seen as a last-ditch effort to survive. Cash injections from Lampert's hedge fund, ESL Investments, and his heavy ownership of Sears' unsecured debt helped convince some investors that the company would avoid filing Chapter 11 this year.
But the bankruptcy chatter continues, and Lampert, who's often more reserved, has been increasingly vocal and defensive of late.
"I feel like we're ahead of J.C. Penney, we're ahead of Macy's, we're ahead of Target, in some aspects of where the world is going," Lampert said in a recent interview with the Chicago Tribune.
Lampert has also called out Sears' vendors directly, saying the retailer "has nothing to be embarrassed about" with those partnerships.
Despite Lampert's efforts, vendors have told Reuters they are doubling down on defensive measures — such as reducing shipments and asking for better payment terms — to protect against the risk of non-payment as Sears warns about its finances.
As of last Wednesday's close, Sears stock has fallen more than 19% for the year-to-date period and is down about 40% over the past 12 months.
Source: CNBC, Sears Holdings Corporation
Wal-Mart Draws More Shoppers As Online Sales Jump in First Quarter
Wal-Mart Stores Inc. reported on May 18 higher-than-expected first quarter sales at established U.S. stores, as more customers visited the discount retailer and its e-commerce push boosted online purchases, sending its shares up 1.3% in early trade.
Wal-Mart’s strong results show the retailer is benefiting from its $2.7-billion investment to increase entry-level wages and enhance the training of its workforce that has resulted in better stocked shelves and cleaner stores. It said store visits rose 1.5% in the quarter.
“We got off to a slower start than expected, due in part to delayed federal tax refund checks, but saw sales strengthen throughout the quarter,” Chief Financial Officer Brett Biggs said in a statement.
Shares of Wal-Mart rose to $76.10 in pre-market trade, with the stock rising 8.7% so far this year.
Wal-Mart’s performance, along with rival Target’s recent results, bucked a string of weak results by department store retailers like Macy’s.
Wal-Mart said U.S. same-store sales rose 1.4%, excluding fuel price fluctuations, and was the 11th consecutive quarterly increase. Analysts were expecting a 1.3% increase, according to Consensus Metrix.
Online sales rose 63% in the first quarter ended April 30, which was higher than 29% growth in the fourth quarter. The company said most of the growth was from its existing online operations rather than from acquisitions. Online sales added 0.8 percentage points to the first quarter comparable sales gain.
To accelerate its e-commerce business and narrow the widening gap with rival Amazon, Wal-Mart has been acquiring small online retail startups.
“We need to scale our e-commerce business further and see some additional strength in our store comps to deliver the results we know we’re capable of,” said Wal-Mart Chief Executive Officer Doug McMillon.
Mr. McMillon has used the Jet acquisition as a catalyst for online growth. After buying that business last September, he put co-founder Marc Lore in charge of U.S. e-commerce. Wal-Mart followed up with some smaller deals, snapping up outdoor retailer Moosejaw and women’s apparel seller ModCloth earlier this year.
It’s also held talks to buy men’s clothing startup Bonobos Inc. for about $300 million, a person familiar with the matter said last month.
The deals have helped burnish Walmart’s online image, though the majority of e-commerce growth came from its long-standing Walmart.com site last quarter.
Walmart’s online expansion hasn’t come cheap. Its expenses grew faster than sales in the first quarter, Mr. Biggs said. Walmart has pledged to reverse that trend over the course of the year.
“We’re still not where we want to be,” Biggs said.
At the same time, Walmart is striving to improve its brick-and-mortar experience. Cleaner aisles, faster checkouts and fewer missing items have been the focus for Walmart’s U.S. stores chief Greg Foran. The New Zealander also is beefing up the retailer’s store-brand and services business to provide a buffer against both Amazon and German discounter Aldi.
He’s replaced the clunky hand-held bar-code scanners used by employees since 1984, opened training facilities for 200,000 workers and freed store managers from the backroom to spend more time on the sales floor.
“With all the hullabaloo online, it’s easy to forget that in-store execution still means the world to them,” said Jennifer Bartashus, an analyst at Bloomberg Intelligence.
