CHHMA - EYE ON OUR INDUSTRY
Volume 15, Issue 41, November 6, 2015

Inside This Issue:

• Register Now for Industry Cocktail (December 10th) in Montreal
• CHHMA Auto & Home Insurance Program
• CSSA Annual Steward Meeting Materials Now Available
• Register for Consultation Meetings on ÉEQ’s 2015 & 2016 Schedule of Contributions
• Sears Canada Hires Carrie Kirkman as New President
• Amazon Gets More Clicks than Canadian Web Retailers, But It Isn’t Hurting Sales — Yet
• Canadian Retailers Focus on Black Friday Next
• How the Decline of Black Friday Might Even Help Retailers
• Canadian Dollar Forecast to Sink to 72¢, Remain Stunted through 2017
• Home Renos Are the New Housing Boom: CMHC
• Toronto, Prairie Housing Markets at High Risk for Correction: CMHC
• UBS House ‘Bubble Index’ Warns Vancouver Among World’s Frothiest
• Canada’s Economy Grows for Third Straight Month But at a Slower Pace
• Latest U.S. Economic News

Association News

Register Now for Industry Cocktail (December 10th) in Montreal

This year’s Industry Cocktail is taking place on Thursday, December 10th from 5:30 p.m. to 8:30 p.m., at the Bar Dame de Coeur at the Casino de Montreal.

The location offers a fun and relaxing atmosphere where you can enjoy some wonderful food, drinks and conversation with friends from the industry while enjoying the festive season together.

Click here for further information and registration.

CHHMA Auto & Home Insurance Program

The CHHMA has partnered with Aaxel Insurance Brokers Ltd. and Economical Select® to provide our members with exclusive group rates on auto and home insurance, as well as several additional discounts that can result in significant savings to you and your fellow employees.

Economical Select can benefit you by offering:

• A 20% discount on auto insurance and a 20% discount on home insurance, applied in addition to other potential discounts if you are claims-free, conviction-free or bundle more than one policy.
• Second Medical Opinion coverage enhancement, free of charge with an active property policy. This coverage enhancement allows policyholders to get a second medical opinion through a global network of over 20,500 physicians, specialists and sub-specialists organized by WorldCare®.
• A chance to win one of six new vehicles in a Select Sweepstakes or a $100 gas card, just for getting a quote! Find out more at http://www.selectsweepstakes.com. The next draw for a car (a Jeep Cherokee) takes place on December 4th, so get a quote by November 30th to get entered.

As part of the group auto & home insurance program, we can provide you with marketing materials to help communicate the program to your employees and the potential savings they could achieve.

If you would like more information about the program and/or marketing materials, please contact Michael Jorgenson at 416-282-0022 ext.34 or mjorgenson@chhma.ca.

For a quote, please call 1-855-380-3666 if you reside in Ontario or 1-888-542-4811 if you reside in Quebec. For other provinces, please call 1-866-247-7700. Please mention that you are calling from a CHHMA member company in order to receive the group program discounts.

The program is available to employees of CHHMA member companies, their spouses and dependent children residing at home or away at school. So try a quote yourself and you never know – you could win a new car!!

Stewardship News

CSSA Annual Steward Meeting Materials Now Available

The Canadian Stewardship Services Alliance (CSSA) held its third annual meeting for stewards of packaging and printed paper programs in British Columbia, Saskatchewan,
Manitoba and Ontario last Thursday, October 29th.

Materials related to the meeting can now be viewed/downloaded at the following links:

Presentations - click here to view the presentations.

Pre-read document - click here to download the pre-read document.

A Q&A from the meeting, and videos of the guest speakers, will be posted online soon.

If you have any questions, please email: stewards@cssalliance.ca or call 1-888-980-9549.

Register for Consultation Meetings on ÉEQ’s 2015 & 2016 Schedule of Contributions

On November 17 and 19, Éco Entreprises Québec (ÉEQ) will be in Montreal and Toronto to present its draft 2015 and 2016 Schedules of Contributions to companies and organizations subject to the compensation plan.

The meetings will:

- Explain changes to the Schedule that make it simpler and better
- Present the preliminary rates

Montreal:Tuesday, November 17, 2015,
from 10:30 a.m. to 12:30 p.m.
Omni Mont-Royal Hotel,
Printemps Hall
1050 Sherbrooke Street West, Montréal

Toronto: November 19, 2015,
from 10:30 a.m. to 12:30 p.m.
The Westin Harbour Castle,
Pier 7-8 Hall
1 Harbour Square, Toronto

Please note that the November 17 consultation will be conducted in French, while an English presentation will be made available. The consultation is also available by simultaneous web broadcast in both languages. The November 19 meeting will be conducted in English only without simultaneous broadcast. Lunch will be served on site after each meeting to promote networking.

The consultations provide a forum for individuals to ask questions or make comments that will be taken into consideration for Schedules of Contributions submitted to the government for approval.

Companies wishing to participate in consultations on the 2015 and 2016 Schedules of Contributions may reserve their seat now for one of the two available sessions by clicking here.

Industry News

Sears Canada Hires Carrie Kirkman as New President

Sears Canada Inc. has hired a veteran of the Canadian retail industry to be its president and chief merchant — a new position created to restore shoppers’ confidence in the struggling department store operator.

Carrie Kirkman has most recently been interim president of shoe retailer Nine West Canada and was president of Jones Apparel Group from October 2010 until last April.

Kirkman will work with Brandon G. Stranzi, who has been executive chairman of Sears Canada since the departure of Ronald Boire, who was chief executive and president of the troubled Canadian department store company for less than a year.

Boire was the third president-CEO to leave the company suddenly in recent years, following Douglas Campbell in September 2014 and Calvin McDonald in September 2013.

