Business

What Bank of Canada’s ‘data dependence’ means for the coming interest-rate decision

Published

2 years ago

January 16, 2023

The Bank of Canada is heading into its Jan. 25 interest-rate decision with a different watchword: “data dependence.”

Over the past eleven months, the central bank has pushed its policy rate up to 4.25 per cent from 0.25 per cent with single-minded determination. The question wasn’t whether it would increase borrowing costs at each meeting, but by how much.

Now, with interest rates firmly in restrictive territory and inflation trending down, Bank of Canada officials have turned off autopilot and are poring over economic data for signs of whether it’s time to hit pause on monetary-policy tightening.

“If we are surprised on the upside, we are still prepared to be forceful,” deputy governor Sharon Kozicki said in December, after the latest half-percentage-point rate increase.

“But we recognize that we have raised interest rates rapidly and that their effects are working their way through the economy. In other words, we are moving from how much to raise interest rates to whether to raise interest rates.”

Data published since the December rate decision – including stubbornly high core-inflation numbers from November and a blowout December jobs report – suggest that the Canadian economy has more momentum than the bank would like to see. That increases the odds of another rate hike, and financial markets are pricing in a quarter-point move on Jan. 25.

But there are still several crucial economic releases coming this week. And for the first time in nearly a year, another rate increase isn’t a sure thing.

“There are two risks right now,” said Avery Shenfeld, chief economist of Canadian Imperial Bank of Commerce.

“One is that they’re not patient enough to see the impact of the hikes they’ve done, and they end up over-hiking and causing a deeper recession than they intended. But there’s also a risk of waiting too long to hike again and finding that inflation reaccelerates. So it’s a balancing act and they’re at the point of the cycle where a finely tuned judgment is required.”

Here’s what the central bank will be watching as it plans its next move.

Inflation

After hitting a four-decade high of 8.1 per cent in June, the annual rate of consumer-price-index inflation had fallen to 6.8 per cent in November. Economists expect to see a further drop in the December inflation data, which will be published Tuesday.

Gasoline prices have fallen sharply since the summer, plunging another 13 per cent month over month in December. Meanwhile, goods prices are levelling off thanks to supply chain improvements and falling shipping costs.

But many service prices continue to rise rapidly. And core inflation, excluding food and energy, is proving sticky. Central-bank officials say they’re paying particularly close attention to three-month rates of core inflation.

“In the second half of 2022, inflation has very clearly receded, so looking at a 12-month number isn’t giving you an accurate indication of what inflation pressures are right now,” said Taylor Schleich, director of economics and strategy at National Bank Financial.

“Those three-month indicators that they’ve highlighted have come down very substantially,” he said. “We were at 7 or 8 per cent in May or June, and now we’re around 3 to 4 per cent.”

Inflation expectations

The Bank of Canada doesn’t just look at inflation data; it looks at what Canadian consumers and businesses believe about inflation. These beliefs can drive wage negotiations and price-setting decisions.

The key data on inflation expectations will be published Monday, with the release of the Bank of Canada’s quarterly business and consumer surveys. Over the past year, both surveys have consistently found that individuals and companies expect inflation to remain well above the bank’s 2-per-cent target for several years to come.

There were, however, some positive signs in the last Business Outlook Survey, published in October. The average respondent expected 4.26-per-cent inflation in two years’ time, down from 4.8 per cent in the previous quarter. Companies also reported improvements in their supply chains, and lowered their expectations, on average, about future wage increases – two signs that inflationary pressures may be easing.

Labour markets

So far, the most compelling argument for another rate hike comes from the December jobs report, published by Statistics Canada earlier this month. Canada added 104,000 jobs in December, far more than the consensus forecast of 5,000 jobs among Bay Street analysts. The unemployment rate dropped to 5 per cent from 5.1 per cent, leaving it only a notch above the record low.

The remarkable strength of the job market is good news for many workers. But it’s a problem for the Bank of Canada.