Earnings per share was $1 in the first quarter, exceeding the analysts’ average estimate of 96 cents, according to Thomson Reuters. Consolidated net income fell to $3.04-billion from $3.08-billion due to an increase a higher tax rate.
Quarterly revenue rose 1.4% to $117.5-billion, slightly lower than analysts expectations of $117.7-billion due to a stronger dollar, which reduces the value of overseas sales. Revenue grew 2.8% on a currency neutral basis.
For the second quarter, Wal-Mart said it expected an increase of 1.5% to 2% in U.S. same-store sales. It forecast earnings per share of $1 to $1.08, against market expectations of $1.07.
Source: Bloomberg News, Reuters
As Amazon Continues its Canadian Push, Retailers are Being Forced to Step Up their E-Commerce Game
Canadian retailers are getting serious about selling stuff over the internet. You can thank Amazon.com Inc. for that.
After years in which e-commerce seemed like an afterthought for many Canadian stores, more and more retailers are making the pricey investments in online shopping platforms that are needed to attend to a vast and sparely populated country. As Amazon steadily ramps up its own operations in Canada, local rivals are scrambling to avoid the same sort of fate that doomed many of their counterparts south of the border.
“They can look at what’s happening in the U.S., they can look at what’s happening in other markets, and almost get a road map of realizing, ‘This is going to happen to me too if I don’t change my practices,'” said Robin Sherk, a Toronto-based director of digital and retail insights at consulting firm Kantar Retail.
Retailers have a lot of catching up to do. Canadians spent US$26.6 billion shopping online last year, or about US$730 per capita, according to researcher eMarketer and Bloomberg calculations. That’s far off from the US$1,230 that U.S. consumers spent on average, and it masks a quirk in Canada’s e-commerce network. Some prominent retailers, such as Canadian Tire, let buyers place their orders online, jump in their cars and pick up the goods themselves instead of having them delivered.
That’s where Amazon comes in.
The e-commerce behemoth has opened a fulfillment center every year in Canada since 2011, including the first automated facility outside of Toronto last year, as well as a new data center near Montreal. It’s also expanding the number of cities eligible for free one-day shipping as part of its $79-a-year Prime loyalty program. There’s plenty of room to grow: Only about 4% of Canada’s primary household shoppers were Prime members as of May 2016, compared with 37% in the U.S. as of December, said Kantar’s Sherk.
“Amazon is pushing a lot of traditional retail in Canada to up their game and offer better online shopping,” said Paul Briggs, an analyst with eMarketer.
A few Canadian retailers seem up for the challenge, and eMarketer forecasts online sales to surge 64% by 2020. Hudson’s Bay Co. opened its own robotic facility in November to get online orders out faster. Women’s clothing chain Reitmans Ltd. has been closing stores and redesigning its distribution centre to support e-commerce sales, which rose 51% last year.
Canadian Tire’s sporting-goods division, Sport Chek, is running a pilot for same-day delivery in the Toronto region, a direct challenge to Amazon’s claim-to-fame. Canadian Tire said in February that e-commerce sales aren’t yet having a meaningful impact on revenue growth in its stores.
Well-known Canadian entrepreneur Alexandre Taillefer, whose electric-car fleet is going head-to-head with Uber Technologies Inc. in Montreal, is also mulling a plan. His private equity firm, XPND Capital, is trying to drum up support among local stores to band together and create a single platform to hock their wares, with ties to local media.
“E-commerce in Quebec is behind, we don’t have a major player like Wal-Mart or Amazon. But we have relevant local players,” he said. “Media are in a crisis, retailers are in a crisis, why not work all together for joint success?”
While Amazon’s big push into Canada definitely has retailers rattled, it doesn’t necessarily portend the same sort of bloodbath that swept through the U.S. retail industry and caused a record number of bankruptcies. For one thing, Canada’s shopping-mall square footage per capita is about 30% less that in the U.S., suggesting there’s not as much excess capacity.
It’s easy to see why e-commerce has been slower to catch on in Canada. The nation’s 36 million people are spread out over 3.9 million square miles, including hard-to-get-to and frigid regions, making logistics in the country considerably more costly and complicated than in the U.S. or U.K.