The company said Tuesday that it has a adopted a different management structure that takes advantage of Stranzi’s expertise in finances and corporate turnarounds and Kirkman’s experience in merchandising.

“The decision to bring Carrie to Sears Canada was the result of careful deliberation by both myself and the board of directors,” Stranzi said in a statement.

“We created the President and Chief Merchant role to enable the management team to refine and enhance the customer experience and restore Sears Canada’s core retail business to a position of envy in the Canadian retail landscape, while maintaining a disciplined approach to capital allocation and profitability.”

Kirkman has previously held senior roles at Sears rival Hudson’s Bay Co. from 2002-2010, and Liz Claiborne Canada from 1997-2002, where she managed fashion brands such as DKNY, Liz Claiborne and Kenneth Cole. Early in her career, Kirkman represented the Alfred Sung and Ports International brands.

In an interview with the Globe and Mail on Monday, Ms. Kirkman said her mission is to win over ‘Amy’.

Amy is Ms. Kirkman’s prototypical Sears customer. She is 40 years old and has one child and another on the way. She’s time-starved and looking for reasonably priced fashions.

The problem at Sears is that too few of its current customers are in Amy’s demographic (35 to 50) and too many of them are in the cohort of “Linda.” Linda is Sears’ prototypical over-50 customer with two grown children and an ingrained Sears shopping habit.

Now Ms. Kirkman, 52, needs to win over more women of Amy’s ilk and still keep Linda happy with a growing array of high-margin apparel and home decor items – rather than low-margin appliances – to help turn around Sears’ flagging fortunes.

The challenge is considerable. Over the past several years, amid shrinking sales, Sears has largely counted on asset sales – especially store lease divestitures – to shore up its financial results.

Perry Caicco, a retail analyst at CIBC World Markets, said in September the retailer’s value is essentially in its real estate: “In our calculation, the retail operation is basically worthless at this point.”

Still, Sears is slowly showing signs of progress.

In its third quarter, for which results are expected to be released Dec. 3, same-store sales at “core” outlets (including its 95 department stores and 40 home stores) were positive, company executives revealed Monday.

Sears’ same-store sales already started to improve in its second quarter as the company sold off aged inventory at markdowns and brought in fresh merchandise for baby boomers such as Linda and, now, increasingly, for Amy and her younger generation.

There’s another key signal the retailer may now be serious in wooing back customers: Brandon Stranzl, 41, executive chairman of Sears Canada, has moved here with his wife and eight-year-old twins from Greenwich, Conn., to take a hands-on role in the business.

Mr. Stranzl is a close associate of Edward Lampert, whose U.S. hedge fund is a key shareholder of Sears Canada. Mr. Lampert is also chief executive officer of Sears Holdings Corp. of Hoffman Estates, Ill., which has also struggled.

Mr. Stranzl said on Monday that Sears is no longer searching for another CEO for Sears Canada; the company has had four CEOs in about five years. (The former one commuted from Warwick, N.Y.)

With Mr. Stranzl’s finance background and Ms. Kirkman’s merchandising strength, they will together tackle the Sears challenge, he said.

“We need to accelerate the sales growth and accelerate the transformation,” Mr. Stranzl, said.

Ms. Kirkman is focusing on “the softer side of Sears,” which is a marketing slogan it used more than 15 years ago when it made gains in drawing more women to its fashions and home accessories.

To entice more “Main Street” shoppers, she plans to focus on mid-priced brands and tailor offerings in each region and store to local communities, such as more rain wear rather than heavy parkas for Vancouver winters, she said. In the Maritimes, consumers like navy blue clothing and “can never get too much navy.”

She will place lines such as Jessica Simpson and Robert Rodriguez more prominently so as to cater to younger women, she said. “Right now I can’t say that’s obvious if you walk in our stores.”

And she will borrow from a “storytelling and pinball” store model: Similar to IKEA, Sears will put benches, racks and mannequins in a more maze-like formation to force shoppers to browse through displays rather than speed through merchandise racks in straight rows, she said.

Mr. Stranzl said he wants to make shopping more “sexy,” similar to how Apple pulls in customers with its products.

And while industry observers argue the mid-market is being overtaken by discount and luxury retailers, Ms. Kirkman counters the mainstream customer is underserved. It helps that Target left this market this year, opening up more potential business for Sears, she added.

While appliances are still a key seller for Sears, their profit margins have been sliced in about half – to the mid-20% range – in the past decade. Apparel and home accessories can generate twice those margins, company officials said.

Sears’ research found it needed to attract younger shoppers, Mr. Stranzl said.

Currently, 55% of customers are 50- to 75-year-old women, while only 18% are women younger than 50. Women are important partly because they buy many goods for men.

This holiday season, Ms. Kirkman will try to lure them back by touting the Sears Wish Book catalogue, harking back to its heritage.

Source: The Canadian Press, The Globe and Mail

Amazon Gets More Clicks than Canadian Web Retailers, But It Isn’t Hurting Sales — Yet

The websites of Canadian bricks-and-mortar retailers have not made much of a dent in Amazon Canada’s share of consumer visits, according to a new BMO report. But an absence of relevant product overlap between traditional retailers and the Seattle web giant, and a lacklustre response to Amazon’s bonanza Prime Day sale this summer, suggests Canadian retailers’ revenue is not suffering for it — not yet, at least.

Amazon Prime launched in the U.S. as a priority delivery service for its customers in 2007, and charges members an annual fee for next-day delivery and access to its music and video streaming services. Launched on Amazon.ca in early 2013, Prime costs $79 annually, but does not offer the entertainment options.

In a report published Monday, BMO Capital Markets analyst Peter Sklar assessed the performance of Amazon before and after its first Prime Day on July 15, a 20th anniversary promotion from the Seattle web retailer that offered discounts to Prime members. He also looked at some Canadian retailers’ share of web visits in the same period through to the end of September 2015.

