Posted on
October 31, 2023
by
JEFF QIAN
In August, for the second consecutive month, Canadian real GDP was largely unchanged. A surge in sales of machinery, equipment, and supplies led to a 2.3 per cent increase in the Wholesale trade sector. Meanwhile, oil & gas extraction rose 1 per cent on higher extractions in Western Canada while mining and quarrying rose 4.2 per cent. Manufacturing, on the other hand, fell 0.6 per cent, declining for the third consecutive month. Offices of real estate agents and brokers fell for the second consecutive month, dropping 3.8 per cent as sales softened over the late summer. Overall, Canadian real GDP is now 3.6 per cent above its pre-pandemic, February 2020 level. Preliminary estimates suggest that output in the Canadian economy was again largely unchanged in the Canadian economy in September. With a flat August GDP number and September's preliminary estimate also flat, the Canadian economy is expected to have been largely unchanged since February, despite rapid population growth. Indeed, with the preliminary estimate for September, annualized third-quarter GDP is expected to contract 0.1 per cent, following a 0.2 per cent contraction in the second quarter. This would technically imply that the Canadian economy is in a shallow recession. Despite still too-hot inflation numbers, the Bank of Canada held its overnight rate steady at 5 per cent last week, giving the prior 10 rate hikes time to work through the economy. Given signs of weak growth and cooling labour markets, financial markets no longer anticipate additional rate hikes this cycle. 
Posted on
October 27, 2023
by
JEFF QIAN
The Bank of Canada maintained its overnight rate at 5 per cent this morning. In the statement accompanying the decision, the Bank noted that there is growing evidence that higher interest rates are dampening economic activity, and it expects growth to be weak through 2024. On inflation, the Bank sees little downward momentum in its preferred measures of core inflation and expects inflation to average 3.5 per cent until the middle of next year before falling back to its 2 per cent target in 2025. Notably, the Bank stated that it is concerned that price stability is slow and inflationary risks have increased. As such, it is prepared to still raise its policy rate further if needed.
The combination of a slowing economy with inflation seemingly stuck in a range of 3 to 4 per cent muddies the outlook for rates over the next year, though as the Bank clearly stated, there is the possibility of more rate increases if inflation does not decline. Our bet is still that the impact of high interest rates will tip the economy at least briefly into negative territory, and that consumer spending will slow further. However, without significant progress on returning inflation to its 2 per cent target, households may be waiting longer than expected for relief on variable mortgage rates. Yields on five-year Government of Canada bonds have come down from their highs near 4.5 per cent but remain at their highest level in 15 years. Consequently, fixed mortgage rates have hit annual highs over 6 per cent, the impact of which is compounded by an increasingly punishing stress test. We expect five-year fixed mortgage rates may start to come down in early 2024 as bond markets price in future rate cuts by the Bank of Canada. However, once the Bank lowers its policy rate back to neutral (2-3 per cent), fixed mortgage rates will settle at a level that is higher than borrowers have become accustomed to over the past decade.
Posted on
September 29, 2023
by
JEFF QIAN
Canadian real GDP was largely unchanged from the prior month in July, following a 0.2 per cent decrease in June. A decline in manufacturing activity (-1.5 per cent) pulled GDP downwards with lower inventory formation and the BC port strike as the major contributors. Meanwhile, as wildfires retreated in Eastern Canada, the mining and quarrying sector jumped 4.2 per cent. Offices of real estate agents and brokers fell 1.3 per cent, declining for the first time in 6 months. Overall, Canadian real GDP is now 3.6 per cent above its pre-pandemic, February 2020 level. Preliminary estimates suggest that output in the Canadian economy edged up 0.1 per cent in August. July’s GDP number came in flat as anticipated, and although economic growth appears to be softening amid rising interest rates, the advanced estimate for August remains in weakly positive territory. The Bank of Canada held its overnight rate steady at 5 per cent in September, but last week’s inflation number was hotter than anticipated, causing financial markets to revise expectations. Markets now anticipate an additional rate hike before the end of the year. With the Canadian economy continuing to avoid recession, inflation at 4 per cent, and an unemployment rate still at a rather robust 5.5 per cent, an additional rate hike in October seems likely. However, the Bank will be paying close attention to CPI and employment data before the announcement on the 25th. 
Posted on
September 19, 2023
by
JEFF QIAN
Canadian prices, as measured by the Consumer Price Index (CPI), rose 4 per cent on a year-over-year basis in August, up from 3.3 per cent in July. Excluding gasoline, CPI rose 4.1 per cent year-over-year in August, the same rate as July. Shelter costs were up 6 per cent year over year, up from 5.1 per cent in July, driven by mortgage interest costs (up 30.9 per cent from last year) along with rents (up 6.5 per cent). Grocery prices were up 6.9 per cent year over year in August, down from 8.5 per cent in July. Month over month, seasonally adjusted CPI rose 0.6 per cent. In BC, consumer prices rose 3.8 per cent year-over-year.The annual change in CPI continued rising in August as gasoline base year effects ended (the year-over-year change in gasoline prices was positive for the first time since January). Although food price inflation continued to gradually ease, shelter and rent inflation rates rose from July. Moreover, the Bank of Canada's measures of core inflation, which strip out volatile components, remained stubbornly high; all three measures were flat or rose in August. With softening labour markets and a flat preliminary July GDP estimate following a small contraction in June, the Bank of Canada opted not to raise rates again in September. However, bond yields jumped following the unexpectedly hot August CPI release, suggesting markets think the Bank could change course again. Guiding inflation back down to 2 per cent was sure to be a bumpy ride and the possibility of another rate hike at the next meeting on October 25th or before the end of the year appears to be still on the table.