That’s one reason why some retailers with large networks of brick-and-mortar stores, like Canadian Tire and grocer Loblaw Cos., have clients drop by to collect their online orders. Montreal-based Aldo Group Inc., which sells shoes in more than 100 countries, goes a step further. Customers can order and receive goods anywhere, switching between online and in-store shopping as they wish as data on their tastes and habits make the two increasingly connected.
“Retailers have to move fast,” said Gregoire Baret, who oversees the so-called omni-channel strategy and a recently revamped e-commerce site at Aldo. “Sometimes Canadian markets are assessing what is going on in the U.S. before acting, which is great but which is also potentially a risk.”
Source: Article by Bloomberg News
Economic News
Canada’s Economy Grows at 3.7% Annual Pace in First Quarter
The pace of Canada’s economic growth picked up steam in the first quarter of this year, helped by continued household spending and a turnaround in business investment.
Canada’s real GDP grew at an annualized rate of 3.7% in the first three months of the year, Statistics Canada said Wednesday.
The growth was helped by a 2.9% increase in business gross fixed capital formation, which had fallen in eight of the previous nine quarters.
Business investment in residential structures grew 3.7%, boosted by new construction, the strong real estate market in Ontario and a gain in renovation activity.
Business investment in machinery and equipment gained 5.8%, after moving lower in four of the previous five quarters.
Meanwhile, household final consumption gained 1.1% in the quarter as spending on transport and in particular the purchase of vehicles led the way.
Despite the increase in the pace of growth in the first quarter, it was below expectations. Economists had estimated
annualized growth of 3.9% for the first three months of the year, according to Thomson Reuters.
However, growth in March was stronger than expected. GDP grew 0.5% in March, compared with the estimate of 0.2% for the final month of the first quarter.
The figures for March showed that goods-producing industries climbed 0.9%, while service industries added 0.3%.
Overall annualized growth figures for the second half of 2016 were also revised higher Wednesday as the figures for third and fourth quarters were increased to 4.2% and 2.7%, compared with earlier readings of 3.8% and 2.6% respectively.
While the first-quarter was also shy of the Bank of Canada’s forecast for 3.8%, it made Canada a growth leader among its industrialized peers at the start of the year.
“At the end of the day, we have to call it strong no matter what,” said Derek Holt, economist at Scotiabank. “A lot of other countries would like to be in this position.”
They said the strong numbers bring the central bank slightly closer to an eventual interest rate hike.
“If we continue to get growth numbers like this, absent trade policy risks, it’s going to be tougher for the Bank of Canada to avoid rate hikes at some point in the distance,” Holt said.
Source: Statistics Canada, The Canadian Press, Reuters
IMF Praises Infrastructure Bank Plan; Flags Housing Market Concerns
The International Monetary Fund (IMF) is praising the federal government’s plans for a Canada Infrastructure Bank, but says Ottawa must do more to address public skepticism toward projects paid for through user fees.
The IMF released its regular statement on the Canadian economy Wednesday, following an official staff visit to hear about Canada’s fiscal and monetary plans.
The statement projects the Canadian economy will grow by 2.5% in 2017 and 1.9% in 2018. However the medium-term outlook is described as “less upbeat,” as low labour productivity and population aging is expected to limit potential growth to about 1.8%. That’s lower than the historical average of 2.6% growth between 2000 and 2008.
The IMF described the federal government’s fiscal trajectory as “appropriate” and said maintaining fiscal discipline will be important.
The report also expressed concern with Canada’s housing market.
On the issue of the Infrastructure Bank, which is currently a matter of heated debate in the House of Commons as the government moves to pass enacting legislation, the IMF praised the overall concept as an “effective” instrument.
“The success of the CIB will depend on ensuring that the project selection process is transparent and balances public and private interests. Given the potential of the CIB to advance long-term growth, the government and the CIB must address public resistance to user fees as well as skepticism over involving private investors in public infrastructure projects, with education and a clear statement of the CIB’s benefit,” the report states.
The IMF is urging Canada to take further action in order to address rising household debt levels and the risks of a sharp correction in the housing market.
