This weeks top stories include the large changes in Canadian net worth, how the Bank of Canada has a better outlook for Canadians, how the dollar has been slowing our rebound as the benchmark rate stays the same and how the Canadian retail rebound is being led by home renovations.
Large changes in Canadian net worth
Vancouver is now the leading city with the highest net worth. This after 2008 saw rapid changes in fortunes due to economic factors outside of consumer’s regular control. The nest eggs have shrunk, savings are on the rise, borrowing has been scaled back and caution is being embraced. It seems that the richer you were, the larger the hit you took to your pocket book. It only makes sense, the more money you have, the more money you have to lose. Calgary saw a decline in net worth as household investments took a dive and consumer debt grew whereas Vancouver consumers managed to hold on to more as their real estate market faired better than the rest. Net worth dropped 6.2% for Canadians as a whole last year with Calgary taking a personal hit of 12.3% and Vancouver taking a personal hit of 3.1%. The consensus is that Vancouver is more diverse than the rest of Canada with Calgary dabbling in oil, Toronto dabbling in finances but Vancouver fairing much better with a wide variety of niches more related to creativity in all sectors. The average net worth per household in Vancouver is $575 826 while Calgary’s numbers are $569 926 with Ontario behind where average household net wealth is $354 968. Calgary’s hit stemmed mainly from a drop in stocks, bonds and mutual funds making Calgary home to the most heavily indebted people in Canada. Ontario is considered to be ground zero for Canada’s recession where consumers and jobs were hit the hardest. Ontarians increased term deposits by 15.3% and increased debt loads by only 3% which is less than the national average increase of 8.1%. Residents of Ontario are using 7.1% of their disposable income to pay interest charges on loans, mortgages and credit cards which is 20% higher than the national average of 6.3%. How do you think we fair against the rest of Canada? Please comment below.
Bank of Canada has a better outlook
The Bank of Canada (BoC) has a better outlook on the economy due to recent numbers showing stronger than expected household spending. Based on new numbers the BoC believes that Canada’s GDP will shrink 2.3% which fairs better than an earlier estimate of 3%. The BoC also believes that GDP will expand by 3% next year which fairs better than previous estimates of growth of 2.5% for the next year. The central bank re-iterated that they would leave the benchmark interest rate at 0.25%, a record low, until the middle of next year. The central bank stated, “Increasing signs that economic activity has begun to expand in many countries in response to monetary and fiscal policy stimulus and measures to stabilize the global financial systems.” They also emphasized that “effective and resolute policy implementation remains critical to sustained global growth.” Recent domestic demand is holding up through stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices as well as a large rebound in business and consumer confidence. Canada is climbing out of its recession slowly which is slightly hindered by a strong Canadian dollar which is making our exports less competitive on the global market. We should expect to see prices decline in the next few months before returning to the bank’s target rate of annual increase of 2%.
Dollar slows rebound as benchmark rate stays at 0.25%
The Bank of Canada (BoC) kept its benchmark interest rate at 0.25% which came as no surprise to many. The stronger Canadian dollar has been slowing a recovery of the economy but the recovery has been quicker than expected. The BoC stated that it plans to keep the overnight lending rate unchanged until June 2010. The BoC also neglected to comment on further credit market stimulus. In a statement made on Tuesday the BoC stated, “Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are spurring domestic demand growth. However, the higher dollar, as well as ongoing restructuring in key industrial sectors, is significantly moderating the pace of overall growth.” As stated earlier in our news section, the BoC now expects the economy to shrink by 2.3% and already have signals that the economy is growing again. The BoC also said that inflation should return to its 2% target three months sooner than previously projected. Based on the outlook for inflation, the overnight lending rate is expected to remain at its current level until the end of the second quarter in 2010. The Canadian dollar has seen its largest monthly gains in more than 50 years in the month of May. Stronger currency makes Canada’s factory goods less competitive and is reflected by a drop in sales of 29% since last July. Exports are also in the public eye and are expected to fall another 21% this year. There have been positive signs that the economy is picking up as employment fell by less than economists expectations and the economy posted larger than expected gains in business spending, building permits and housing starts. Doug Porter, deputy chief economist as BMO Capital Markets Toronto, stays that this is still a very serious recession and that it’s still too early to send the all clear signal that the recession has ended.
Retail rebound led by home renovations
Statistics show that consumers in Canada are making good use of government incentives to fix up their homes. Sales at hardware stores, selling building materials and home supplies, have increased drastically. Home renovators are also stating that they have seen an increase in business as homeowners are taking full advantage of the federal government’s new renovation tax credit. Retail sales rose 1.2% in May from the previous month, surpassing analysts’ expectations and offsetting the 0.6% decline in sales from April. While part of the increase in sales was due to higher prices, volume of sales were also up 0.7% from a month earlier. When comparing sales to last years numbers they were down 4.9% but are recovering slowly because of the increased purchases of new cars and home renovation materials. May saw an increase in sales from the automotive sector where consumer interest in new vehicles was shown though recent numbers. Sales in the automotive sector rose 2.4% from April and new car sales specifically were up 3.4%. When looking at home related sales, sales of furniture, electronics and decorations were also up 0.5% which was the first increase seen since July of last year. For part of the last stimulus package, Ottawa offered home owners a tax rebate on home renovations costing up to $10 000. This was aimed at offsetting the downturn in new home construction and encouraging under the table deals in the renovation business to become legitimate. This seems to be working on both fronts as federal stimulus infrastructure has begun to touch the construction industry in Canada. This is expected to make an impact in the second half of this year. Retail sales climbed in 9/10 provinces, specifically Ontario, where retailers saw a 1.5% gain.
Prime Rate: 3%
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