In July, Amazon’s share of aggregate Canadian website visits through personal computers and mobile devices, excluding apps, was 1.94%, compared with 1.85% in July 2014 and up from a share of 1.66% in June. Amazon’s share of Canadians’ overall web visits in September was 1.97%, up from 1.94% in July, and above its share of visits from February to June, which was around 1.70%.

“Amazon experienced a notable increase in share of visits after the launch of Prime, which suggests Canadians do ascribe value to this paid service,” Sklar said.

That is the case despite the fact that by midday on July 15, the general consensus among consumers on social media and elsewhere was that Amazon’s exclusive Prime Day deals were “underwhelming” in both quality and quantity. “The discounts seemed to fall short of many consumers’ expectations,” Sklar said.

Amazon.ca’s top-selling Prime Day offers suggest the retailer’s rise in consumer web traffic won’t likely have an adverse effect on Canadian bricks-and-mortar retailers, the analyst said.

Top sellers included baby products and technology hardware — not core merchandising areas online for traditional retailers.

That could change in the future, BMO says, as Amazon grows. “In the long term, e-commerce will eventually result in pressure on Canadian bricks-and-mortar retailers that will be compelled to absorb the financial costs of developing a competitive digital platform,” Sklar said.

Amazon consistently has one of the largest shares of total website visits among key Canadian retailers, Sklar noted, and retailers such as Canadian Tire, RONA and Costco did not materially increase their share of consumer web visits during the June to September period.

The three also have a significantly lower share, with Canadian Tire and Costco at roughly 0.30% of overall Canadian web visits and RONA, a more specialized retailer, at 0.10% to 0.15%.

Even if the boost in web visits and sales from promotions such as Prime Day are temporary, the data that Amazon is able to collect about consumers from such events is invaluable, and gives it key competitive advantages relative to other retailers with digital operations, BMO said.

Amazon Prime members also spend more during their visits. A study by Consumer Intelligence Research Partners found U.S. Prime members spend an average of US$1,500 per year, whereas an average non-member Amazon customer spends US$625. “We believe Prime Day was primarily introduced to increase the number of more profitable customers,” Sklar said, because non-members could only participate in the event by registering for a 30-day free trial.

Source: Article by Hollie Shaw, The Financial Post

Canadian Retailers Focus on Black Friday Next

With Halloween out of the way, retailers have their sights set on Black Friday.

Amazon.ca launched its Black Friday Deals Store on Monday, malls are gearing up for an influx of shoppers and Purolator is prepping for a surge in package deliveries.

“I think last year was a big tipping point for most Canadian retailers,” said Retail Council of Canada spokesperson Michael LeBlanc.

Black Friday began as a U.S. retail event on the day after American Thanksgiving, a national holiday celebrated on the last Thursday in November each year.

Canadian merchants adopted Black Friday to compete with U.S. retailers when the Canadian dollar was at par, to reduce the flow of cross-border shoppers.

The Canadian dollar is now worth considerably less, but retailers are expected to keep offering Black Friday deals.

“There is still a lot of excitement here around Black Friday,” said LeBlanc, adding that this year is an opportunity for Canadian retailers to consolidate awareness of the event among consumers.

The Monday after Black Friday has quickly become the second-busiest period of the year for Purolator in Canada, said Paul Merrick, vice president of field operations.

Purolator is projecting that Dec. 16th will be the busiest day of this year, followed by Cyber Monday. The forecasted number of shipments on Cyber Monday and Dec. 16th is just over one million each day.

Merrick said business on Cyber Monday has lately been growing at a faster rate than shipments in December.

“We really took notice three years ago. Since that point, we’ve been really diligent in planning – we have to push volume forecasting and planning, we have to make sure our systems are adjusted,” said Merrick.

Purolater will hire part-time staff to meet demand and ask existing staff to work additional hours.

Yorkdale will be open from 7 a.m. to 11 p.m., two hours later than last year.

“This is going to be the longest period that the shopping centre has been open for years,” said general manager Claire Santamaria, general manager, Yorkdale.

“We had a very full shopping centre last year when we were closing.”

Yorkdale recently surveyed 3,500 shoppers and found that 90% intend to shop on Black Friday this year, up from 80% the year before and 53% the year before that.

Forty-four per cent have said they will take the day off work to shop for Black Friday deals and 93% said they are more likely to shop in Canada this year because of exchange rates.

The top three items they are looking for include clothing and accessories (91%); holiday gifts (49%) and electronics (39%).

Sears Canada got a jump on the competition by offering a Black Friday event close to Canadian Thanksgiving in October. Spokesman Vincent Power said the sale was launched in response to requests from customers who wanted to see a Canadian event, and has been popular.

Jeff Novak, brand director at RedFlagDeals.com, said there were 225 Black Friday deals on the website last year, compared to 200 the year before.

He said it will be interesting to see if retailers are as aggressive this year when it comes to offering discounts, because the competitive landscape has changed dramatically, with numerous retail failures, including the bankruptcy of Target Canada.

“We’re starting to wonder if this year Americans will start coming to Canada for Black Friday shopping. Their dollar is 30% more, and there’s not the line-ups. And they have the time off. If you want to make a weekend trip, it’s not a bad idea,” said Novak.

The deals on Amazon.ca at Black Friday launch on Monday included a Crest 3D Whitestrips teeth whitening kit and a tropical hammock for two.

Source: Article by Francine Kopun, The Toronto Star

How the Decline of Black Friday Might Even Help Retailers

In recent years, Americans have noticed a change to the rhythm of the holiday shopping season. Big-box retailers have been starting their major holiday sales not on Black Friday, but one day before, on U.S. Thanksgiving Day.