In a staff statement that followed an annual visit to Canada, the IMF warns of “significant” risks to future growth due to the potential for a housing market decline that impairs bank balance sheets and spreads to the broader economy.
“Credit ratings of Canada’s six largest banks were lowered recently, reflecting concern that high household debt and the rapid appreciation of house prices could weaken asset quality in the future,” the IMF stated.
As a result, Cheng Hoon Lim, an assistant director of the IMF, told a news conference in Ottawa that several specific actions are needed. She called for policies that will further tighten restrictions on speculative investments in the housing sector, greater co-ordination between federal and provincial regulators and better data on real estate transactions, which she noted has been promised by Ottawa.
Ms. Lim’s staff statement also took issue with the foreign buyers tax approach introduced in British Columbia and Ontario that “discriminates against non-resident buyers.” The IMF states that non-resident activity is not the sole driver of housing prices and the provinces should replace the foreign-buyers taxes with more effective tax changes aimed at discouraging speculative activity.
Federal Conservative and Liberal governments have announced several rounds of policy changes since 2008 that are aimed at discouraging home buyers from taking on more debt than they can handle. The most recent round of federal changes were announced in October. British Columbia and Ontario have also announced tightening measures that fall under provincial jurisdiction.
The IMF noted that high debt levels and housing affordability challenges are primarily a concern in Toronto and Vancouver, where many first-time buyers have been priced out of the market. Ms. Lim said the IMF has been studying the effectiveness of all of these policy measures.
“Overall, they have been effective in dampening mortgage credit growth, but less so with respect to house prices. There is an effect, but not as strong,” she said. “What we have found, it’s still a bit too early to tell because these measures were introduced in late 2016, but the measure to make it harder to qualify for mortgages by having a more stringent stress test on interest rates I think is beginning to work.”
Source: The Globe and Mail
U.S. Softwood Lumber Duties to Cost 2,200 Jobs Report Says
The Conference Board of Canada says U.S. softwood lumber duties will cut $700-million from Canadian exports over two years and result in the reduction of 2,200 jobs.
The board released a report Wednesday that says curtailed exports should lower the industry’s pre-tax profit to $1.1-billion in 2018, down from $1.8-billion last year and $1.4-billion this year, despite growing revenues.
The U.S. government recently imposed preliminary countervailing duties ranging between 3% and 24% on Canadian softwood lumber exports.
Anti-dumping duties to be announced next month are expected to raise tariffs to about 30%, half of which should be absorbed by Canadian producers.
Michael Burt, director of industrial trends for the board, says that without tariffs, Canadian wood sector employment would grow by 1,000 to reach 93,300 next year, but with the tariffs employment is projected to fall to 91,100.
The board’s report says duties paid at current export levels will cost Canadian producers $1.7-billion a year until a softwood settlement is reached.
The gloomy forecast comes after the Canada industry last year enjoyed its strongest performance since the U.S. housing collapse in 2006, as exports grew 13.5% to reach $13.2-billion.
Source: The Canadian Press
Toronto Area Home Sales Sink after Cooling Measures
House sales fell 26% in the Toronto region in the month following the Ontario government’s introduction of a foreign-buyer’s tax as many potential purchasers stepped back and waited to assess the market impact.
In the 30 days after the province announced the immediate introduction of a 15% foreign-buyer’s tax on April 20, the number of houses sold in the Greater Toronto Area fell 26% compared with the same period last year, according to data compiled by Toronto realtor John Pasalis, president of Realosophy Realty Inc.
Communities north of Toronto saw the greatest declines between April 20 and May 20, with sales falling 61% in Richmond Hill, 46% in Markham and 44% in Newmarket. The City of Toronto recorded a 23% drop in the number of homes sold, while Brampton and Mississauga west of Toronto had sales declines of 16% and 27%, respectively.
The sales review looked only at freehold homes, including detached and semi-detached houses, but did not include condominiums.
The drop in selling activity is part of a broad cooling in the Toronto region market that began in April as buyers moved to the sidelines while home owners rushed to list their houses to try to cash in before the market peaked.