Low unemployment and high demand for workers fuels wage growth, which can feed into inflation, particularly in the service sector, as companies increase prices to cover rising labour costs. Governor Tiff Macklem has argued that unemployment needs to rise to get inflation back to target.

“We are starting to see some improvements in the balance in the labour market. Vacancy rates have come down,” Mr. Macklem said at a December news conference. “But we continue to see tight labour markets, we continue to hear from businesses that they’re having trouble hiring the workers they need.”

Economic growth

Ultimately, the Bank of Canada is trying to engineer a general slowdown in the economy to bring demand for goods and services back in line with supply. The challenge is that monetary-policy tightening works with a considerable lag, making it impossible for the bank to judge the impact of rate hikes in real time.

“Inflation indicators are actually not quite as important as growth indicators,” said Mr. Shenfeld of CIBC. “If they see the economy slow enough, they will trust that that will bring inflation down over time. And they’ll be watching things like employment and retail sales and the housing sector for signposts of that.”

Data on November retail sales and December housing starts will be published this week. The bank is also putting more emphasis on high-frequency data, such as restaurant and hotel bookings and public-transit usage.

“When interest rates were 2 per cent, they didn’t need such a fine sieve to look at the economic data, because they were confident that the economy still had a lot of momentum,” Mr. Shenfeld said.

“The closer they get to shutting off the rate hikes, the more they’ll have to look at every bit of information coming in the door.”

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Business

The #1 Skill I Look For When Hiring

Published

2 days ago

September 17, 2024

Nick Kossovan

File this column under “for what it’s worth.”

“Communication is one of the most important skills you require for a successful life.” — Catherine Pulsifer, author.

I’m one hundred percent in agreement with Pulsifer, which is why my evaluation of candidates begins with their writing skills. If a candidate’s writing skills and verbal communication skills, which I’ll assess when interviewing, aren’t well above average, I’ll pass on them regardless of their skills and experience.

Why?

Because business is fundamentally about getting other people to do things—getting employees to be productive, getting customers to buy your products or services, and getting vendors to agree to a counteroffer price. In business, as in life in general, you can’t make anything happen without effective communication; this is especially true when job searching when your writing is often an employer’s first impression of you.

Think of all the writing you engage in during a job search (resumes, cover letters, emails, texts) and all your other writing (LinkedIn profile, as well as posts and comments, blogs, articles, tweets, etc.) employers will read when they Google you to determine if you’re interview-worthy.

With so much of our communication today taking place via writing (email, text, collaboration platforms such as Microsoft Teams, Slack, ClickUp, WhatsApp and Rocket.Chat), the importance of proficient writing skills can’t be overstated.

When assessing a candidate’s writing skills, you probably think I’m looking for grammar and spelling errors. Although error-free writing is important—it shows professionalism and attention to detail—it’s not the primary reason I look at a candidate’s writing skills.

The way someone writes reveals how they think.

Clear writing = Clear thinking
Structured paragraphs = Structured mind
Impactful sentences = Impactful ideas

Effective writing isn’t about using sophisticated vocabulary. Hemingway demonstrated that deceptively simple, stripped-down prose can captivate readers. Effective writing takes intricate thoughts and presents them in a way that makes the reader think, “Damn! Why didn’t I see it that way?” A good writer is a dead giveaway for a good thinker. More than ever, the business world needs “good thinkers.”

Therefore, when I come across a candidate who’s a good writer, hence a good thinker, I know they’re likely to be able to write:

Emails that don’t get deleted immediately and are responded to
Simple, concise, and unambiguous instructions
Pitches that are likely to get read
Social media content that stops thumbs
Human-sounding website copy
Persuasively, while attuned to the reader’s possible sensitivities

Now, let’s talk about the elephant in the room: AI, which job seekers are using en masse. Earlier this year, I wrote that AI’s ability to hyper-increase an employee’s productivity—AI is still in its infancy; we’ve seen nothing yet—in certain professions, such as writing, sales and marketing, computer programming, office and admin, and customer service, makes it a “fewer employees needed” tool, which understandably greatly appeals to employers. In my opinion, the recent layoffs aren’t related to the economy; they’re due to employers adopting AI. Additionally, companies are trying to balance investing in AI with cost-cutting measures. CEOs who’ve previously said, “Our people are everything,” have arguably created today’s job market by obsessively focusing on AI to gain competitive advantages and reduce their largest expense, their payroll.

