Date: September 10, 2010
Canadian Labour Force Survey, August 2010 Results
Source: Statistics Canada
Link to Release: http://www.statcan.gc.ca/daily-quotidien/100910/dq100910a-eng.htm
Summary: The Canadian economy added 36,000 positions in August following declines in July. Gains in full-time jobs (+80,000) offset a 44,000 position decline in part-time employment. Job gains were concentrated in the services sector, which added 43,900 positions. The goods producing segment of the economy shed 8,200 jobs last month. The national unemployment rate edged up to 8.1 per cent, as job growth was outstripped by growth in the labour force as a whole. The GTA labour market experienced an increase in the level of employment and a slight decrease in the unemployment rate.
Analysis: Employment in Canada has climbed back to the pre-recession peak. This is also the case in the GTA. Employment levels in both the services and goods producing sectors are well-above the levels reported in August 2009. The steady recovery experienced after July of last year was in line with the overall recovery in the economy. However, while the level of employment has recovered, we have not seen a marked recovery in the unemployment rate because the growth in the total labour force (employed and unemployed persons actively searching for work) continued to grow during the recession. In the GTA, for example, the pre-recession unemployment rate ranged between 6.5 and 7.0 per cent. In contrast, GTA unemployment rate stood at 9.1 per cent – an improvement from a high of 10 per cent during the recession, but a long way from what could be called normal. The implication is that with quite a bit of slack remaining in the labour market, income growth will likely remain at or below the rate of inflation through 2011.
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Date: September 9, 2010
Canadian Housing Starts, August 2010 Results
Source: Canada Mortgage and Housing Corporation (CMHC)
Link to Release: http://www.marketwire.com/press-release/Toronto-Housing-Starts-Rise-in-August-1316077.htm
Summary: Canadian housing starts fell for the fourth consecutive month in August. The seasonally adjusted annual rate for starts dipped three per cent to 183,300 units from 188,900 units in July. Declines in both single detached and multiple-family starts were reported. GTA home builders bucked the national trend, as the annual rate of starts in the Toronto area increased by almost 30 per cent due to a surge in new condominium apartment construction.
Analysis: On the national scale, increased supply in the resale market has resulted in fewer buyers spilling over into pre-construction sales centres. However, in the GTA the new home construction trend has been pointing upward, driven by new unit sales in the high-rise category. Strong high-rise sales over the past year continued to convert into starts in August with multiple-family starts jumping close to 50 per cent compared to July. While high-rise starts have proven to be volatile month-over-month, the condominium apartment segment remains the driving force behind new home onstruction within the City of Toronto and many surrounding municipalities as well.
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Date: September 21, 2010
United States New Residential Construction, August 2010 Results
Source: Joint Release from the United States Census Bureau and the United States Department of Housing and Urban Development
Link to Release: http://www.census.gov/const/newresconst.pdf
Summary: U.S. Housing starts rose 10.5 per cent to a seasonally adjusted annual rate of 598,000 units in August from the downwardly revised rate of 541,000 recorded in July. The August result was the highest rate of starts since April. While the annual rate of single-family starts rose four per cent, most of the August increase came in the more volatile multi-unit category, which experienced a 43 per cent increase. Building permits, which signal future building activity, rose 1.8 per cent.
Analysis: US housing starts remain above the lows reached during the first half of 2009, but remain far below pre-recession levels. In fact, the annual rate of starts in August remained near the lowest levels reported over the past 50 years. The resale home market in the US remains very well supplied with a low level of sales relative to listings. In addition, one-third of resale transactions are distressed in nature (i.e. in foreclosure or in danger of foreclosure), which often translates into discounted selling prices relative to comparable non-distressed properties. The very well-supplied resale market coupled with the availability of distressed properties has meant that very few buyers have been spilling over into pre-construction sales centres. The residential construction sector has suffered as a result. From the perspective of the Canadian economy, the lack of recovery in US home construction is problematic for the export of Canadian-made building materials. The production of these building materials has generally been associated with well paying jobs including those in manufacturing.