In the first two weeks of May alone, sales of all types of homes in the GTA fell 16% compared with the same period in May last year, while the number of new listings soared 47%, according to data compiled by the Toronto Real Estate Board.
The average GTA home sold for $890,284 in the first two weeks of May, a 17% increase from a year earlier, primarily because of large gains earlier this year. But the price was down 3% compared with April, when the average sale price for all types of GTA homes was $920,791.
Mr. Pasalis said he does not believe the new foreign-buyer’s tax is directly responsible for much of the drop in sales since April 20 because foreign buyers were not a large enough part of the market to cause such a significant decline, and many foreign buyers will qualify for rebates of the tax.
Instead, he believes the drop is a result, in part, to a decline in demand from domestic investors who were purchasing second properties to rent or flip. Most investors have stopped buying as they wait to see the impact of a suite of new measures announced by the province in April, including the foreign-buyer’s tax, he said.
“They disappeared – no one is talking about buying money-losing rental properties any more,” Mr. Pasalis said. “The whole excitement and euphoria is kind of gone right now.”
He also believes many other buyers are sitting on the sidelines, feeling “buyer fatigue” after watching prices in the GTA climb rapidly.
The 33% price increase in March may have been “the straw that broke the home buyer’s back,” after the average cost of a home rose to $917,000 in March from $688,000 a year earlier, he said.
“The whole mood of the market has changed, and that is the bigger factor. People are spooked – investors are spooked, buyers are spooked – and I think that’s the huge issue.”
Mr. Pasalis said many of his firm’s clients have been stepping back and not making offers, hoping prices will fall from the peak, while many sellers are growing desperate for offers, especially if they’ve already bought another house and need to sell quickly.
“Our agents are getting calls from listing agents begging them for offers, just begging them, because the seller is freaking out because they already bought something and they need to sell their house,” he said.
One agent in his firm submitted an offer of $650,000 for a client bidding on a townhouse that was selling for $750,000 a month ago, and the bid was accepted. He said the agent hadn’t expected to get it, but he assumes the seller had no choice.
“It’s going to screw up the market because sellers are going to be looking at February and March prices and buyers are going to be looking at these recent low-ball prices, and we’re going to have an interesting problem there.”
Source: The Globe and Mail
Bank of Canada Holds Interest Rate Steady in Face of Uncertainty
The Bank of Canada stuck with its trendsetting interest rate of 0.5%, saying uncertainties continue to overshadow the economy's stronger-than-expected start to the year.
In explaining its decision last week to hold the rate, the central bank once again highlighted weak wage growth and the softening rate for underlying inflation as examples the economy still has room for improvement.
The bank's scheduled rate announcement comes after it raised its 2017 growth projection in April following a surprisingly healthy start to the year in areas such as employment, consumer spending and the housing markets. In last week’s statement, the bank added better business investment numbers to the list.
“Recent economic data have been encouraging,” the bank said.
“Consumer spending and the housing sector continue to be robust on the back of an improving labour market, and these are becoming more broadly based across regions.”
The bank's statement, however, also predicted that the “very strong growth” over the first three months of the year will be followed by some moderation in the second quarter, even though at the same time it expects the U.S. economy to rebound.
Analysts had widely predicted governor Stephen Poloz to keep the rate locked at its very low level of 0.5%, as significant unknowns underlined by the bank in the past continue to swirl around the U.S. agenda on trade and taxation.
“The uncertainties outlined in the April (monetary policy report) continue to cloud the global and Canadian outlooks,” said the bank, without making any specific mentions this time about the potential policy path of Canada's largest trading partner.
With no monetary policy report released last week, observers will scrutinize the commentary in the bank's one-page statement for clues about its thinking on the trajectory of the economy.
The bank's statement also said while recent government policy measures on real estate have contributed to more sustainable outlooks for household debt, the rules have yet to have a substantial cooling effect on hot housing markets.
On core inflation, the bank noted that recent readings for its three measures, which reduce the influence of some more volatile consumer items like gasoline, have stayed below its ideal target of 2%. That signals the entire economy has yet to catch up to the recent momentum.
