This week’s top stories include how Canadian banks are trying to eat up a piece of the American banking market, how the Canadian deficit declined and is expected to keep declining, how bankruptcies were down again in the month of May, how the transportation sector in North America is slowing, how U.S. orders for durable goods has dropped, how CIBC has stated that there will be no double dip, how home prices across Canada have risen again, how raw materials and factory products saw a decline in Canada and how U.S. jobless claims were down more than expected.
Canadian banks try the U.S.
Canadian banks looking for a slice of the American pie have a small timeframe of opportunity right now to steal business from the troubled American banking sector. Corporate banking is one of the toughest markets to grow as companies usually stay with the same lender for decades at a time.
During past recessions, economic downturns produce temporary upheaval, which converts into fertile ground in the hunt for new business. David Casper, BMO’s co head of investment and corporate banking stated, “Almost all of the market share gains that banks got over the last 30 to 40 years have come in this window of 3 months to 15 months out of the recession. I can’t quantify how much we can gain, but I strongly believe that now is the opportunity to gain that market share.”
Business owners are now in unusual situations where the competition for their attention is becoming fierce. The U.S. labour force and Federal chairman Ben Bernanke commented by saying, “It seems clear that some creditworthy businesses, including some whose collateral has lost value but whose cash flow remains strong, have had difficulty obtaining credit that they need to expand and in some cases, even to continue operating.” This definitely means that there is room to obtain the market share, but what security will our Canadian banks have when lending in a faltering market? What do you think? Please comment below.
Deficit declines
The Department of Finance has indicated that a stronger economy is aiding the federal government on running smaller budget deficits when compared to the same time last year. Increased tax revenues are also doing their part to help as the government tries to reduce a substantial deficit.
The first two months of this fiscal year had Canada’s deficit sitting at $4.4 billion, which is $3.1 billion less than the same time last year. The March budget shows government projections that the $54 billion budget shortfall from last year will decline to roughly $49 billion this year. This is already underway as the government’s debt charges dropped by $200 million with a lower interest rate environment aiding the government’s debts.
Economists stated that the most recent data is an indication that the government is on track to cut its budget deficit by 66% over the next three years as outlined in the March fiscal plan. They went further by stating that Canada will have no troubles meeting the targets that Canada agreed to at the G20 meeting to slash shortfalls by 50% before 2013 and stabilize their debt-to-gross domestic product ratios by 2016.
Pascal Gauthier, senior economist at TD Economics commented, “These medium term targets appear to be well within reach, especially in light of the better than expected economic and job performances so far this year. While early in fiscal 2010-2011, the government appears to be on track to beat its budget projection for a deficit of $49.2 billion. If the last fiscal year and our own economic forecasts are any guide, the deficit should lie somewhere in the $42 billion to $45 billion range.”
Bankruptcies down in May
The month of May saw Canadian business and personal bankruptcies decline from the peak of last year June. Analysts are not currently expecting bankruptcies to decline to pre-recession lows any time in the near future.
The federal bankruptcy office stated that the total number of filings were down almost 13% to 11 526 when compared to the same time last year. Consumers made 12% less insolvency and bankruptcy filings with business filings declining 29.8%. There was also an 11% month to month decrease between April and May of this year and partly reflects seasonal trends and an economic recovery.
The monthly insolvencies data, which include proposals for settling debt under duress and bankruptcies, shows a strong economic recovery that began last fall has helped improved the financial circumstances of Canadians. What do you think? Please comment below.
Transport sector slows
Robust demand in North America for consumer products has the transport sector shrugging off the slowing appetite in China for coal and iron ore. RBC Dominion Securities Inc. analyst Walter Spracklin stated, “The pace of growth is slowing, but growth hasn’t stopped, by any means. We’ve been told already by transportation companies that it will be a choppy recovery, and that’s what we’re seeing.”
Major railways are now bracing for less demand in exports of some commodities but continue to benefit from importing consumer goods in containers. International courier firms are also seeing more signs of the global economic recovery, mainly in retail items like electronics. The average month over month carloads at U.S. railways fell slightly in the months of May and June when compared to April.
