This weeks top stories inlclude how Jim Flaherty feels that the global jobless rate is a problem, how bankruptcies are up 31% in May from the previous year, how June home sales are up 27% from the same time last year and how the government is making some costly changes to credit card policies.
Jim Flaherty feels that the global jobless rate is a problem
Jim Flaherty, Canada’s finance minister, reiterated his concern about rising unemployment rates around the world. The subject has been a point of discussion for finance ministers from South, Central and North America. All three, led by Canada and the U.S, have poured billions of dollars into infrastructure projects in an effort to replace the jobs that have disappeared as a result of the financial crisis. Up until this point, government spending has achieved mediocre results. Payrolls in the U.S declined by 467 000 in June and the unemployment rate is up to 9.5%, the highest it has been in almost 26 years. These figures that were released last week Thursday, caused stock markets to see a drastic decline on concern that the global recession would drag on. Flaherty stated that we will be seeing a recovery from the recession before we see a reduction in the unemployment rate. Historically, companies are known to be slow to rehire after an economic downturn as they wait for signs that the rebound is in effect before adding more staff. The risk facing Flaherty is that unemployment rates won’t fall as quickly because the recovery from the recession is expected to be a slow one due to the loss of so much wealth. Normally consumers are ready to spend once growth resumes but this time around we are expecting consumers to save in order to get their lives back on track. Flaherty expects unemployment to rise into 2010 followed by a small rebound in hiring throughout the rest of the year. The real discussion will be on the strength anticipated in the recovery. There are expectations that the recession taking place in the world’s richer countries will see a bottom over the next half of 2009. The climb will be a slow one with higher unemployment rates curbing consumer spending. Canada lost close to 42 000 jobs in the month of May and cut payrolls by more than 363 000 since November of 2008. Canada saw an unemployment rate of 8.4% in May with an expected rise to 8.7% in the month of June and expected to get as high as 10% in the second quarter of next year according to TD Bank. Our concern should also be focused on where inflation will sit at that time. What do you think? Comment below.
Bankruptcies up 31% in May from the previous year
Bankruptcies rose in May from a year ago as more consumers gave up paying their bills. This during the first recession that we have seen since 1992. The number of companies and consumers that declared bankruptcy in Canada in the month of May was 31% higher than a year ago. This is a large indicator that the recession is taking its toll on people’s ability to make ends meet. Although May was a rough month, it wasn’t nearly as bad as April. From April to May of this year bankruptcies were down 9.6% and consumer bankruptcies were down 9.5%. May was still considered to be a good month for some businesses with 16.2% fewer bankruptcies than a year ago and 12.3% fewer bankruptcies than the previous month. My concern is that we are now viewing negative data as positive data. How do you feel about it? Comment below.
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June home sales up 27%
Even in the middle of a recession, Toronto real estate has shifted from a buyer’s market to a sellers market. Analysts state that the increase in numbers are due to the spring but expect them to cool down in the last quarter of the year. They mainly attribute the demand partially to build up from non purchases in the winter months and the rest to low interest rates. The Toronto Real Estate Board (TREB) reported 10 995 existing home sales in June which is up 27% from June last year. The average home price was up 2% from last year to $403 972. Analysts confirm that the rebound is remarkable but isn’t expected to last as job numbers are still substantially low. The market is considered to be more resilient than analysts predicted but still isn’t at its maximum operating potential. The shift in mortgage rates created a confidence in home buyers that resulted in a wave of home buying in the Greater Toronto Area. What we should be looking at is job creation which will be the significant factor that the housing market will return to normal. This is not expected for some time as Ontario is forecasted to have an increase in the jobless rate to 9.3% this year. Majority of the weakness in job growth comes from the manufacturing sector making Ontario especially vulnerable. Another reason for the raise in prices is due to less active listings on the MLS system for the GTA. Listings are down 30% from the same time last year causing the supply and demand effect and creating an increase in housing prices. This is causing multiple offers on listings and driving the price of homes upward causing homes to sell for asking or above even in the middle of a recession.
Costly changes to credit cards
Paying with your credit card might get a little more complicated if Ottawa allows retailers to adopt strategies recommended in a Senate committee report on the debit and credit card industries. Consumers that choose to use their credit cards might be charged an extra fee at the register. Retailers are also allowed to refuse certain cards, including higher rewards cards, because they cost the merchant more to process than a regular card. The fear is that the new rules could lead to higher costs for cardholders and that merchant surcharges will not be clearly explained to customers. These higher costs could lead to merchants declining the acceptance of those cards in question. It’s still unclear whether or not Ottawa will move for action on the committee’s recommendations but the federal finance department is studying the report and waiting for the findings of a similar committee from the House of Commons. Retailers are not happy and do not want to charge consumers an extra fee or refuse to accept certain cards but feel that they need better deals on the fees that they are currently charged for handling credit card transactions. Latest estimates show that it costs retailers $4.5 billion a year to accept credit cards in Canada and this is passed on to the consumer through higher prices at the register. Although the fee for the premium cards are just 0.2% higher than regular cards, the card processing bills have jumped by 25% with no comparable increase in merchandise sales over the past year. In other markets, Australia for example, where surcharging is allowed, merchants turn surcharging into a profit centre and are charging customers more than their cost of accepting the cards. These surcharges are now used to pad the pockets of the merchants and are turning a tidy profit on their own. Kevin Stanton of MasterCard Canada states, “Any consideration of changes to the system needs to look at the realistic impacts on consumers and their ability to make safe, secure and convenient purchases and merchants to conduct business effectively.” How do you feel about the change? Comment below.
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