Source: The Canadian Press
Autos Fuel Canadian Retail Sales
Statistics Canada reported on May 19 that Canadian retail sales rose more than expected in March,suggesting consumer spending held up as the economy headed into the second quarter.
Following a 0.4% decline in February, retail sales rose 0.7% in March to $48.3 billion on the strength of higher sales at motor vehicle and parts dealers. Sales were up in 6 of 11 subsectors, representing 53% of total retail trade.
After removing the effects of price changes, retail sales in volume terms rose 1.2%.
Compared to March 2016, retail sales are up 6.9%.
Motor vehicle and parts dealers (+3.2%) recorded the largest gain in dollar terms across all subsectors. The increase was largely attributable to higher sales at new car dealers (+3.8%). Used car dealers (+2.7%) and automotive parts, accessories and tire stores (+1.2%) also posted higher sales. Sales at other motor vehicle dealers (-1.4%) were down for the third month in a row.
Sales at general merchandise stores (+1.4%) were up for the third consecutive month and up 1.7% year-over-year.
Electronics and appliance stores (+3.1%) continued their upward trend in March and are 11.2% higher than a year ago.
Store types traditionally associated with housing purchases and home renovation showed growth in March. Sales at building material and garden equipment and supplies dealers (+1.0%) and furniture and home furnishings stores (+0.8%) both increased for the sixth time in seven months. Both of these segments are up 9.0% compared to March of last year.
Amid lower consumer prices for food purchased from stores, lower receipts were reported at food and beverage stores (-0.7%). This decrease was due in large part to weaker sales at supermarkets and other grocery stores (-0.6%) and, to a lesser extent, convenience stores (-2.9%).
Retail sales were up in seven provinces in March. Higher sales in Ontario and British Columbia accounted for the majority of the increase.
In Ontario, retail sales increased 0.9%, primarily on the strength of higher sales at motor vehicle and parts dealers.
Sales in British Columbia rose 2.3%. Gains were widespread across most store types.
Following severe winter weather events in February, retail sales in Nova Scotia (+4.8%) rebounded on higher sales at new and used car dealers.
Sales in Saskatchewan (+2.7%) continued their upward trend in March, rising for the eighth consecutive month. Over this period, higher sales have been reported at general merchandise stores, gasoline stations, and health and personal care stores.
In Quebec, retail sales decreased 0.8%.
After increasing for seven consecutive months, sales in Alberta fell for the first time since mid-2016.
On an unadjusted basis, retail e-commerce sales were $1.2 billion in March, accounting for 2.4% of total retail trade. On a year-over-year basis, retail e-commerce sales increased 43.2% while total unadjusted retail sales rose 9.5%.
Source: Statistics Canada, Reuters
Inflation Remains Unchanged at 1.6%
Canada’s annual inflation rate once again rang in at 1.6% in April as higher energy costs offset a seventh consecutive decline in grocery store prices, Statistics Canada said on May 19.
The agency’s Consumer Price Index for April identified higher prices for gasoline and natural gas as the biggest upward drivers in year-over-year inflation.
On the other hand, fresh produce and clothing applied the most downward pressure on the inflation rate.
“While the economy is showing a strong momentum, the inflation remains particularly disappointing,” National Bank senior economist Matthieu Arseneau wrote in a research note to clients, which also pointed out that there’s usually a three-to-five-quarter lag for underlying inflation to respond to economic conditions.
“For this reason, we continue to expect core (inflation) to speed up in 2017 in line with the recent economic momentum.”
Two of the agency’s three measures of core or underlying inflation slowed during April, while the third was unchanged. The indicators are closely scrutinized by the Bank of Canada. CPI-common stayed at 1.3% last month, CPI-median decelerated to 1.6% from 1.7% and CPI-trim slowed to 1.3% from 1.4%.
The annual headline inflation rate matched Statistics Canada’s 1.6% reading for March, but was slightly below a consensus estimate of 1.7%, according to Thomson Reuters data.
Prices at the pump were 15.9% higher last month and the cost of natural gas rose 15.2% more, Statistics Canada said.
Overall food prices were down 1.1% as prices for fresh fruit fell 6.2%, fresh vegetables slipped 5.9% and meat dropped 2.1%.
