10 Jun

May employment growth in Canada stalled as the unemployment rate ticked up to 6.2%

General

Posted by: Tim Woolnough

May Jobs Report
 

In the first major data release since the Bank of Canada cut interest rates on Wednesday, Statistics Canada Labour Force Survey for May showed a marked slowdown from the April surge. Employment was little changed and the employment rate fell 0.1 percentage points to 61.3%, the seventh decrease in the past eight months.

The number of employed people increased by 27,000 following a gain of 90,000 in April. Year-over-year (y/y), employment rose 2.0% in May. Part-time employment rose by 62,000 (+1.7%) in May, while full-time employment edged down (-36,000; -0.2%). Job creation rose the most in health care and social assistance, followed closely by gains in finance, insurance, real estate, rental and leasing. It fell the most in construction, largely reflecting labour shortages in that sector. Employment gains were reported in only three provinces in May, led by Ontario, Manitoba and Saskatchewan.
 

Population growth isn’t likely to slow near-term, which means that anything short of about a 45k employment gain will push the jobless rate higher. The jobless rate rose to 6.2%, 1.4 percentage points above the July 2022 cycle low, and the highest level since 2017 (excluding the pandemic).
 

Total hours worked were unchanged in May and were up 1.6% compared with 12 months earlier.
Average hourly wages among employees increased 5.1% year over year in May, following growth of 4.7% in April (not seasonally adjusted). This isn’t going to make the Bank of Canada happy, but there will be another Labour Force Survey release before the next BoC decision date on July 24.
 

Bottom Line

This report did not contain anything that would forestall another rate cut at the next meeting, with the possible exception of the rebound in wage inflation. This could well reverse with the June data.

CPI will be the key data release in the coming weeks–reported for May on June 25 and June on July 16. We believe the overnight policy rate will trend toward 2.%-to-3.0% from today’s 4.75% by the end of next year.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca
31 May

Weaker-than-expected Canadian Q1’24 GDP Growth Increases Odds of a Rate Cut Next Week

General

Posted by: Tim Woolnough

Odds of a Rate Cut Next Week Rise with Disappointed Canadian GDP Growth
 

The likelihood of a rate cut next week has increased due to disappointing Canadian GDP growth. Real gross domestic product (GDP) only rose by 1.7% (seasonally adjusted annual rate) in the first quarter of this year, which is well below the expected 2.2% and the Bank of Canada’s forecast of 2.8%. Fourth-quarter economic growth was revised to just 0.1% from 1.0%. These figures have led traders to increase their bets on a Bank of Canada rate cut when they meet again next week.

In the first quarter of 2024, higher household spending on services—primarily telecom services, rent, and air transport—was the top contributor to the increase in GDP, while slower inventory accumulation moderated overall growth. Household spending on goods increased modestly, with higher expenditures on new trucks, vans and sport utility vehicles.

On a per capita basis, household final consumption expenditures rose moderately in the first quarter, following three-quarters of declines. Per capita spending on services increased, while per capita spending on goods fell for the 10th consecutive quarter.

Business capital investment rose in the first quarter, driven by increased spending on engineering structures, primarily within the oil and gas sector. Business investment in machinery and equipment also increased, coinciding with increased imports of industrial machinery, equipment and parts.

Resale activity picked up in Q1, driving the rise in housing investment, while new construction was flat. Ontario, British Columbia and Quebec posted the most significant volume increases in resales, while prices in these provinces fell in the first quarter.

New housing construction (+0.1%) was little changed in the first quarter, as work put in place decreased for all dwelling types except double houses. Costs related to new construction, such as taxes and closing fees upon change in ownership, increased in the quarter and were mainly attributable to newly absorbed apartment units in Ontario.

The household savings rate reached 7.0% in the first quarter, the highest rate since the first quarter of 2022, as gains in disposable income outweighed increases in nominal consumption expenditure. Income gains were derived mainly from wages and net investment income.

