Inflation rate is lowest in 56 years – overall consumer price increase is a healthy 1.8%
Canada’s annual inflation rate slid to the lowest level in 56 years last month, dropping more than expected for the second straight month to set overall prices 0.9 per cent lower than last year, Statistics Canada reported Wednesday.
The fall on a month-to-month basis was even more dramatic, as prices in July fell 0.3 per cent from the previous month, reversing the similar monthly increase registered in June.
Still, economists say there is little concern that deflation – a broad-based and persistent decline in prices that could inflict further damage on the economy – is setting in Canada, as it did in Japan during the 1990s.
Harmonized sales levy is the lesser of tax evils
It isn’t often that political leaders take policy actions they know will be highly unpopular. The decisions by Ontario Premier Dalton McGuinty and B.C. Premier Gordon Campbell to harmonize the provincial sales tax
with the federal goods and services tax are rare shows of political courage.
The unpopularity of harmonized sales tax (HST) arises almost entirely because the PST has a long list of exempted items that will now have the PST added to the existing GST.
Here in B.C., the most vocal opposition comes from the tourism and restaurant sectors, already hard hit by the recession and higher dollar. Accommodation will be protected by an offsetting elimination of the hotel tax, but services such as domestic air travel, hair care, dry cleaning, accounting and even funerals will be subject to the additional 7 per cent. New-home buyers will pay the tax on purchases over $400,000 and all homeowners will see the HST applied to cable, telephone, gardening, repairs, renovations and heating fuels.
A recent headline in the Victoria Times Colonist captured the public’s reaction: “HST slams into wall of opposition .” An Ipsos Reid survey found that 85 per cent of respondents opposed the July 1, 2010, HST implementation. And critics’ mischievous portrayal of the move as bailing out big business on the backs of consumers seems to be a dream wedge issue for the Opposition New Democrats.
It’s not that Liberal Premier Campbell couldn’t have anticipated the reaction: Mr. McGuinty has endured similar opposition since Ontario announced sales tax harmonization in May.
Canadian manufacturing sales show turnaround
Statistics Canada says manufacturing sales rose 1.9 per cent to $39.7-billion in June, partially reversing a 4.9-per-cent decline posted in May.
The agency attributes the increase to strong sales in the aerospace industry and a rise in the price of petroleum and coal products.
Constant dollar manufacturing sales rose 1.1 per cent in June, indicating that greater sales volumes were responsible for more than half of the increase in sales.
Sales rose in 12 of 21 manufacturing industries in June, representing 68 per cent of total sales.
Strength in the aerospace and petroleum industries was partly offset by lower auto sales.
Aerospace sales jumped 61.0 per cent to $1.6-billion, offsetting a 44.5-per-cent decline in May.
Canada housing sales hit record in July
Canadian real estate sales had a record July. July housing sales across the country were the best on record for the month and the largest year-over year increase in two years, the Canadian Real Estate Association said.
The Ottawa-based group, which represents about 100 boards across the country, said there were 50,270 units sold via the multiple listing service last month. That’s an 18.2% jump from a year ago. It also marked the first time sales had topped 50,000 in July.
“The difference in the resale housing market now, compared to the beginning of the year, is night and day and nowhere is this more evident than in the west,” said Dale Ripplinger, president of CREA. “Homebuyers recognize that interest rates and prices have bottomed out, and are taking advantage of excellent affordability before prices and interest rates move higher.”
A five-year fixed rate mortgage, the most popular product among consumers, is still available for under 4% at some financial institutions. Variable rate mortgages, tied to prime, remain in the 3% range and are not expected to rise until June. The Bank of Canada has pledged not to change its lending rate until then – but it is not an ironclad guarantee.
Consumers boost confidence in economy
Whether or not Canada is truly out of the woods when it comes to the recession remains up for debate, but more and more Canadians are choosing to think positively about the economy, a new survey finds.
The survey, conducted by TNS Canadian Facts, shows their Consumer Confidence Index at 99.2, up 6% from July, when it was at 93.4.
The three subindexes that combine to track overall consumer confidence posted gains during the month, with the Expectations Index seeing the greatest shift: up 8.5 points to 111.1 from 102.6 in July.
The subindex tracks consumer sentiment for the economy, household income and employment in the next six months.
The Present Situation and Buy indexes also increased during the month.
“Consumer confidence has been trending upward since it fell to an all-time low last December,” Michael Antecol, director of the monthly study, said in a release Thursday.
Five signs a housing recovery is on the way
1) Housing starts are expected to rise
While the seasonally adjusted annual rate of housing starts decreased to 132,000 units in July from 137,000 units in June, Canada Mortgage and Housing Corp. says starts statistics – which mark the actual, shovel-in-the-ground beginning of construction – are expected to improve throughout 2009.