It wouldn’t be a stretch to assume that most AI usage involves generating written content, content that’s obvious to me, and likely to you as well, to have been written by AI. However, here’s the twist: I don’t particularly care.

Why?

Because the fundamental skill I’m looking for is the ability to organize thoughts and communicate effectively. What I care about is whether the candidate can take AI-generated content and transform it into something uniquely valuable. If they can, they’re demonstrating the skills of being a good thinker and communicator. It’s like being a great DJ; anyone can push play, but it takes skill to read a room and mix music that gets people pumped.

Using AI requires prompting effectively, which requires good writing skills to write clear and precise instructions that guide the AI to produce desired outcomes. Prompting AI effectively requires understanding structure, flow and impact. You need to know how to shape raw information, such as milestones throughout your career when you achieved quantitative results, into a compelling narrative.

So, what’s the best way to gain and enhance your writing skills? As with any skill, you’ve got to work at it.

Two rules guide my writing:

Use strong verbs and nouns instead of relying on adverbs, such as “She dashed to the store.” instead of “She ran quickly to the store.” or “He whispered to the child.” instead of “He spoke softly to the child.”
Avoid using long words when a shorter one will do, such as “use” instead of “utilize” or “ask” instead of “inquire.” As attention spans get shorter, I aim for clarity, simplicity and, most importantly, brevity in my writing.

Don’t just string words together; learn to organize your thoughts, think critically, and communicate clearly. Solid writing skills will significantly set you apart from your competition, giving you an advantage in your job search and career.

_____________________________________________________________________

Nick Kossovan, a well-seasoned veteran of the corporate landscape, offers “unsweetened” job search advice. You can send Nick your questions to artoffindingwork@gmail.com.

Business

Politics likely pushed Air Canada toward deal with ‘unheard of’ gains for pilots

Published

2 days ago

September 16, 2024

Anne Joseph

MONTREAL – Politics, public opinion and salary hikes south of the border helped push Air Canada toward a deal that secures major pay gains for pilots, experts say.

Hammered out over the weekend, the would-be agreement includes a cumulative wage hike of nearly 42 per cent over four years — an enormous bump by historical standards — according to one source who was not authorized to speak publicly on the matter. The previous 10-year contract granted increases of just two per cent annually.

The federal government’s stated unwillingness to step in paved the way for a deal, noted John Gradek, after Prime Minister Justin Trudeau made it plain the two sides should hash one out themselves.

“Public opinion basically pressed the federal cabinet, including the prime minister, to keep their hands clear of negotiations and looking at imposing a settlement,” said Gradek, who teaches aviation management at McGill University.

After late-night talks at a hotel near Toronto’s Pearson airport, the country’s biggest airline and the union representing 5,200-plus aviators announced early Sunday morning they had reached a tentative agreement, averting a strike that would have grounded flights and affected some 110,000 passengers daily.

The relative precariousness of the Liberal minority government as well as a push to appear more pro-labour underlay the prime minister’s hands-off approach to the negotiations.

Trudeau said Friday the government would not step in to fix the impasse — unlike during a massive railway work stoppage last month and a strike by WestJet mechanics over the Canada Day long weekend that workers claimed road roughshod over their constitutional right to collective bargaining. Trudeau said the government respects the right to strike and would only intervene if it became apparent no negotiated deal was possible.

“They felt that they really didn’t want to try for a third attempt at intervention and basically said, ‘Let’s let the airline decide how they want to deal with this one,'” said Gradek.