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Date: July 23, 2010
Canadian Consumer Price Index, June 2010 Results
Source: Statistics Canada
Link to Release: http://www.statcan.gc.ca/daily-quotidien/100723/dq100723a-eng.htm
Summary: The Consumer Price Index (CPI) – Canada’s measure of inflation – rose one per cent annually in June, down from the 1.4 per cent growth rate reported in May. This slowdown was mostly driven by a 2.9 per cent decline in gas prices, with clothing and foot-ware also declining (down 1.9 per cent). The Bank of Canada core CPI, which removes volatile items like gasoline and some foods from its aggregation, rose 1.7 per cent. Ontario experienced the highest provincial rate of increase in the country, with prices climbing 1.6 per cent on price increases for vehicles and vehicle insurance.
Analysis: The consumer price index is the key indicator the Bank of Canada uses in determining the target for its policy interest rate (the Overnight Lending Rate). Over the long-term, the Bank would like to see the CPI grow at two per cent annually. While the rate of CPI growth has been below two per cent for the better part of the last year, the Bank of Canada has raised the Overnight Rate target twice over the past two months. The argument is that economic recovery is well at hand and as growth continues rates must rise to slow consumer spending to ensure that prices for consumer goods and services do not rise at an unsustainable pace. With this said, the Bank has downgraded its forecast for economic growth in 2010 and 2011 along with its outlook for inflation. This suggests that the frequency of interest rate hikes could be less than originally expected when the Bank began raising its rate target in June.
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Date: September 9, 2010
Canada Not in Danger of US-Style Housing Bust
ARTICLE REVIEW: Jim MacGee, August 31, 2010, “Not Here? Housing Market Policy and the Risk of a Housing Bust”, CD Howe Institute.
Link to Release: http://www.cdhowe.org/pdf/ebrief_105.pdf
The CD Howe Institute recently released a study written by Professor Jim MacGee (University of Western Ontario), which poses the question of whether or not the Canadian housing market could experience a US-style bust, including a steep drop-off in the average selling price.
MacGee argues that mortgage underwriting standards evolved much differently in the US and Canada leading up to the economic downturn in both countries. As early as 2003, US sub-prime borrowers (i.e. those with troubled credit histories) were gaining access to more exotic mortgage products that included the option for interest only payments and negative amortization. Riskier borrowers and borrowing terms prompted mortgage defaults and declining average selling prices in advance of the economic downturn in the US. In Canada, in contrast, defaults rose only in conjunction with the economic downturn and remained much lower than in the US (see Chart 1). The lower default rate in Canada, bolstered by the comparatively low percentage of riskier “exotic” mortgage types in this country, helped support home prices and also supports the view that Canada’s Federal Governmentguaranteed mortgage insurance program is not exposed to the same risk as government sponsored and private insurance programs in the US.
Home price growth in the GTA has been supported by a sustained period of affordability, as evidenced by TREB’s Affordability Indicator (see Chart 2). Even with the strong price increases experienced over the better part of the last year, the average combined mortgage, property tax and utility payment as a percentage of average gross household income remains in line with the accepted mortgage lending standard, which requires a gross debt service ratio (GDS) of 32 per cent or less.
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Date: September 8, 2010
Bank of Canada, Overnight Rate Target Announcement
Source: Bank of Canada
Link to Release: http://www.bankofcanada.ca/en/fixed-dates/2010/rate_080910.html
Summary: The Bank Of Canada raised its target for the Overnight Lending Rate 25 basis points (0.25 percentage points) to 1.0 per cent. The Bank reasoned that while economic growth both in Canada and other developed countries like the United States had not unfolded as well as forecast, personal consumption and business expenditure in Canada was progressing more or less in line with expectations. It was against this backdrop that the Bank felt a further rate increase was warranted to ensure that the rate of inflation would remain near its two per cent target. The Bank was non-committal on future rate increases, pointing to “unusual uncertainty” surrounding their economic outlook.
Analysis: The consensus in the Canadian treasury bill market suggests that this latest Bank of Canada hike will be the last until the spring or early summer of 2011. However, if the rate of inflation remains close to the Bank’s two per cent target and consumer and business spending continues to track the Bank of Canada’s outlook, it is possible that the further rate hikes could be brought on line either this year or earlier than expected in 2011. The recent rate hike will impact mortgages and lines of credit which have floating interest rates based on the prime lending rate. Fixed rate mortgage products will not necessarily be affected, given that the market has already priced in expectations for future Bank of Canada interest rate decisions. For example, the yield on five-year government of Canada bonds, which influence five-year fixed mortgage rates, has been dropping in recent months. This reflects the market view that the Bank will not raise its policy rate as much or as quickly as anticipated earlier this year.
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