Posted on
September 5, 2023
by
JEFF QIAN
Canadian real GDP fell by 0.2 per cent from the prior month in June, following a 0.2 per cent increase in May. The decline was led by weak wholesale trade, which contracted 3 per cent. Construction activity contracted for the second consecutive month, falling 0.6 per cent primarily due to lower residential building construction (which has been down for 14 of the last 15 months). Offices of real estate agents and brokers, however, rose for the second consecutive month, up 3 per cent, led by higher home reselling activity in BC and Alberta. Canadian real GDP is now roughly 3.5 per cent above its pre-pandemic, February 2020 level. Preliminary estimates suggest that output in the Canadian economy was essentially unchanged in July.GDP was roughly unchanged in the second quarter, after growing 0.6 per cent in the first quarter. The slowdown was driven in large part by weaker housing investment, which fell 2.1 per cent in the second quarter, the fifth consecutive decline. Slower new construction (-8.2 per cent) and renovations (-4.3 per cent) were both driven by higher borrowing costs. Household spending slowed to 0.1 per cent in the second quarter, while slower inventory accumulation and lower net trade also pulled growth downwards. Employee compensation rose 2.2 per cent and household disposable income rose 2.6 per cent, driving the household saving rate to 5.1 per cent in the second quarter.Higher borrowing costs seemed to finally be widely felt in the second quarter as the Canadian economy posted a softer figure than expected this morning. The economy contracted at an annualized rate of 0.2 per cent, while the preliminary estimate for July was also flat month over month. Following a weak July employment figure, with the Canadian unemployment rate rising to 5.5 per cent, and amid other signs like softer household spending, the slight quarterly contraction in GDP provides support for the Bank of Canada to hold its key interest steady next Wednesday and perhaps conclude this tightening cycle. However, with the inflation figure rising to 3.3 per cent as of the latest data in July, the effects of prior rate hikes still have work to do to bring inflation back down towards the Bank's target of 2 per cent. 
Posted on
August 15, 2023
by
JEFF QIAN
Canadian employment remained essentially unchanged at 20.17 million in July. The Canadian unemployment rate rose to 5.5 per cent from 5.4 per cent in June, rising for the third consecutive month. Total hours worked were up 2.1 per cent year over year, while average hourly wages were up 5 per cent from July of last year.Employment in BC was also little changed in July holding steady at 2.79 million, while employment in Metro Vancouver rose 0.2 per cent to 1.57 million. The unemployment rate fell to 5.4 per cent in BC, down from 5.6 per cent in June, while rising to 6 per cent in Metro Vancouver. 
Posted on
August 15, 2023
by
JEFF QIAN
Canadian prices, as measured by the Consumer Price Index (CPI), rose 3.3 per cent on a year-over-year basis in July, up from 2.8 per cent in June. Easing of gasoline base-year effects compared to last year was responsible much of the increase. Excluding gasoline, CPI rose from 4 per cent to 4.1 per cent in July. Shelter costs were up 5.1 per cent year over year, driven by much higher mortgage interest costs (up 30.6 per cent from last year) along with rents (up 5.5 per cent). The homeowner's replacement cost, which tracks home prices, was down 0.9 per cent year over year. Grocery prices were up 8.5 per cent year over year. Month over month, CPI rose 0.6 per cent. In BC, consumer prices rose 3 per cent year-over-year.The annual change in CPI jumped back above 3 per cent in July, largely due to disappearing base-year effects for gasoline. Although food price inflation continued to gradually ease, shelter and rent inflation rates rose from June. Moreover, the Bank of Canada's measures of core inflation, which strip out volatile components, remained stubbornly high. With softening labour markets and a weak preliminary June GDP estimate, a September overnight rate hike had seemed unlikely. However, bond yields rose following the July CPI release, indicating the option is still on the table. Guiding inflation back down to 2 per cent was sure to be a bumpy ride and the Bank will be closely watching the retail sales and GDP releases scheduled prior to the September 6th rate decision. 
Posted on
July 22, 2023
by
JEFF QIAN
Canadian employment rose by 0.3 per cent to 20.17 million in June. The Canadian unemployment rate rose to 5.4 per cent after rising to 5.2 per cent in May. Total hours worked were up 2 per cent year over year, while average hourly wages were up 4.2 per cent from June of last year.Employment in BC was little changed in June, falling 0.1 per cent to 2.778 million, while falling by 0.3 per cent in Metro Vancouver to 1.570 million. The unemployment rate jumped to 5.6 per cent in BC, up from 5 per cent in May, while rising to 5.7 per cent in Metro Vancouver. 
