Business

Tiff Macklem is sticking with rate-hike pause despite blowout jobs report

Published

2 years ago

February 16, 2023

Bank of Canada governor Tiff Macklem told the House finance committee that “recent developments have reinforced our confidence that inflation is coming down.” Photo by Adrian Wyld /THE CANADIAN PRESS

Bank of Canada governor Tiff Macklem is sticking with his plan to pause interest rate increases, despite evidence the economy ended the year much stronger than the central bank expected.

“We’re still a long way from our inflation target, but recent developments have reinforced our confidence that inflation is coming down,” he said in prepared testimony for the House finance committee on Feb. 16.

The most recent development was Statistics Canada’s estimate of hiring in January. The agency on Feb. 10 said employers added 150,000 workers in January, far more than anyone expected, including the central bank, which had updated its forecasts that month with a prediction that economic growth would effectively stall at the start of the year.

With the jobless rate at five per cent, a figure that many economists equate with maximum employment, it’s hard to believe Canada’s economy is in any imminent danger. It might even be growing fast enough to keep upward pressure on inflation.

Several economists said after the latest job numbers that Macklem’s pledge to stop raising interest rates — assuming inflation continued on a downward trajectory — might have been hasty, given that outsized hiring could continue to stoke demand that the Bank of Canada has described as too intense for suppliers of goods and services to match.

“A robust labour market is a challenge for the Bank of Canada,” Charles St-Arnaud, chief economist at Alberta Central, said in a note on Feb. 10. The central bank “needs to slow growth and create some excess capacity in the economy to fight inflation. This will likely lead to a rise in the unemployment rate and job losses. With this in mind, continued strength and tightness in the labour market may not be a welcomed outcome for the BoC.”

The Bank of Canada’s next policy announcement is March 8. The governor made his conditional pledge to pause interest rate increases on Jan. 25, when it lifted the benchmark rate a quarter-point to 4.5 per cent, extending the most aggressive series of rate hikes in the central bank’s history.

It would take a lot for the governor to back down on such an explicit promise after less than two months. Now that he’s dangled the possibility that interest rates have peaked, reneging so quickly could damage the Bank of Canada’s credibility. Rightly or wrongly, that’s now a variable when policymakers debate what to do with interest rates going forward, and an example of why purists argue that central bankers should never box themselves in by offering explicit forward guidance.

“The recent (Bank of Canada) pause decision is looking more dubious by the day,” Phil Suttle, a former economist at the Bank of England and the New York Fed who now runs his own consulting firm, said in a note to clients this week.

Suttle said market-based expectations of where inflation will be in a year remain elevated in most rich countries, suggesting central banks will have to raise interest rates even higher to snuff out price pressures. Inflation expectations are especially high in Canada, according to his calculations.

What’s more, higher borrowing costs and slower wage growth in January have done little to slow consumer spending, Royal Bank of Canada economist Carrie Freestone said in a Feb. 16 report, citing the bank’s credit-card data. Discretionary spending remained strong through early February, based on the four-week average of daily transactions, and restaurant meals have even increased, she said.

Still, most economists — including Freestone — think it’s only a matter of time before the Bank of Canada’s interest rate increases start to bite. Canadian households are among the world’s most indebted, so it seems unlikely they will be able to continue spending at their current pace as the cost of servicing that debt begins to rise. That’s primarily why Macklem opted for a conditional pause. He’s sensitive about overdoing it.

“We know it takes time for higher interest rates to work through the economy to slow demand and reduce inflation,” he said. “That’s why policy needs to be forward-looking. Guided by what we have seen so far and our outlook for economic growth and inflation, we think it time to pause interest rate hikes and assess whether monetary policy is restrictive enough to return inflation to the (two per cent) target.”

But before he explained the rationale for the pause, Macklem made a point of emphasizing the conditional nature of his guidance, giving himself flexibility to resume raising rates in the spring or summer.

“This is a conditional pause,” he said very early in his opening statement to the committee. “It is conditional on economic developments evolving broadly in line with our forecast.”

In other words, don’t be angry if Macklem decides to raise interest rates again. You’ve been warned.

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Business

TC Energy cuts cost estimate for Southeast Gateway pipeline project in Mexico

Published

18 hours ago

November 7, 2024

Anne Joseph

CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.

It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.

The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.

Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.

TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.

The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:TRP)

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Business

BCE reports Q3 loss on asset impairment charge, cuts revenue guidance

Published

18 hours ago

November 7, 2024

Anne Joseph

BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.

The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.

On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.

“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.

“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”

Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.

BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.

The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.

BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.

It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.

The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”

Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:BCE)

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Business

Canada Goose reports Q2 revenue down from year ago, trims full-year guidance

Published

18 hours ago

November 7, 2024

Anne Joseph

TORONTO – Canada Goose Holdings Inc. trimmed its financial guidance as it reported its second-quarter revenue fell compared with a year ago.

The luxury clothing company says revenue for the quarter ended Sept. 29 totalled $267.8 million, down from $281.1 million in the same quarter last year.

Net income attributable to shareholders amounted to $5.4 million or six cents per diluted share, up from $3.9 million or four cents per diluted share a year earlier.

On an adjusted basis, Canada Goose says it earned five cents per diluted share in its latest quarter compared with an adjusted profit of 16 cents per diluted share a year earlier.

In its outlook, Canada Goose says it now expects total revenue for its full financial year to show a low-single-digit percentage decrease to low-single-digit percentage increase compared with earlier guidance for a low-single-digit increase.

It also says it now expects its adjusted net income per diluted share to show a mid-single-digit percentage increase compared with earlier guidance for a percentage increase in the mid-teens.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:GOOS)

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