They are often offering other seasonal deals days or even weeks earlier. The fastest growing online shopping day of the season is Thanksgiving Day, meaning many digital shoppers are not waiting for the following Monday, so-called Cyber Monday, to kick off their spending.

Consulting firm Deloitte released survey data last week that helps put in perspective how quickly this change is taking place. Deloitte asked respondents about how much they rely on these traditional kick-off events to get their shopping done and found that, compared to last year, fewer people count on these days to buy their gifts.

These changing attitudes toward Black Friday and Cyber Monday shouldn’t be interpreted as consumers cooling on holiday shopping altogether; In fact, 75% of shoppers told Deloitte they plan to spend more than they did last year. It’s simply a sign that these one-off deals aren’t quite the draw they used to be.

While it may initially sound like bad news for retailers that their big season no longer starts with a singular bang, there are actually advantages to a more gradual ramp-up to the season.

Physical stores often struggle with out-of-stock inventory during these major shopping events, which might leave customers turned off. If shoppers spread out their trips to the mall, brick-and-mortars may be able to more easily keep their shelves stocked, aisles clean and checkout lines short, and that might turn ultimately lift sales. For Web retailers, it also might be easier to ship orders in a timely fashion when they are coming in a steady trickle instead of a concentrated deluge.

But the challenge for retailers could come in one of Deloitte’s other findings: More shoppers say they will wait until later in the season to do the bulk of their shopping. Deloitte found that 44% of consumers plan to do the majority of their shopping in December and January, up from 37% in 2013. Meanwhile the share of shoppers who planned to do most of their shopping early — that is, in October or the beginning of November — shrank from 30% to 23%. (The rest plan to do their big spending in late November.)

If more shoppers wait until the last-minute to buy their gifts, that could create a logistics headache for the retail industry. It’s instructive to think back to 2013, when UPS and FedEx took heat for failing to deliver millions of packages in time for Christmas. While some of that shortcoming was due to severe weather, analysts and experts have said that the bottleneck was also fuelled by retailers not accurately estimating how many packages they’d be putting into the supply chain at the 11th hour.

After the 2013 delivery mess, large retailers have tried to work with the delivery companies to provide better and earlier package forecasts. So, hopefully, that means they are ready for an uptick in last-minute shoppers. If not, some shoppers (and their loved ones) could end up disappointed on Christmas morning.

Source: The Washington Post

Economic News

Canadian Dollar Forecast to Sink to 72¢, Remain Stunted through 2017

If you’re counting on a rebound for the Canadian dollar any time soon, don’t.

The latest forecast from Bank of Nova suggests the loonie is poised to tumble to as low as 72 cents (U.S.). Not only that, when it recovers it won’t crack the 80-cent mark even by the end of next year.

“Interest rate differentials will move against the Canadian dollar [CAD] as U.S. interest rates rise,” Shaun Osborne, Scotiabank’s chief foreign exchange strategist, said in the report, referring to the fact that the Federal Reserve is moving ever closer to a rate hike while the Bank of Canada is expected to do nothing on that front for some time yet.

“Low energy prices (we see no rebound in crude oil until later in 2016 amid a continued supply glut) and sluggish domestic growth imply continued downside pressure in the CAD through 2016.”

The Scotiabank forecast puts the currency at 73 cents at the end of 2015, with a further drop to 72 cents through most of next year.

The bank sees it perking back up to 74 cents early in 2017 and then continuing to climb, but only to 79 cents by the end of the year.

Merrill Lynch, in a separate forecast this week, projected the loonie will dip to about 74 cents by early 2016 and stay there throughout the year.

That low dollar may be a problem for travellers headed for the United States, as well as importers and consumers forced to pay for higher imported goods.

But it’s not an issue for the Bank of Canada, which is counting on stronger exports.

“The Bank of Canada’s [BoC] aim of reorienting the economy from domestic-driven growth to (more sustainable) drivers, such as trade and business investment, has only been partially successful,” Scotiabank’s Mr. Osborne said.

“Trade has improved a little in recent months but business investment looks flat and may struggle to improve against the soft energy sector backdrop,” he added.

“Under these circumstances, policy makers will likely prefer to see the CAD stay relatively soft.”

Source: The Globe and Mail

Home Renos Are the New Housing Boom: CMHC

Basement renos are going to be big business across the Ontario housing market over the next few years, as will be the remaking of the province’s aging rental buildings, more than 85% of which are creeping up on 40 years old.

Those two things alone could contribute to an explosion of work for contractors and craftsmen in what’s already a $25 billion construction sector in Ontario alone, according to analysts with the Canada Mortgage and Housing Corporation (CMHC).

Bankrolling all those new bathrooms, kitchens and subterranean sleeping quarters will be two extremes of homeowners, said CMHC Ontario regional economist Ted Tsiakopoulos at the housing corporation’s annual Toronto Housing Outlook Conference Tuesday.

The biggest spenders are expected to be 55- to 64-year-old baby boomers, flush from “the wealth effect” — the astounding growth of house values over the last decade.

At the other end of the renovation spending spectrum will be first-time house buyers in the 24- to 44-year range, looking to add a basement apartment so the rent will help pay their hefty mortgages.

Both affordability and the shortage of resale listings will also be big contributors to the renovation boom, said Tsiakopoulos. Boomers may opt to stay put because it’s too expensive or difficult to find another home, while young buyers may have little choice but to add on or renovate their first home so it can double as their home for life.

The 55 to 64-year-old age group is the fastest growing demographic in the province right now, said Tsiakopoulos. By 2017 it is expected to make up 1.1 million of the 3.7 million households in Ontario.

Just 20% of that age group is likely to downsize, said Tsiakopoulos.