The cost of kids’ clothing was 6.2% lower and women’s clothes cost 2.8% less in April compared with a year earlier.
Statistics Canada said the inflation rate was higher in three provinces, including Saskatchewan, which easily saw the biggest acceleration after it raised its provincial sales tax in late March. Saskatchewan’s annual inflation rate sped up to 1.4% in April after rising just 0.6% in March.
Prices rose at a slower pace year-over-year in five provinces, while they were unchanged in two provinces.
Economists had predicted a 0.4% increase in retail trade for March, according to Thomson Reuters.
Source: Statistics Canada, The Canadian Press
Latest U.S. Economic News
U.S. Pending Home Sales Fall; Housing Market Recovery Intact
Contracts to buy previously owned U.S. homes fell for a second straight month in April amid a supply squeeze, but the housing market recovery remains supported by a strong labour market.
The National Association of Realtors (NAR) said on Wednesday its Pending Home Sales Index, based on contracts signed last month, dropped 1.3% to 109.8. Contracts fell in the Northeast, Midwest and South, but surged 5.8% in the West.
Coming on the heels of recent data showing a drop in home building and sales of both new and previously owned homes, the decrease in contracts suggests a moderation in housing activity. Still, housing is expected to contribute to gross domestic product this year.
“We think that the housing recovery will continue over time based on favourable fundamentals in the market, but we have seen some weakening in a number of home sale measures lately,” said Daniel Silver, an economist at JPMorgan in New York.
“For now, we think the recent softening in sales is a pause in a broader upward trend.”
Economists had forecast pending home sales, which become sales after a month or two, rising 0.5% last month. They fell 3.3% from a year ago. That is the first year-on-year drop since last December and the largest since June 2014.
The PHLX housing index was little changed amid a broadly weaker stock market. The dollar fell against a basket of currencies, while U.S. Treasury prices were trading higher.
Demand for housing is being driven by a tight labour market, marked by a 4.4% unemployment rate, which is generating wage increases and boosting employment opportunities for young Americans. The housing market remains supported by historically low mortgage rates, with the 30-year fixed mortgage rate averaging 3.95%, the lowest level since last November.
Sales activity, however, remains constrained by tight inventories, which are driving up home prices. Housing inventory has dropped for 23 straight months on a year-on-year basis.
Home resales declined 2.3% in April and could decrease in May as another report on Wednesday showed applications for loans to buy a home fell for a third straight week last week.
“The large declines in the Northeast and Midwest suggest seasonal factors exaggerated the recent slide in pending home sales,” said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. “Mortgage applications add a note of caution, however.”
A third report showed manufacturing activity in the Midwest region accelerated to a 2-1/2-year high in May. The Chicago Purchasing Management Index rose to a reading of 59.4 this month, the highest level since November 2014, from 58.3 in April.
Source: Reuters
U.S. New Home Sales Fall 11.4%, Most in Two Years
U.S. sales of new homes last month registered the biggest drop in more than two years.
The Commerce Department reported last week that new-home sales skidded 11.4% in April to a seasonally adjusted annual rate of 569,000. It was the biggest monthly drop since March 2015. Economists had expected a more modest retreat from March sales of 642,000, which were the highest since October 2007. Sales in April were still up 0.5% from a year earlier.
Economists were inclined to view the April reading as a one-month blip. Ian Shepherdson, chief economist at Pantheon
Macroeconomics, called last month’s drop “a correction from the March cycle high, not a warning sign ... We expect sales to rebound somewhat in May, and to return to the March high, at least, over the next few months.”
A healthy job market is expected to give Americans confidence to buy homes. Employers added a solid 211,000 jobs last month, and the unemployment rate is at a decade-low 4.4%.
But last month new-home sales fell in every region, led by a 26.3% plunge in the West, the biggest drop there since October 2010.
The median sales price of a new home slid 3% to $309,200.
There were 268,000 new homes for sale in April, the most since July 2009.
The Commerce Department reported last week that construction of new homes fell for the second straight month in April, reducing housing construction to the lowest point since November.
Source: Reuters
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