Investment income grew strongly in the first quarter of 2024 due to widespread gains from interest-bearing instruments and dividends. Higher-income households benefit more from interest rate increases through property income received.

Household property income payments, comprised of mortgage and non-mortgage interest expenses, posted the lowest increases since the first quarter of 2022, when the Bank of Canada’s policy rate increases began.
 

Bottom Line

This is the last major economic release before the Bank of Canada meets again on June 5. Traders in overnight markets put the odds of a rate cut at next week’s meeting at about 75%, up from 66% the day before. Bonds rallied, and the yield on the Canadian government two-year note fell sharply, reflecting this change in sentiment.

The Bank of Canada has good reason to cut the overnight policy rate next week. Core inflation measures have decelerated sharply in recent months, and the economy is growing at a much slower pace than the central bank expected. The Bank has been very cautious, and there remains the possibility that they will wait another month before pulling the trigger on rate cuts, but at this point, we see no reason to delay any further.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca
21 May

Canadian CPI Inflation Eased In April, Raising the Chances of a June Rate Cut

General

Posted by: Tim Woolnough

Canadian Inflation Eased Again in April, Raising the Chances of a June Rate Cut
 

The Consumer Price Index (CPI) rose 2.7% year-over-year (y/y) in April, down from 2.9% in March. This marks the fourth consecutive decline in core inflation. Food prices, services, and durable goods led to the broad-based deceleration in the headline CPI.

The deceleration in the CPI was moderated by gasoline prices, which rose faster in April (+6.1%) than in March (+4.5%). Excluding gasoline, the all-items CPI slowed to a 2.5% year-over-year increase, down from a 2.8% gain in March.

The CPI rose 0.5% m/m in April, mainly due to gasoline prices. On a seasonally adjusted monthly basis, it rose 0.2%.

While prices for food purchased from stores continue to increase, the index grew slower year over year in April (+1.4%) compared with March (+1.9%). Price growth for food purchased from restaurants also eased yearly, rising 4.3% in April 2024, following a 5.1% increase in March.

According to Bloomberg calculations, the three-month moving average of the rate rose to an annualized pace of 1.64% from 1.35% in March. That’s the first gain since December.
 

The Bank of Canada’s preferred core inflation measures, the trim and median core rates, exclude the more volatile price movements to assess the level of underlying inflation. The CPI trim slowed to 2.9% y/y in April, and the median declined to 2.6% from year-ago levels, as shown in the chart below. Rising rent and mortgage interest costs account for a disproportionate share of price growth, with shelter costs up 6.4% year-over-year. Growth in mortgage interest costs slightly decreased in April but remained 24.5% higher than a year ago.

The breadth of inflationary pressures narrowed again in April, with the proportion of the CPI basket experiencing growth exceeding 3%, decreasing to 34% from 38% in March.
 

Bottom Line

April’s inflation readings largely met expectations but with underlying details (including further slowing in the BoC’s preferred ‘core’ measures) pointing to a further reduction in inflationary pressures. The Bank of Canada is as concerned about where inflation will go in the future as where it is right now. Still, Canada’s persistently softer economic backdrop (declining per-capita GDP and rising unemployment rate) increases the odds that price growth will continue to slow. The case for interest rate cuts from the Bank of Canada continues to build. The central bank has every reason to cut rates at their next meeting on June 5. Still, given the BoC’s extreme caution, we must consider the possibility that they will wait until the July meeting to take action, and only if inflation continues to recede.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca
10 May

April’s Strong Job Gains Likely Postpone Rate Cuts Until July

General

Posted by: Tim Woolnough

April’s Strong Job Gains Likely Postpone Rate Cuts Until July
 

Today’s StatsCanada Labour Force Survey for April blindsided economists by coming in much more robust than expected. Employment in Canada rose a whopping 90,400 in April, the most in 15 months, following a decline in March, surpassing forecasts by a large margin. Substantial job gains were posted in both full-time and part-time work.