But about 40% are expected to do renovations aimed at turning the old family home into a great entertaining space — in many cases with a basement apartment to help grown children get on their feet or save for a house — and, later, into a place where they can age out as long as possible.

Aging is also a major issue for the province’s so-called purpose-built rental apartment stock, just 4% of which has been built since 2000.

While granite and glass-clad condos, owned largely by mom-and-pop investors, have sprung up as an alternative rental housing form over the last decade, their popularity has also helped spur on a significant remaking of older apartment buildings that is now really picking up steam across the GTA.

Part of that is driven by the simple fact that condo rents can be significantly higher than that of older apartment buildings, according to CMHC research.

But vacancy rates in older buildings have been climbing, as well, as millennials opt for shiny downtown condos — the newer, the better — even if they find themselves in bidding wars from time to time that drive up the listed rent, given that condo vacancy rates in the GTA remain less than 2%.

Here are some trends from CMHC’s annual outlook conference:

GTA condo market coming off its peak
54,000 condos were built during the 2014 peak 20,100 new condos expected to be built in 2017

19.6% share of investor-owned condos rented out in 2004 28.9% share of investor-owned condos rented out in 2014

GTA rental construction picking up
6,100 rental apartments built during the 1992 peak 2,000 new apartments expected in 2017

1.6% vacancy rate for purpose-built rentals 1.8%* vacancy rate for rental condos *(due to surge of new condos)

Source: Article by Susan Pigg, The Toronto Star

Toronto, Prairie Housing Markets at High Risk for Correction: CMHC

Housing markets in Toronto and some Prairie provinces are at high risk for a correction, Canada’s federal housing agency warned last Thursday, as several cities grapple with soaring home prices and a glut of new condo development.

In a new quarterly forecast on the housing market, the Canada Mortgage and Housing Corporation (CMHC) said it saw scant evidence of serious problems in the overall Canadian housing market, but warned that home prices are now outstripping economic fundamentals in 11 out of 15 major markets (up from just 8 last June) and that four cities are now at risk of a correction because of high prices and a surge in the supply of new homes under construction.

CMHC previously warned in August the housing market in the Greater Toronto Area was at “high risk” for a correction amid soaring home prices that have outstripped income growth and a glut of unsold condos. Since then, resale prices, particularly of single-detached homes, have continued to soar at double-digit annual rates.

“The continued rise in house prices has not been matched by growth in economic and demographic fundamentals, giving rise to strong evidence of overvaluation,” the federal housing agency wrote.

At the same time the region is also faced with high levels of unsold, newly built condos, although the number of condos under construction has fallen from earlier in the year and the glut of new supply appeared to be manageable, CMHC said. “The widening price differential between low-rise and high-rise units and a low average vacancy rate in the rental market suggest that unsold inventory could be steadily absorbed provided that builders manage inventories well.”

Regina and Winnipeg also remain at high risk of a correction, CMHC warned. In Regina, home prices have fallen in the wake of the drop in oil prices, but are still too high, while developers continue to churn out new supply, particularly new condos. Winnipeg ‘s housing market is facing similar conditions.

Saskatoon was also added to the list of markets at high risk of correction, with CMHC warning that prices are still lofty despite the downturn in the energy sector, while builders are still adding too much new supply to the market.

Ottawa, Montreal and Quebec City are all at moderate risk of a correction, CMHC said. Despite being Canada’s hottest and most expensive housing market, Vancouver is at a low risk of a correction, CMHC said, with rising number of listings along with new construction helping to offset strong demand among buyers. However, for the first time, the agency warned of “moderate evidence” that Vancouver’s housing market is overvalued after a particularly strong year for resale home prices.

To study the risk of a house price correction, CMHC considers four factors: demand for homes that outstrips supply, prices that begin rising at a faster rate, home prices that seem overvalued compared with economic fundamentals, and whether strong demand and price growth prompts developers to build too many new homes. It has found that combinations of these factors have led to a spike in claims for its mortgage default insurance.

Nationally, the risks of overvaluation remain “moderate,” says the report, which has been a work in progress over the year since it was first introduced by CMHC.

In 2014, one of the first reports — which CMHC chief Economist Bob Dugan likened to “an early warning system” aimed at highlighting concerns before they could lead to a market downturn — estimated that Canadian house prices were about 3 to 4% overvalued.

That clearly didn’t go over well. So this year, CMHC was refusing to discuss numbers, citing the complexity of its risk models, and focusing more on colours — red for high risk, yellow for moderate and green for low.

This time around, the colours had taken a back seat, and the word “risk” had disappeared.

Cities now assessed as having “weak” signs of problematic conditions are: Vancouver (thanks to an increase in new listings and an uptick in new construction to better meet demand), Victoria, Calgary (slumping oil prices have doused that once-overheated market), Edmonton, Hamilton (although home sales grew faster than new listings in the second quarter), Moncton, Halifax and St. John’s.

Those city “moderate” signs of problematic conditions are: Ottawa, Montreal and Quebec City.

The next assessment report is expected to be released in the first quarter of 2016.

Source: The Globe and Mail, The Toronto Star

UBS House ‘Bubble Index’ Warns Vancouver Among World’s Frothiest

Vancouver’s “significantly overvalued” housing market is among the most bubbly in the world, a new report suggests.

The UBS Global Real Estate Bubble Index, which launched last week, puts Vancouver at #4 behind London and Hong Kong, and just a shade behind Sydney.

In fact, Vancouver and Sydney are so close together that they’re virtually tied for the third spot in a ranking where #1 is not where you want to be.

The UBS report backs up other warnings about Vancouver, which, along with Toronto, has been the focus in Canada when it comes to the word “frothy.”

“Bubble risk is most distinct in London and Hong Kong,” said the study, which looked at price-to-income and price-to-rent ratios and a handful of other measures.”