Posted on
July 22, 2023
by
JEFF QIAN
Canadian prices, as measured by the Consumer Price Index (CPI), rose 2.8 per cent on a year-over-year basis in June, down from 3.4 per cent in May. While declines occurred in several categories, the largest contribution was from lower gasoline prices compared to the same month last year (-21.6 per cent). Ignoring gasoline, year-over-year inflation would have been 4 per cent in June. Shelter costs were up 4.8 per cent year over year, driven by much higher mortgage interest costs (up 30.1 per cent from last year) along with higher rents (up 5.8 per cent from June 2022). The homeowner's replacement cost, which tracks home prices, was down 0.7 per cent year over year. Grocery prices were up 9.1 per cent year over year. Month over month, CPI rose 0.1 per cent. In BC, consumer prices rose 3.5 per cent year-over-year.The CPI continued to cool in June, with year-over-year prices rising at the slowest rate since March 2021, and now within the Bank of Canada's target of 1 to 3 per cent. Much lower gasoline prices compared to the same time last year are doing much of this work, but recovering supply chains also contributed, with furniture and household appliances both on average cheaper than the same time last year. The Bank of Canada's measures of core inflation, which strip out volatile components, are trending downwards and are now mostly below 4 per cent year-over-year. CPI is being pulled down by energy costs, household operations and furnishings, and clothing costs. In the other direction, food, shelter, and mortgage costs are dragging the CPI upwards. Taken together, that this month's headline inflation figure is within the Bank's 1 to 3 per cent target is excellent news and provides support for the Bank to ease off rate tightening going forward. 
Posted on
July 22, 2023
by
JEFF QIAN
Canadian housing starts rose 41 per cent to 281,373 units in June at a seasonally adjusted annual rate (SAAR). Starts were up 4 per cent from the same month last year. Single-detached housing starts rose 1 per cent to 55,552 units, while multi-family and others rose 55 per cent to 225,817 (SAAR). In British Columbia, starts rose by 61 per cent in June to 65,904 units SAAR in all areas of the province. In areas in the province with 10,000 or more residents, single-detached starts rose 2 per cent m/m to 6,402 units while multi-family starts rose 76 per cent to 57,241 units. Starts in the province were 17 per cent above the levels from June 2022. Month over month, starts were up by 19k in Vancouver, 4.3k in Victoria, and 2.6k in Kelowna, while declining by 1.3k in Abbotsford. The 6-month moving average trend rose 2.7 per cent to 51.4k in BC. 
Posted on
July 22, 2023
by
JEFF QIAN
Canadian retail sales increased 0.2 per cent in May to $66 billion, led by sales of motor vehicles and parts as well as food and beverage. However, excluding volatile items like car sales, retail sales were essentially unchanged month-over-month. In BC, retail sales jumped 2.7 per cent, rising for a third consecutive month and were up 1.9 per compared to 1-year ago. Although BC retail spending has ticked higher in recent months, overall Canadian retail sales were up just 0.5 per cent compared to this time last year and preliminary estimates for June show flat sales. This could signal that consumer spending is finally slowing down following a year of aggressive tightening by the Bank of Canada. 
Posted on
June 28, 2023
by
JEFF QIAN
Canadian prices, as measured by the Consumer Price Index (CPI), rose 3.4 per cent on a year-over-year basis in May, down from 4.4 per cent in March. The decline was mostly driven by lower gasoline prices from this time last year (-18.3 per cent). Month over month, CPI rose 0.4 per cent, in large part due to higher mortgage interest and traveler accommodation costs. Shelter costs were up 4.7 per cent year over year, driven by much higher mortgage interest costs (up 29.9 per cent from last year) along with higher rents (up 5.7 per cent from May 2022). The homeowner's replacement cost, which tracks home prices, was down 0.1 per cent year over year. Grocery prices were up 9 per cent year over year, down from 9.1 per cent last month. In BC, consumer prices rose 3.4 per cent year-over-year.After unexpectedly hot inflation in April, the CPI cooled in May, with year-over-year prices rising at the slowest rate since June 2021. Much lower gasoline prices compared to the same time last year are doing much of this work, but recovering supply chains also contributed, with furniture and household appliances both on average cheaper than the same time last year. The Bank of Canada's measures of core inflation, which strip out volatile components, are trending downwards and are now mostly below 4 per cent year-over-year. Despite this progress, other components of the CPI remain stubbornly high, particularly food and shelter costs. Excluding energy prices, the CPI was up 4.6 per cent from last year, a rate that is still well beyond the Bank's target. In the context of solid GDP growth, a robust labour market, and a rebounding housing market, financial markets expect that the Bank will raise its benchmark interest rate by another 25 basis points to 5 per cent at its next meeting on July 12th. 
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