After four months of little change, private sector jobs finally took the lead in April. Employment gains were widespread across various industries within the services-producing sector, particularly in professional, scientific and technical services (+26,000; +1.3%), accommodation and food services (+24,000; +2.2%), health care and social assistance (+17,000; +0.6%) and natural resources (+7,700; +2.3%). However, there were declines in the goods-producing sector, notably utilities (-5,000; -3.1%).

Across Canadian provinces, employment increased in Ontario (+25,000; +0.3%), British Columbia (+23,000; +0.8%), Quebec (+19,000 +0.4%) and New Brunswick (+7,800; +2.0%).
 

Despite the surge in net new jobs, the unemployment rate remained steady at 6.1%. The jobless rate in April was up 1.0 percentage points from a year ago.
 

Average hourly wages among employees rose 4.7% in April, down meaningfully from the 5.1% pace in March. This is good news for the Bank of Canada and keeps the door open to rate cuts, probably in July. The overall strength of today’s report gives the Bank breathing room to postpone the next rate cut from June to July.
 

Bottom Line

The central bank meets again on June 5. The April CPI report will be released on May 21. This is by far the most important economic report for the Bank. They will look at the three-month trend in the core inflation measures. These figures have already fallen sharply, but given the strength in the jobs report, the central bank will likely wait another month before they begin cutting interest rates.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca
7 May

What to Know at Renewal

General

Posted by: Tim Woolnough

Is your mortgage coming up for renewal this year or in 2025?

Do you know about all the incredible options renewing your mortgage can afford you?

If not, I have all the details here on how to make the most of your renewal!

Get a Better Rate: Did you know that when you receive notice that your mortgage is coming up for renewal, it’s the best time to shop around for a more favorable interest rate? At renewal time, it’s easy to explore other lenders for a preferable interest rate without breaking your mortgage. With interest rates expected to start coming down next month, reaching out and exploring the market could potentially save you a significant amount of money!

Consolidate Debt: Renewal time is also an excellent opportunity to assess your existing debt and decide whether consolidating it into your mortgage is beneficial. Whether it’s holiday credit card debt, car loans, education loans, or other debts, consolidating your mortgage streamlines your payments into one, potentially at a lower interest rate compared to other sources.

Invest in Renovations: Do you have home improvement projects waiting to be tackled? Renewal time provides a great opportunity to tap into your home equity for renovations, whether it’s your dream kitchen, bathroom upgrades, or even investing in a vacation property. Utilizing your equity can bring your renovation dreams to life.

Adjust Your Mortgage Product: Not satisfied with your current mortgage product? Whether it’s fluctuations in variable rates or seeking a different payment or amortization schedule, renewal time allows you to switch things up. You can lock in a fixed rate for stability or opt for a variable rate if you anticipate changes in interest rates. Adjusting your mortgage product can align it better with your financial goals.

Summer is coming up and you don’t want to miss your chance to make the most of your yard! To help you enjoy your space this year, I have broken down some of the top yard appeal ideas with the biggest ROI giving you the most bang for your buck and can increase your home’s equity and curb appeal at the same time!
 
17 Apr

Great News On The Canadian Inflation Front

General

Posted by: Tim Woolnough

Great News On The Inflation Front
 

The Consumer Price Index (CPI) rose 2.9% year-over-year in March, as expected, up a tick from the February pace owing to a rise in gasoline prices, as prices at the pump rose faster in March compared with February. Excluding gasoline, the all-items CPI slowed to a 2.8% year-over-year increase, down from a 2.9% gain in February.

Shelter prices increased 6.5% year over year in March, rising at the same rate as in February.
The mortgage interest cost index rose 25.4% y/y in March, following a 26.3% increase in February. The homeowners’ replacement cost index, which is related to the price of new homes, declined less in March (-1.0%) compared with February (-1.4%) on a year-over-year basis.