“Air Canada ran out of support as the week wore on, and by the time they got to Friday night, Saturday morning, there was nothing left for them to do but to basically try to get a deal set up and accepted by ALPA (Air Line Pilots Association).”

Trudeau’s government was also unlikely to consider back-to-work legislation after the NDP tore up its agreement to support the Liberal minority in Parliament, Gradek said. Conservative Leader Pierre Poilievre, whose party has traditionally toed a more pro-business line, also said last week that Tories “stand with the pilots” and swore off “pre-empting” the negotiations.

Air Canada CEO Michael Rousseau had asked Ottawa on Thursday to impose binding arbitration pre-emptively — “before any travel disruption starts” — if talks failed. Backed by business leaders, he’d hoped for an effective repeat of the Conservatives’ move to head off a strike in 2012 by legislating Air Canada pilots and ground crew to stick to their posts before any work stoppage could start.

The request may have fallen flat, however. Gradek said he believes there was less anxiety over the fallout from an airline strike than from the countrywide railway shutdown.

He also speculated that public frustration over thousands of cancelled flights would have flowed toward Air Canada rather than Ottawa, prompting the carrier to concede to a deal yielding “unheard of” gains for employees.

“It really was a total collapse of the Air Canada bargaining position,” he said.

Pilots are slated to vote in the coming weeks on the four-year contract.

Last year, pilots at Delta Air Lines, United Airlines and American Airlines secured agreements that included four-year pay boosts ranging from 34 per cent to 40 per cent, ramping up pressure on other carriers to raise wages.

After more than a year of bargaining, Air Canada put forward an offer in August centred around a 30 per cent wage hike over four years.

But the final deal, should union members approve it, grants a 26 per cent increase in the first year alone, retroactive to September 2023, according to the source. Three wage bumps of four per cent would follow in 2024 through 2026.

Passengers may wind up shouldering some of that financial load, one expert noted.

“At the end of the day, it’s all us consumers who are paying,” said Barry Prentice, who heads the University of Manitoba’s transport institute.

Higher fares may be mitigated by the persistence of budget carrier Flair Airlines and the rapid expansion of Porter Airlines — a growing Air Canada rival — as well as waning demand for leisure trips. Corporate travel also remains below pre-COVID-19 levels.

Air Canada said Sunday the tentative contract “recognizes the contributions and professionalism of Air Canada’s pilot group, while providing a framework for the future growth of the airline.”

The union issued a statement saying that, if ratified, the agreement will generate about $1.9 billion of additional value for Air Canada pilots over the course of the deal.

Meanwhile, labour tension with cabin crew looms on the horizon. Air Canada is poised to kick off negotiations with the union representing more than 10,000 flight attendants this year before the contract expires on March 31.

This report by The Canadian Press was first published Sept. 16, 2024.

Companies in this story: (TSX:AC)

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Business

Federal $500M bailout for Muskrat Falls power delays to keep N.S. rate hikes in check

Published

3 days ago

September 16, 2024

Anne Joseph

HALIFAX – Ottawa is negotiating a $500-million bailout for Nova Scotia’s privately owned electric utility, saying the money will be used to prevent a big spike in electricity rates.

Federal Natural Resources Minister Jonathan Wilkinson made the announcement today in Halifax, saying Nova Scotia Power Inc. needs the money to cover higher costs resulting from the delayed delivery of electricity from the Muskrat Falls hydroelectric plant in Labrador.

Wilkinson says that without the money, the subsidiary of Emera Inc. would have had to increase rates by 19 per cent over “the short term.”

Nova Scotia Power CEO Peter Gregg says the deal, once approved by the province’s energy regulator, will keep rate increases limited “to be around the rate of inflation,” as costs are spread over a number of years.

The utility helped pay for construction of an underwater transmission link between Newfoundland and Nova Scotia, but the Muskrat Falls project has not been consistent in delivering electricity over the past five years.

Those delays forced Nova Scotia Power to spend more on generating its own electricity.

This report by The Canadian Press was first published Sept. 16, 2024.

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