“Deviations from the long-term norm point to significantly overvalued housing markets in Sydney, Vancouver, San Francisco and Amsterdam.”

According to this study, Vancouver prices in 2015 were up by 25% since 2006, suggesting that valuations “look very stretched,” although the “dynamic has slowed significantly of late.”

For the record, Canada Mortgage and Housing Corp. said last week that Vancouver is at low risk of a correction.

Source: The Globe and Mail

Canada’s Economy Grows for Third Straight Month But at a Slower Pace

The pace of economic growth in Canada slowed in August, Statistics Canada reported last Friday as the economy crept ahead 0.1%.

The increase for the month was smaller than the 0.4% addition in June and 0.3% growth in July, but matched the expectations of economists, according to Thomson Reuters.

“After the strong rebound in June/July, it’s back to reality for the Canadian economy now,” CIBC economist Andrew Grantham said in a note.

“And that reality appears to be very modest growth.”

The growth was mainly a result of gains in retail trade, manufacturing, mining, quarrying, and oil and gas extraction.

The Canadian economy contracted in each of the first five months of the year before turning around in June and returning to growth.

The Bank of Canada recently revised its forecast for the third quarter to show the economy is expected to grow at an annual pace of 2.5% before slowing in the fourth quarter to an annual pace of 1.5%.

The output of goods-producing industries grew 0.3% in August, after rising 0.8% in June and 0.7% in July. Manufacturing as well as mining, quarrying, and oil and gas extraction were major contributors to the increase in August. Utilities and the agriculture and forestry sector posted modest gains while construction was unchanged.

The output of service-producing industries edged up 0.1% in August, after growing 0.3% in June and edging up 0.1% in July. There were gains in retail trade, transportation and warehousing services as well as professional services. There were notable declines in wholesale trade and the finance and insurance sector. The public sector (education, health and public administration combined) was unchanged in August.

Manufacturing output advanced 0.4% in August, following gains of 0.6% in June and July.

Non-durable goods manufacturing rose 0.6% in August, after edging down 0.1% in July. Growth was notable in chemical manufacturing and, to a lesser extent, in the manufacturing of petroleum and coal products as well as paper. In contrast, declines were posted in manufacturing of plastic and rubber products, beverage and tobacco products as well as printing and related support activities.

Durable-goods manufacturing grew 0.3% in August, after rising 1.1% in July. The manufacturing of wood products, computer and electronic products as well as of primary metals increased in August. In contrast, there were declines in transportation equipment manufacturing and fabricated metal products manufacturing.

Mining, quarrying, and oil and gas extraction rose 0.4% in August, following gains of 2.6% in June and 2.4% in July. After rising 2.6% in June and 3.9% in July, oil and gas extraction increased 0.3% in August, as a result of gains in both conventional and non-conventional oil extraction.

Support activities for mining and oil and gas extraction rose 2.9% in August, following declines in June and July.

Mining and quarrying (excluding oil and gas extraction) edged down 0.1% in August, after rising 3.7% in June and declining 0.5% in July. The declines in coal and copper, nickel, lead and zinc ore mining in August more than offset an increase in potash mining.

Retail trade rose 0.6% in August, after increasing 0.3% in July. Food and beverage stores, motor vehicle and parts dealers as well as furniture and home furnishings stores posted growth in August. Conversely, activities at general merchandise stores and miscellaneous store retailers retreated.

Following a 0.6% decline in July, wholesale trade contracted 0.5% in August, primarily as a result of a decline in machinery, equipment and supplies. The wholesaling of food, beverage and tobacco as well as motor vehicles and parts was also down. In contrast, miscellaneous wholesaling (which includes agricultural supplies) recorded notable growth.

After rising in June and July, the finance and insurance sector fell 0.2% in August. Declines in financial investment services and in banking outweighed the gain in insurance services.

The arts and entertainment sector decreased 0.9% in August, following a 6.9% gain in June and a 2.0% decline in July. The increase in June was largely attributable to the FIFA Women's Soccer World Cup hosted by Canada. Levels in the sector in July and August remained high as a result of high attendance at other sporting events, such as the Pan-American Games.

Construction was unchanged in August. Decreases in non-residential building and repair construction were offset by an increase in residential building construction. Engineering construction was unchanged.

The output of real estate agents and brokers increased 0.2% in August, after two consecutive months of decline.

Transportation and warehousing services grew 0.6% in August, mainly as a result of gains in pipeline transportation and trucking services.

After declining for five consecutive months, utilities increased 0.8% in August. Electricity generation, transmission and distribution as well as natural gas distribution were both up.

The public sector (education, health and public administration combined) was unchanged in August. Health care and social services edged up while public administration edged down.

Source: Statistics Canada, The Canadian Press

Latest U.S. Economic News

U.S. Manufacturing Slows; Construction Spending at 7-1/2-Year High
U.S. manufacturing activity slowed in October for a fourth straight month, but a rise in new orders offered hope for a sector buffeted by a strong dollar and relentless spending cuts by energy companies.

Other data on Monday showed construction spending rose in September, indicating the U.S. economy remained on firmer ground despite some cooling in consumer spending and persistent weakness in manufacturing.

The Institute for Supply Management said its national manufacturing index slipped to 50.1 this month from a reading of 50.2 in September. A reading above 50 indicates expansion in the manufacturing sector.

New orders rose to 52.9 from 50.1 in September. However, the employment index fell to 47.6, the lowest reading since August 2009.

It was the first time it had dropped below 50 since April.

Manufacturing, which accounts for 12% of the U.S. economy, has also been slammed by business efforts to reduce an inventory overhang and slowing demand overseas.

