June 12, 2009
This weeks top stories include how the “Buy Canadian” policy could hurt us, how construction is making a comeback, how you can triple dip on government assistance programs, how Canada’s trade balance slipped back into a deficit, how Canadians are feeling the anxieties of job insecurity, how much home prices fell by in April and a look at mortgage rates and why they are rising.
Buy Canadian may hurt us more than help us
With the slogan across the border being “Buy American”, Canadians want to do the same in Canada. Jim Flaherty, Finance Minister, states that fighting the Buy American measures with Buy Canadian measures here will be counterproductive and dangerous. In a Monday meeting, held in Montreal, he said “This is not the kind of action that helps industry in Canada”. This statement was a response to the vote held over the past weekend by delegates at the Federation of Canadian Municipalities. The vote came close to passing a resolution that would try and shut out U.S bidders from Canadian city contracts. Flaherty went on further to state “Protectionism is bad for Canada and bad for the U.S. It’s bad for cities. It’s bad for provinces. It’s bad for American states.” In another comment he stated, “If you start taking protectionist steps, then you spiral down into a depression, as happened in the 1030′s, so this is to be avoided.” Mr. Flaherty also showed signs that the credit crunch may be easing by stating, “Cautious optimism that the global economic recovery may not be far behind.” This statement was based on figures and positive signs that Canadians are spending again. What do you think? Will protectionism help or hurt our economy? Comment below.
Construction making a comeback
Residential construction increased in the month of May where housing starts rose more than 9%. TD Bank economists feel that this data could be the first sign that a bottom in the housing market decline might finally be forming. The increase was extremely better than economists expected with the surge in housing starts coming mainly from Ontario and the Prairies. Although this seems like great news for the Canadian housing market, the gains were localized as were the losses. B.C, New Brunswick, Newfoundland and Labrador had declines in the number of housing starts for their respective provinces despite the 9% increase across Canada. All we can do at this point is keep our fingers crossed and hope for the best.
Triple dip on assistance programs from the government
Home Renovation Tax Credit, the provincial home energy retrofit program and the federal EcoEnergy Retrofit Homes program. All three pools of money are available for a limited time allowing Canadians to triple dip on housing related government programs for the first time. The programs were initiated, not only to help stimulate our economy but to help reduce energy consumption, heating, cooling, electrical bills and greenhouse gas emissions. The federal EcoEnergy program requires a pre-audit of your home and a post-audit of your home to identify the changes made. Through this grant, you are eligible to receive a maximum amount of up to $5000. The provincial government stepped up as well offering $150 towards the cost of the audit and allowing Ontarians to receive an additional $5150 from the province of Ontario bringing the total allowable amount to be $10 150. The Home Renovation Tax Credit, announced in February of this year, provides homeowners with a tax credit of up to $1325 for people that do renovations, by February 2010, between $1000 and $10 000. You are able to spend more than $10 000 but the credit will cap out at that amount. This covers renovations to kitchens, basements, bathrooms, new hardwood or carpeting on floors, building a new addition, along with many others. The work may be contracted or done yourself but you can only claim materials if you do the renovations yourself, whereas you can claim the full amount on contract work. If you have questions about what is covered give me a call to confirm.
Canada’s trade balance slips back into deficit
The month of April saw Canada’s trade balance drop back into a deficit position as exports had a sharp decline and imports had a minor decline. Economists were expecting a $1 Billion surplus, the same as in March, but instead saw a deficit of $179 Million. Exports decreased by 5.1% and imports decreased by 1.5% in the month of April. This comes as bad news after Canada had posted two consecutive months of trade surplus for the month of February and March. Economists feel that this trend will likely persist since the strong Canadian dollar is making exports more expensive. With the Canadian dollar set to appreciate even further than the 6% jump it saw in the month of May, hopes are that the rising commodity prices may offset the effects of the currency. In short, the erosion in the month of April reflects the global downturn in industrial production and deterioration of U.S demand. The exports fell mainly due to lower foreign sales in industrial goods and materials causing them to be at their lowest level in 5 years. Auto exports saw an increase in April but that will not last, given the shut down of Chrysler and General Motors. As long as the loonie keeps challenging the American green back, we will continue to see a trade balance deficit or if we’re lucky maybe even be at par.
Canadians feeling the anxieties of job insecurity
One out of five Canadians are worried about losing their jobs and this anxiety is making employees feel less motivated about them. The greatest concerns come from the manufacturing sector, where job losses have been the greatest, but Wednesday’s national survey shows that the communication and business services sectors are just as worried now. The numbers show a significant concern in larger organizations where layoffs have already been announced taking the ratio to almost one out of every two. The survey also shows what steps employers are taking in response to our economic crisis with 27% showing that they have implemented a hiring freeze, 26% implementing a salary freeze, 26% cutting their travel budgets, 10% cutting their benefits packages, 8% implemented salary reductions, and 8% cutting hours of employees and offering a 4 day work week. We would like to know what your company has done to adjust to the recession. Please let us know below in our comments section.
Home prices fall 0.6% in April
New home prices in Canada showed a drop of 0.6% between March and April of this year. This was primarily attained to the discounting of new homes in Western Canada as per a Canada Statistics report released on Wednesday. Contractors for new homes saw a price decline of 3% from this time last year. TD bank economist Millan Mulraine commented, “This is the sharpest pace of annual home price decline since the last recession of the early 1990′s”. This decline was larger than what was expected by top economists who had predicted only a drop of 0.2% for new home prices between March and April. With the negative news comes good news for people on the east coast where St. John’s Nfld saw an increase in home prices by a whopping 17% from this time last year. This was mainly due to major industrial projects that have brought new contributors to the local economy. With these workers comes demand for housing, which in turn pushes up the prices of new homes. Quebec City saw a growth rate of 7% in the last 12 months and this caused new home prices to rise 3.6% from this time last year in Montreal. Hopefully we can create some new jobs in Ontario so that we can gain from the same effect that these provinces are gaining from.
Mortgage rates on the rise
Bond yields have been soaring in the last few weeks and are setting the stage for another round of interest rate hikes to residential mortgages. Last week we saw the major 5 banks increasing their five year, fixed rate mortgages by at least 20 Bps (basis points). This is due to higher borrowing costs for the banks due to the increased bond rates. Banks use the bond market to finance mortgages because they lend out more money than they tend to attract through deposits. Even with the increase last week, the move was insufficient to offset the bank’s higher costs because the bond yields have moved up again since then. The reason that yields continue to rise is because the bond market is beginning to price in the inevitable economic recovery that is expected as early as the fourth quarter of this year. With good news of an economic recovery on the horizon the bad news is that there will be a cost for the economy in terms of the higher cost of money for borrowers. A minor factor that is adding to these increases in rates is the demand for homes and mortgages based on the low interest rates that are currently available. The banks have taken huge losses here and overseas and are trying to find a price point to make up for those losses. As unfortunate as that is, we are left on the hook for helping them make up their losses. How do you feel about that? Feel free to comment below.
{ 2 comments… read them below or add one }
I think if the U.S wants to keep their money in their economy we should do the same. Why should we give them our money when we’re in the same recession they are and they don’t want to share their money with us. What happened to them didn’t happened to us but if they stop the free flow of money between Canada and them, they may cause Canada to end up where they are.
@George Matzarro
We should have learned from the great depression that protectionism just doesn’t work. Global economies are always more fruitful than a domesticated economy. I understand your position George, I just hope that parliament hill does too. Thanks for your comment and your continued support.