Rent prices continued to climb in March, rising 8.5% year over year, following an 8.2% increase in February. Among other factors, a higher interest rate environment, which can create barriers to homeownership, puts upward pressure on the index.

Prices for services (+4.5%) continued to rise in March compared with February (+4.2%), driven by air transportation and rent. This outpaced price growth for goods (+1.1%), which slowed compared with February (+1.2%) on a yearly basis.

On a seasonally adjusted monthly basis, the CPI rose 0.3% in March.
 

The Bank of Canada’s preferred core inflation measures, the trim and median core rates, exclude the more volatile price movements to assess the level of underlying inflation. The CPI trim slowed a tick to 3.1% y/y in March, and the median declined two ticks to 2.8% from year-ago levels, as shown in the chart below.
 

Bottom Line

Most importantly, the three-moving average of all core measures of Canadian inflation fell to below 2%, the Bank of Canada’s target inflation level. Governor Tiff Macklem got exactly what he was hoping for: Further confirmation that core inflation was falling within the target range.

Shelter remains the single most significant contributor to total inflation. Excluding shelter, inflation is tracking just 1.5% and has been below the central bank’s 2% target for most of the past six months. This has slowed economic activity, reducing consumer discretionary spending and making it more difficult for businesses to raise prices. Once interest rates fall, mortgage interest costs—a large component of shelter costs—will start falling.

The three-month annualized rates of the Bank of Canada’s core-median and trim indicators slowed to just 1.3% (see chart below), and the average year-over-year rates are down a tick to 3.0%. According to the economists at Desjardins, “the share of components in the CPI basket that are rising more than 3%, an indicator closely watched by Governor Macklem, is down to 38% from 41%. And the share of components showing price growth of less than 1% is up to 44% from 38% in February. Both suggest that the breadth of inflationary pressures is becoming more consistent with the Bank of Canada’s 2% target”.

We will see the April inflation data on May 21, before the next BoC decision date. While gasoline prices have continued to rise this month, so far, the gain has been more muted than in March. With any luck, today’s data will set the stage for the first BoC rate cut in June.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca
28 Mar

Change of Address Checklist.

General

Posted by: Tim Woolnough

So, you’re moving! Before you hunker down in your new home, there are a few things you will want to take care of regarding your new address.

Personal Contacts

First and foremost, if you haven’t yet, make sure to tell all your personal contacts about your address change, including:

  • Relatives
  • Friends
  • Employer
  • Schools, colleges, universities, daycares
  • Landlord (if necessary)
  • Clubs, associations and charities

Healthcare Professionals

For the purposes of keeping your health care records up to date, make sure to update your professional contacts:

  • Doctor(s)
  • Dentist
  • Veterinarian
  • Other healthcare specialist(s)

Creditors and Services

If you haven’t yet reached out to your services, you will want to do so as soon as possible for a smooth change of service from your existing address to your new address. These services include:

  • Phone, cable, internet, mobility company
  • Electricity / hydro
  • Natural gas
  • Heating fuel company (ask if you receive a deposit refund)
  • Financial institution
  • Credit card companies
  • Insurance companies / broker(s)
  • Lawyer / notary
  • Subscriptions (e.g., newspapers, books, music, loyalty programs)

Government Services

Lastly, it is vital to inform the federal and your provincial/territorial government if your address changes to ensure all your data and ID cards are updated:

  • Driver’s license
  • Health Card
  • Vehicle registration
  • Canada Post / epost
  • Canada Revenue Agency
  • Canada Pension Plan / Quebec Pension Plan
  • Old Age Security
  • Employment Insurance

Need assistance in your search for a new home? Please book a strategy call with me today!