The dollar has gained 16.8% against the currencies of the United States’ main trading partners since June 2014, squeezing the profits of multinational companies like Procter & Gamble Co. and 3M Co..

At the same time, a plunge in oil prices has pressured revenues for oil field companies like Schlumberger and diversified manufacturer Caterpillar Inc.

Construction Spending Up

In a separate report, the Commerce Department said U.S. construction spending advanced 0.6%to $1.09-trillion (U.S.), the highest level since March 2008, after an unrevised 0.7% increase in August.

Construction spending has increased every month this year, and the latest gain suggested a modest upward revision to the third-quarter GDP growth estimate.

Economists polled by Reuters had forecast construction spending rising 0.5% in September. Construction outlays were up 14.1% compared to September of last year.

September’s increase is slightly above the gain the government had estimated in its advance third-quarter GDP estimate published last week.

The government reported the U.S. economy grew at a 1.5% annual pace in the third quarter, hurt by business efforts to reduce an inventory glut and continued spending cuts by energy firms. A strong dollar also hurt the economy.

In September, construction spending was boosted by a 0.6% rise in private construction spending, which hit its highest level since January 2008.

Spending on private residential construction jumped 1.9% in September, also reaching the highest level since January 2008, reflecting gains in home building and renovations. Investment on private non-residential construction projects, however, fell 0.7%.

Public construction outlays gained 0.7%. Spending on state and local government projects, which is the largest portion of the public sector segment, increased 0.9%. Federal government outlays declined 1.0%.

Source: Reuters

U.S. Consumer Spending Posts Smallest Gain in Eight Months
U.S. consumer spending in September recorded its smallest gain in eight months as personal income barely rose, suggesting some cooling in domestic demand after recent hefty increases.

The Commerce Department data and another report from the Labor Department last Friday also showed weak inflationary pressures, which would argue against the Federal Reserve raising interest rates at the end of the year.

U.S. central bank policymakers last week put a rate hike in December on the table with a direct reference to their final meeting of the year. The Fed has kept benchmark overnight interest rates near zero since December 2008.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1% in September after rising 0.4% rise in August. September’s consumer spending data was included in last Thursday’s third-quarter GDP report.

Consumer spending rose at a brisk 3.2% annual pace in the third quarter, helping to lift GDP growth to a 1.5% rate. Spending has increased at a rate of more than 3% in each of the last two quarters.

Growth in the third quarter was constrained by business efforts to whittle down an inventory bloat, a strong dollar and ongoing spending cuts by energy companies.

When adjusted for inflation, consumer spending rose 0.2% in September after increasing 0.4% in August, suggesting consumption will continue to support the economy through the rest of the year.

Personal income ticked up 0.1% in September, the smallest rise since March, after increasing 0.4% in the prior month. With spending sluggish, inflation remained benign last month.

A price index for consumer spending slipped 0.1%, the first decline since January, after being flat in August. In the 12 months through September, the personal consumption expenditures (PCE) price index rose 0.2%, the smallest increase since April.

It increased 0.3% in August. Excluding food and energy, prices rose 0.1% for a fifth straight month. The so-called core PCE price index rose 1.3% in the 12 months through September after a similar gain in August.

Inflation has persistently run below the Fed’s 2% target.

A separate report from the Labor Department showed the Employment Cost Index, the broadest measure of labour costs, increased 0.6% after a 0.2% gain in the second quarter.

In the 12 months through September, labour costs held steady at 2.0%, below the 3% threshold that economists say is needed to bring inflation closer to the Fed’s target.

Source: Reuters

U.S. Pending Homes Sales Decline in September
Contracts to buy previously owned U.S. homes fell unexpectedly in September, a warning sign that the housing market recovery may be stumbling.

The National Association of Realtors (NAR) said last Thursday that its Pending Home Sales Index, based on contracts signed last month, dropped 2.3% to 106.8, the second lowest reading of 2015. The index was up 3.0% from the same month a year ago.

Economists polled by Reuters had forecast pending home sales rising 1.0% for the month.

Pending home contracts become sales after a month or two, and last month’s decrease suggests a softening in home sales after more robust levels earlier this year.

Contracts fell in all four major U.S. regions in September. The Northeast recorded the biggest drop with a 4.0% decline. But contracts in all regions still remain above their levels from a year ago.

Source: Reuters

U.S. Economy Brakes as Inventory Glut Hits GDP
U.S. economic growth braked sharply in the third quarter as businesses cut back on restocking warehouses to work off an inventory glut, but solid domestic demand could encourage the Federal Reserve to raise interest rates in December.

U.S. GDP increased at a 1.5% annual rate after expanding at a 3.9% clip in the second quarter, the Commerce Department reported last Thursday.

The inventory drag, however, is likely to be temporary and economists expect growth to pick up in the fourth quarter given strong domestic fundamentals.

The Fed described the U.S. economy last week as expanding at a “moderate” pace and put a December rate hike on the table with a direct reference to its next policy meeting. The U.S. central bank has kept benchmark overnight interest rates near zero since December 2008.

“Underlying growth is still strong, or at least, strong enough to handle interest rates not being at emergency low levels any more,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.

The U.S. economy has struggled to sustain a faster pace of growth since the end of the 2007-2009 recession, with average yearly growth failing to break above 2.5%. Economists had forecast GDP rising at a 1.6% rate in the third quarter.

Businesses accumulated $56.8-billion (U.S.) worth of inventory in the third quarter, the smallest since the first quarter of 2014 and down sharply from $113.5-billion in the April-June period. There were declines in manufacturing, wholesale and retail inventories.

The small inventory build sliced off 1.44 percentage points from third-quarter GDP growth, the largest since the fourth quarter of 2012.

