This weeks top stories include how retail sales are up, how employment insurance claims are up in the month of September, how Canadians fared worse during the recession, how Toronto office vacancies are expected rise, how home ownership is becoming costly and how private equity may see a double dip.
Retail sales are up
Consumers returned to stores in the month of September after putting purchases on the back burner in the months of July and August of this year. Statistics Canada released a report on Tuesday showing that retail sales were up 1% in September, when compared to August of this year, and had risen to $34.9 billion. A late start to the school year in Ontario mixed with the unexpected warm weather has changed consumer behavior from previous years.
This was the seventh increase that we have seen in a nine month period with a large number of stores reporting their largest gains in over a year. The gains were spread through six of eight sectors with consumers spending more money on food and drink, cars and at general merchandise stores which are more price competitive. When looking at volume, retail sales were up 1.2% for the month of September. Retail sales have been on the incline since the start of the year and followed a large decline carried forward from the end of 2008. Retail sales are still 3.3% below last year figures but the numbers looking forward are promising.
An increase was seen in the large automotive sector which was up 1% in the month of September reflected through large sales in new and used cars and aided by the auto parts and gasoline market. If we take the automotive sector out of the picture, retail sales were still up 1.1% which is the largest increase seen since January of this year. The largest contributor was food and beverage stores which were up 1.3% led by supermarkets which were up 1.5% after a month of flat sales in August. The largest gain was seen through general merchandise stores which were up 1.9%
Retail sales were up in eight of our provinces in the month of September with Prince Edward Island leading the way with an increase of 4.1% mainly attributed to new car sales. Quebec was the largest contributor to overall gains and was up 2.2%. British Columbia was up 1.8% followed by Ontario which was also up 0.4%. Alberta was flat after seeing two straight months of declines and Saskatchewan saw sales decline by 0.9%.
EI claims up in September
September saw the number of people collecting regular employment insurance benefits increase by more than 7% after two straight months of decline in July and August. This was the latest figures released by Statistics Canada on Tuesday. EI numbers were at 818 020 which was up 54 300 recipients during the month. The largest increases were seen in Ontario, British Columbia and Alberta. The new total in the month of September is up 63.5% since peak employment that was seen in October of 2008.
Even with the Canadian economy adding jobs in the month of September, the higher EI rolls seen during the month are a lag from the previous employment declines as we will definitely need to see a few months of data in order to assess whether or not a pattern is developing. The number of EI claims has been on the decline since the most recent peak seen in May of this year. Declines in the number of claims received in the month of September were seen in most provinces.
EI beneficiaries in Ontario were up 9% by 14 390 claims and now have reached 271 680. Since the beginning of the labour market downturn, Ontario has seen the fastest rate of employment decline among all the provinces. Alberta also saw their EI numbers go up by 14 390 recipients to 71 910 or an increase of 25%. British Columbia saw an increase of 11 280 recipients to 56 290 or an increase of 12.8%. The number of initial and renewal claims were down 5% or 14 700 claims to 280 700 in the month of December. This leaves the question, are we really out of this recession? Please comment below.
Canadians fared worse during recession
A new report from Dale Orr Economic Insight shows that Canada’s recession has been deeper and longer than official records indicate. The report states that Canadian have been on a downward spiral in terms of standard of living since 2007. Mr. Orr has estimated that Canadians have seen a 4.3% decline in their standard of living since 2007 when looking at real gross domestic product (GDP) per capita. He also states that individuals living in most of the larger provinces, except for Quebec, have fared far worse. The report outlines how Albertan’s standard of living is down 6.2% since 2007. The report also says that Ontarian’s standard of living is down by 5.8%.
A recession is measured through data based on gross domestic product (GDP) movements. Based on these movements, the recession began in the fall of 2008 and seems to have ended in June of this year which resulted in a 2.4% contraction in our economy this year. Mr. Orr feels that the usual analysis of gross domestic product does not take into consideration that our population actually went up which means that there were more Canadians producing less product. Canada’s population has been increasing by roughly 1.1% a year which means that the economic output per person would have contracted even more than reports currently show. What do you think? Please comment below.
Toronto office vacancies expected to rise
A new report into office vacancy rates show’s that Toronto’s office vacancy rate is projected to reach as high as 13.6% by the year 2011. This will top the numbers seen in New York and in Boston. The more vacancies on the rental market, the more landlords in the city will struggle to maintain the high rents they are charging today. Toronto is still undergoing a construction surge in the downtown core which will cause office vacancies to reach 7.8% by the end of this year. They will go even higher in 2010 with the expectation that the vacancy rate will reach 12.1% towards the end of next year. The expected peak of 13.6% on the vacancy rate will take place in 2011 and is comparable to current vacancy rates in midtown Manhattan. The consensus is that it will be a bumpy ride for the next couple of years in the commercial rental market. After the current surge we do not expect to see many new commercial buildings resurrecting because the economics will not be there to support it.
Home ownership becoming costly
A report released on Wednesday from RBC Economics Research outlined the fact that owning a home in Canada is more expensive due to mortgage rates edging higher and the home prices rebound. The third quarter of this year saw an increase in the amount of pre-tax household income needed to maintain a home. This was the first increase since the spring of 2008 and was seen across all housing types.
From last quarter to the current quarter, the cost of owning a typical detached bungalow went up by a full percent. Standard townhouse ownership was up 0.7%, condo ownership went up 0.5% and the cost of owning a two storey home also went up by 1.2%. The average detached bungalow uses 66.8% of pre-tax household income in Vancouver, 48.6% in Toronto, 39.2% in Ottawa, 37.5% in Montreal and only 36.7% in Calgary.
Home affordability was down in all the provinces across Canada due to the rise in mortgage rates and appreciation to property values. Despite the increase in home ownership costs, affordability has increased from the same time last year. With the current strength in the housing market and low mortgage rates coming to an end, it is highly unlikely that we will see affordability improve in the near future. The housing market is still plagued with problems as mortgages are harder for Canadians to handle amidst our current labour conditions. This will likely be the case until the economic recovery is fully established and job creation is sustained for a period of at least one year.
Private equity may see a double dip
Money managers stated on Tuesday that private equity investors are planning for the possibility that Canada’s economy might struggle to emerge from the current recession regardless of a positive performance during the third quarter of this year. The Bank of Canada (BoC) previously predicted in August that the country may emerge from the recession as early as the third quarter trying to prove that we have one of the most resilient economies in the developed world.
Investors are not convinced though. They are planning their investment strategies with a more cautious outlook and the possibility that there could very well be a double dip on the horizon. Investors are planning for things to get worse and are being very cautious when making revenue assumptions.
Private equity buyout activity has suffered from the global crisis as investors are still hesitant to commit to ventures until valuations are more stable. Industry leaders feel that it will take some time as the spread between bidding and asking prices have a large variance. Private equity partners are concerned that the economy will in fact dip again and have stopped plans for costly initial public offerings for portfolio companies until the outlook starts to gain traction towards a sustained recovery.
Last week the BoC Governor Mark Carney stated that the economy performed worse than expected in the third quarter of this year and that it risks further setbacks due to the rise of the loonie. Buyout investment had reached just over $2 billion in Canada for the first nine months of this year which is less than a quarter of the $8.5 billion seen during the first nine months of last year.
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