The reason?
“Over the next several years, housing starts will gradually become more closely aligned to demographic demand, which is currently estimated at about 175,000 units per year,” CMHC said.
How solid is this foundation? Economists’ opinions are mixed.
BMO economist Robert Kavcic said July results indicate a rain delay, rather than a reversal. Unseasonably soggy weather caused “a puddle in the road to recovery,” he said.
However, Toronto-Dominion Bank economist Pascal Gauthier noted that the July results, which were dragged down by fewer starts in the condominium sector, were below expectations.
“The latest data for July is yet another warning that extrapolating the bounce back from [the earlier] extreme lows further out can be overly optimistic,” Mr. Gauthier wrote.
2) Building permits have bounced higher
This indicator of builder confidence and construction plans has made steady gains.
“Building permits not only held on to the big bounce in May, they were revised higher (to 15.5 per cent) and they rose again in June (up 1 per cent) in another sign that construction is recovering from the extreme lows earlier this year,” the Bank of Montreal said in a research note.
3) Existing home sales soar
Nowhere has the turnaround been more apparent than in July sales of existing homes in Canada’s biggest cities, BMO reports.
4) It’s still a buyers’ market, but prices are firming up
Economists expect that when CREA reports on the national picture Friday, the statistics will show that the prices are up about 4 per cent year over year – skewed upwards by sales in the higher-priced markets.
5) Affordable mortgages
“Nowhere is the benefit of record-low [interest] rates more apparent than in the housing market, where results have jumped 57 per cent in the past five months and look solid again in July,” BMO economist Sal Guatieri said this week.
Canada plays catch-up in race for trade with China
When the world’s biggest import market crashed last year and economists advised Canadian exporters to chase growth in emerging markets, Winnipeg plastics manufacturer Craig McIntosh did just the opposite: He hired more salespeople and redoubled his efforts south of the border.
Half of Acrylon Plastics’ $40-million in sales come from exports to the world’s biggest economy. But even after watching the U.S. brought to its knees by the recession, Mr. McIntosh stuck with the tried-and-true Canadian export strategy.
The near-collapse of global trade has shone a harsh spotlight on Canadian exporters’ dangerous reliance on customers south of the border. With U.S. demand still in a serious slump, Canada is falling behind in the race to capture a greater share of the world’s markets likely to expand the most over the next decade.
Finally – The Canadian Economy is on the Mend
The Canadian economy is likely on the mend after a bad tumble in May, analysts said Friday after new data showed output shrank more than expected.
Statistics Canada reported Friday the gross domestic product fell 0.5 per cent in May, pulled down by a battered manufacturing sector and weak demand for energy exports.
It marked the 10th straight month of economic decline.
“Overall, it is clear that activity throttled back significantly in May,” noted Charmaine Buskas, senior economics strategist at TD Securities.
Plant shutdowns in the manufacturing sectors accounted for much of the decline, Statistics Canada said.
About half the decrease was due to a big drop in motor vehicle manufacturing after three months of recovery and a decline in parts production.
“Part of it was obviously related to the auto sector shutdowns,” said RBC chief economist Craig Wright.
Flaherty, Carney to promote banks in China
Canadian Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney will travel to China next week to promote the country’s financial industry and help win business for its banks.
Mr. Flaherty will also be joined by the head of the country’s regulator of financial services, Julie Dickson, and financial industry executives, the Finance Ministry said in a statement. Mr. Flaherty will visit Beijing and Shanghai during the six-day trip.
“Most of Canada’s large financial institutions are active in China and they are looking to expand,” Mr. Flaherty said in the statement. “The Canadian financial sector is also eager to partner with Chinese companies in their global transactions.”
If this is a recovery, then tech is a good place to be
When it comes to recovery on the markets, few areas have posted as robust a rebound as the technology sector. Which leads to a rather obvious question: Is it too late for investors to jump in?
After all, it can be dangerous to get into a sector after it bounces some 50 per cent off its lows. Or at least, those were the old rules – rules that were written before one of the most spectacular market crashes in history.
The tech index on the S&P/TSX is up a resounding 36 per cent since the beginning of the year, and an even more impressive 52 per cent from its March 9 lows. With a gain of 37 per cent, only the financial services sector is up more in 2009.
“You’re not supposed to jump in after such a run, but counteracting that is the fact that we are not in the late stages of an economic cycle,” said Duncan Stewart, director of research and analysis at DSAM Consulting. “If we are indeed in a recovery, it’s still early. And technology tends to do well early in a recovery – always has, and probably always will.”
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