The Association of American Railroads commented by saying, “The declines in rail carloads over the past couple of months have not been huge, and they certainly don’t prove that the wheels are coming off the economy’s bus. That said, an economy several months into a recovery from the worst recession in decades should be yielding rail traffic level heading north, not south.”
U.S. goods orders drop
June is noted to be the second straight month where new orders for long lasting U.S. manufactured goods posted a decline. This is the largest drop in almost a year and is further evidence that economic growth is dimming down in the second quarter of this year.
According to the Commerce Department, durable goods orders declined by 1% after witnessing a revised 0.8% drop in the month of May. Analysts had previously forecast an increase of 1% in orders for the month of June. Durables goods were expected to rise based on an order for 49 civilian aircrafts through Boeing Co. Durable goods orders are known to be a leading indicator of manufacturing, which provides a good measure for overall business health.
CIBC says no double dip
According to a report from CIBC, the chances of a double dip recession are quite slim. As everyone knows, there have been extensive talks about a double dip with analysts separated on whether or not it will actually happen. The economy is currently moving forward but we are not entirely out of trouble yet.
The pace of growth in Canada and the U.S. economies is expected to slow in the next six months. Avery Shenfeld, chief economist at CIBC stated, “We’re not in material danger of a rude double dip in the next two quarters. The probability estimate is likely more consistent with a slowdown rather than a true double dip recession. But, given the uncertainties, fiscal tightening ahead and the potential for a slow economy to be vulnerable to shocks, we will keep an eye on our indicator nevertheless.”
The debate on the U.S. recovery will continue to go on. David Rosenberg, a high profile Bay Street bear, has raised his odds on a double dip recession stating that there is now a 67% chance that it will happened. A month ago he gave a 45% chance to a double dip occurring. What do you think? Please comment below.
Home prices rise again
House prices across Canada were up 1.3% in May when compared to the previous month. They are now listed to be 4.2% above their pre-recession peaks. This is the latest information released by Teranet-National Banks composite house price index.
This is the 13th straight month of increases and the second straight month where home prices were up in all the regions that are covered by the price index. This is a large contrast to the U.S. where housing prices are down almost 30% from their pre-recession peaks. On a year over year basis, house prices are up 13.6%. National Bank commented by saying, “We do not believe that acceleration in the Teranet- National Bank index will be sustained. The number of existing homes sold has declined in each of the three months ending last June, and it did so to a much larger extent than the number of new listings. This heralds a deceleration in home price inflation, especially since HST was introduced on July 1 in Ontario and B.C.”
I’ve got to agree that home price inflation will either be at a standstill or decrease overall in the next year or two. After all, Toronto saw home prices increase 16% year over year without any increase in wages or inflation to support the raise. Without fundamental values supporting these increases, homes are artificially inflated and will need a correction. What are your thoughts on it all? Please comment below.
Raw materials & factory declines
June saw a decline in the prices for Canadian factory products and the cost of materials used to make them. This is the latest from the latest report released yesterday from Statistics Canada. The agency’s industrial product price index (IPPI) dropped 0.9% in the month and was led by petroleum and metals. The decline follows two consecutive months of increases.
The raw materials price index (RMPI) was also down in the month of June by 0.3% and was the second consecutive monthly decline. The decline was attributed mainly to lower prices for non ferrous metals along with animals and animal products. Analysts had previously forecasted the IPPI to increase by 0.2% in June and the RMPI to increase 1% in June.
U.S. jobless claims down
There is a ray of hope for the American labour market recovery as new claims for unemployment benefits dropped more than expected last week. According to The Labour Department, initial claims for state unemployment benefits were down 11 000 to a seasonally adjusted 457 000 for the week ending July 24.
Analysts had predicted that claims would fall to 459 000 from the 464 000 the week before. The four week average of new U.S. jobless claims were down 4500 to 452 500. Jobless claims have not declined significantly this year and are still above levels consistent with sustained job growth.
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