19 Mar

Great News On The Inflation Front

General

Posted by: Tim Woolnough

Great News On The Inflation Front
 

The Consumer Price Index (CPI) rose 2.8% year-over-year in February, down from the 2.9% January pace and much slower than the 3.1% expected rate. Gasoline prices rose in Canada for the first time in five months, which led many analysts to forecast a rise in February inflation as seen in the US. However, offsetting the increase in gas prices was a deceleration in the cost of cellular services, food purchased from stores, and Internet access services.

Excluding gasoline, the headline CPI slowed to a 2.9% year-over-year increase in February, down from 3.2% in January. Prices for rent and the mortgage interest cost index continued to apply upward pressure on the headline CPI.

On a monthly basis, the CPI rose 0.3% in February, the same as in January. The most significant contributors to the monthly increase were higher travel tours and gasoline prices.

On a seasonally adjusted monthly basis, the CPI rose 0.1% in February.

Prices for food purchased from stores continued to ease year over year in February (+2.4%) compared with January (+3.4%). Slower price growth was broad-based, with prices for fresh fruit (-2.6%), processed meat (-0.6%), and fish (-1.3%) declining. Other food preparations (+1.4%), preserved fruit and fruit preparations (+4.0%), cereal products (+1.7%), and dairy products (+0.6%) decelerated in February.
 

February was the first month since October 2021 that grocery prices increased slower than headline inflation. The slower price growth is partially attributable to a base-year effect, as food purchased from stores rose 0.7% month over month in February 2023 due to supply constraints amid unfavourable weather in growing regions and higher input costs.

While grocery price growth has been slowing, prices continue to increase and remain elevated. From February 2021 to February 2024, prices for food purchased from stores increased by 21.6%.
 

The Bank of Canada’s preferred core inflation measures, the trim and median core rates, exclude the more volatile price movements to assess the level of underlying inflation. The CPI trim slowed two ticks to 3.2% in February, and the median also declined two ticks to 3.1% from year-ago levels, as shown in the chart below.
 

Bottom Line

The next meeting of the Bank of Canada Governing Council is on April 10. Before then, we will see two more important data releases:

  1. The Bank of Canada Business Outlook Survey and Canadian Survey of Consumer Expectation and;
  2. The Labour Force Survey for March.

Neither of these reports will likely derail the central bank’s move to cut interest rates by the June 10 meeting. Indeed, they could begin to cut rates at the April meeting. This would no doubt trigger a whopping Spring housing market, which is likely to be strong. There is significant pent-up demand for housing, and the prospect of home price increases could well move buyers off the sidelines if a surge in new listings comes to fruition.

The Canadian economy is particularly interest rate sensitive because of the vast volumes of mortgages that will be renewed in the next two years. Mortgage delinquency rates are already rising, so a gradual decline in interest rates is welcome news.

As the chart below shows, the three-month rolling average growth rates for the CPI trim and median core measures averaged 2.2% in February–their lowest reading in three years.

According to the Royal Bank economists, “Building on the January CPI report that was already showing broad-based easing in price pressures in Canada, the February report today reaffirmed those trends. Different measures of core inflation decelerated, and the diffusion index that measures the scope of inflation pressures also improved. That measure, however, was still showing slightly broader price pressures than pre-pandemic “norms”, suggesting there’s still room for more improvement.”

With the economy’s slow growth trajectory, the central bank has every reason to begin cutting interest rates soon.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca
19 Mar

Canadian Home Sales Stop Falling In February As Prices Hold Steady

General

Posted by: Tim Woolnough

February data bode well for a strong spring housing market
 

The Canadian Real Estate Association announced today that national home sales dipped 3.1% m/m in February while home prices were flat, ending a five-month price decline that began last fall.

It was noteworthy that prices remained unchanged from January to February, given that they dropped 1.3 from December to January. The MLS Home Price Index tends to be relatively stable, so a shift in pricing behaviour this large is quite unusual. It has happened only three other times in the past two decades. All three times were in the past four years when demand was poised to rise sharply: May 2020, right after the initial COVID slump; January 2022, before interest rates were increased; and April 2023, when people thought the Bank of Canada would continue to pause. The rebound in home sales in 2023 led the central bank to hike interest rates two more times.