“That inventory drawdown represents a bit of a healthy purge that should set the economy up for stronger growth in the coming quarters,” said Jim Baird, partner and chief investment officer for Plante Moran Financial Advisors in Kalamazoo, Michigan.

The blow from inventories was, however, blunted by bullish consumers, who are getting a tailwind from cheaper gasoline and firming housing and labour markets.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at a 3.2% rate after expanding at a 3.6% pace in the second quarter. A measure of private domestic demand, which excludes trade, inventories and government spending, rose at a sturdy 3.2% pace.

Spending is likely to remain supported by a fairly healthy labour market and low inflation, which is boosting household purchasing power. Income at the disposal of households increased 3.5% in the third quarter after rising 1.2% in the prior quarter.

A separate report from the Labour Department showed new applications for unemployment benefits hovering near levels last seen in late 1973.

With the dollar continuing to strengthen, export growth decelerated in the third quarter. The drag was, however, offset by a slowdown in imports, especially automobiles, leaving the impact from trade on GDP growth neutral.

Ongoing spending cuts in the energy sector also undermined growth. A plunge in oil prices has prompted oil field companies like Schlumberger and Halliburton to slash investment.

Schlumberger said this month it did not expect a recovery in demand before 2017 and anticipated that exploration and production spending would fall again in 2016.

Spending on mining exploration, wells and shafts tumbled at a 46.9% rate. This category dropped at a 68% pace in the second quarter. Investment on non-residential structures contracted at a 4.0% pace, also weighed down by weak spending on commercial and healthcare structures.

Despite strong domestic demand, inflation retreated because of dollar strength and cheaper gasoline.

The personal consumption expenditures (PCE) price index rose at a 1.2% rate after rising 2.2% in the second quarter. Excluding food and energy, prices increased at a 1.3% pace, slowing from a 1.9% rate in the second quarter.

Source: Reuters

Fed Keeps Rates Unchanged, Sets Up Possible December Hike
The U.S. Federal Reserve kept interest rates unchanged on Oct. 28 and in a direct reference to its next meeting put a December rate hike firmly in play.

Investors had expected the Fed to remain pat on rates, but the overt reference to December came as a surprise. The Fed also downplayed recent global financial market turmoil and said the slower pace of growth in the labour market hadn’t undermined its faith in the ability of the economy to create jobs.

“In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2% inflation,” the Fed said in a statement after its two-day policy meeting.

Investors quickly shifted their expectations of a December hike, with rates futures contracts upping the chance of a move this year to 47% from 34% prior to the statement.

The Fed’s policy-setting committee also noted that U.S. job growth had slowed and the unemployment rate had held steady. It repeated in its statement that “underutilization of labour resources has diminished.”

“The committee continues to see the risks to the outlook for economic activity and the labour market as nearly balanced,” the Fed said in its statement. It added that the U.S. economy has been expanding at a moderate pace.

Most Fed policy makers have said they expect to raise rates in 2015, but two broke ranks with Fed Chair Janet Yellen last month, questioning her view that labour market tightness will fuel inflation and overheat the economy.

They urged caution rather than a rate increase, arguing that a weakening global economy could sap U.S. economic growth and keep inflation too low.

The Fed has struggled to convince skeptical investors that a rate hike is imminent. Before last week’s meeting, financial markets saw virtually no chance it would raise rates this week.

A narrow majority of economists polled by Reuters predicted a rate increase in December.

The main stumbling block is that U.S. economic growth has been generally tepid and inflation low even though unemployment has fallen.

Compounding the situation, central banks from the euro zone to China are easing monetary policy, keeping upward pressure on the U.S. dollar. That hurts American exporters and ts as a brake on inflation.

In its statement, the Fed repeated it wants to be “reasonably confident” that low inflation will rise to its 2% target.

The Fed has two months of data to parse, including last Thursday’s third-quarter GDP estimate as well as employment reports for October and November, before deciding if the economy is strong enough to withstand its first rate hike since 2006.

It will also get a chance to see how monetary policy easing in Europe, Japan and China plays out in financial markets. When the European Central Bank hinted last week at more bond-buying stimulus to come, the dollar rose 3%.

Source: Reuters

Upcoming CHHMA Events

Industry Cocktail
Thursday, December 10, 2015
Casino de Montreal, Montreal, Quebec

Canada Night
Held in Conjunction with the International Home+Housewares Show
Sunday, March 6, 2016
InterContinental Hotel, Chicago, Illinois

CHHMA Spring Conference & AGM
Tuesday, April 12, 2016
International Centre (Conference Facility), Mississauga, Ontario

CHHMA Maple Leaf Night
Held in Conjunction with the National Hardware Show
Wednesday, May 4, 2016
The Mirage Hotel & Casino, Las Vegas, Nevada

CHHMA Quebec Golf Classic
Thursday, May 19, 2016
Club de golf Le Fontainebleau, Blainville, Quebec

CHHMA Ontario Golf Tournament
Tuesday, May 31, 2016
Angus Glen Golf Club, Markham, Ontario

CHHMA Industry Calendar

To register for all events visit our website at www.chhma.ca or call Pam Winter at (416) 282-0022 ext.21.

CHHMA Links

Freight Logistics Savings
No Obligation Consultation

Discount Cellular
Phone Rates

Long Distance &
Telecommunications Savings

Discount Gas & Diesel Rates

Logo Apparel &
Promotional Products

Office Product Discounts

"Eye On Our Industry" is published by the CHHMA as an information resource for our members. Member input regarding content and format is welcomed. Please contact Michael Jorgenson by email: mjorgenson@chhma.ca, or call at (416) 282-0022, ext. 34. CHHMA is located at 1335 Morningside Ave., Suite 101, Scarborough, ON, M1B 5M4 www.chhma.ca

If you would no longer like to receive our newsletter, please click here: Unsubscribe