There is significant pent-up demand for housing owing to strong population growth and first-time homebuyers’ fears that prices will rise sharply once the Bank of Canada cuts interest rates.
 

New Listings

The number of newly listed homes edged up 1.6% m/m in February. Depending on how many owners prepare to list their properties for sale this spring, gains may rise in the months ahead.

“After two years of mostly quiet resale housing activity, there’s a feeling that things are about to pick up,” said Larry Cerqua, Chair of CREA. “At this point, it’s hard to know whether buyers are going to wait for a signal from the Bank of Canada or whether they’re just waiting for the spring listings to hit the market.

With sales edging down and new listings inching up in February, the national sales-to-new listings ratio eased a bit to 55.6%. The long-term average is 55%. A sales-to-new listings ratio between 45% and 65% is generally consistent with balanced housing market conditions, with readings above and below this range indicating sellers’ and buyers’ markets, respectively.

At the end of February 2024, there were 3.8 months of inventory nationwide, up slightly from 3.7 months at the end of January. The long-term average is about five months of inventory.
 

Bottom Line

With pent-up demand for housing rising with every rent increase, the spring housing season is likely to be robust, even before the central bank cuts interest rates. We believe the BoC will begin reducing the policy rate in June. Tomorrow, we will get the CPI data for February. The US CPI data for February, released last week, were disappointing as gasoline prices increased headline inflation and core measures remained well above 3%.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca
15 Mar

Economic Insights from Dr. Sherry Cooper

General

Posted by: Tim Woolnough

 

The focus of the Bank of Canada is on slaying the inflation dragon. The good news is that the year has started with a marked decline in price pressures. Due to falling energy prices, airline fares and a deceleration in clothing and food, year-over-year inflation in January dipped to 2.9%. This follows 3.4% inflation in December.

The cost of shelter represents nearly a third of the Consumer Price Index, and the combination of rapidly rising population growth and already acute excess demand for housing will continue to underpin higher-than-target inflation. While mortgage interest costs will decline once the central bank begins to cut interest rates, and home replacement costs have already declined because of the overall decline in national home prices, rental costs are surging. In January, rents rose by nearly 8% y/y.

The pace of housing starts in Canada is inadequate to keep up with future demand. Over the past year, the population has increased by a whopping 1.3 million people, while housing starts are running at less than 250,000 annual pace. To be sure, starts saw strong year-over-year growth last year—the second-highest number of starts since 1990. Nonetheless, this is nowhere near sufficient to meet demand. Not to mention to meet affordable demand.

Even with the best intentions of governments at all levels, it is virtually impossible to maintain even this level of starts given zoning restrictions, land development costs, labour shortages and rising construction costs. Actions taken thus far by federal, provincial and municipal governments help, but we cannot house the current pace of immigration without seeing substantial upward pressure on rents.

According to economists at the National Bank, the difference between annual headline CPI inflation and shelter inflation is at its highest level since 1982. The Bank of Canada is mindful of these conditions. Inflation has fallen to the 2% target, excluding shelter costs, but those costs feed into inflation expectations and mounting wage demands.

Next week, Statistics Canada will release the fourth quarter GDP data, which is expected to run at about a 1.0% annual rate. There will be revisions to the -1.1% Q3 number as well. With the help of population growth, Canada has avoided a recession despite the huge increase in interest rates this cycle. But the labour market is slowing, and job vacancies have fallen sharply.

Homeowners will suffer marked increases in their monthly mortgage payments as they renew this year and next. Aware of this, the Bank will likely begin to cut interest rates by mid-year—beginning a series of rate cuts that will continue over the next two years.

Housing activity has likely bottomed, and home price pressures will begin to mount, especially in the GTA and GVA, where price declines were the largest. We believe the central bank will start cutting interest rates by mid-year.