Governor of the Bank of Canada Tiff Macklem arrives for a news conference in Ottawa, on June 5, 2024.Justin Tang/The Canadian Press
Bank of Canada governor Tiff Macklem said that the Canadian economy appears to be on track for a soft landing where inflation falls back to the bank’s target without a major spike in unemployment.
At the same time, the continuing slowdown in the labour market is hitting some groups harder than others, especially new Canadians and young people, Mr. Macklem said in a speech to the Winnipeg Chamber of Commerce on Monday.
The unemployment rate in Canada has risen more than a percentage point over the past year, hitting 6.2 per cent in May, just above pre-pandemic levels. There has not been a large increase in layoffs. But businesses have pulled back on hiring as high interest rates have weighed on consumer spending and dulled corporate investment.
“This is the soft-landing scenario,” Mr. Macklem said. “It has always been a narrow path, and we have yet to fully stick the landing. Looking forward, the unemployment rate could rise further… But we continue to think that we don’t need a large rise in the unemployment rate to get inflation back to the 2 per cent target.”
The speech comes two weeks after the bank lowered its policy interest rate to 4.75 per cent from 5 per cent, the first rate cut in four years.
Mr. Macklem offered few hints about the timing of further rate cuts. But his focus on how the labour market has come into “better balance” suggests policy makers are increasingly comfortable that inflationary pressures are easing.
The rapid pace of wage growth, which can feed into inflation as companies raise prices to cover costs, remains a concern. Average hourly wages were up 4.7 per cent year-over-year in April compared to an inflation rate of 2.7 per cent. Mr. Macklem said that he “will be looking for wage growth to moderate further.”
However, he also said that the bank is focusing on certain measures of wage growth that have slowed more than the overall rate. That suggests the bank may be less concerned about wage pressures than markets expect.
“Ultimately, the Bank of Canada seems content with the progress on the labour market, although they want to see more of it,” Desjardins economist Tiago Figueiredo wrote in a note to clients about the speech.
“Barring any major surprises, we continue to see the Bank of Canada cutting rates by another 25 basis points in July,” Mr. Figueiredo wrote, noting that the bank will receive two key piece of economic data this week, the May inflation numbers on Tuesday and the April GDP numbers on Friday.
While the speech highlighted the “smooth” labour market cooling – companies have stopped posting jobs instead of firing people outright – Mr. Macklem said that the slowdown in hiring has hit young people and new Canadians particularly hard.
“With fewer job vacancies, it’s taking longer for young people entering the labour market to find a job, and their unemployment rate has risen. It’s now about 2 percentage points above its pre-pandemic average,” he said.
Likewise, job creation has failed to keep pace with the historic level of immigration over the past year, leaving more new immigrants without work.
This dynamic could help explain growing signs of financial stress among renters, who are often younger workers and newcomers. While mortgage delinquency rates remain relatively low, late payments on credit cards and auto loans are above pre-pandemic levels, especially for renters.
Looking further ahead, Mr. Macklem used his podium to highlight Canada’s lagging productivity (output per worker), which he called the country’s “Achilles’ heel.”
This has become a major theme for central bank officials. Senior deputy governor Carolyn Rogers created a stir several months ago by calling poor productivity and low levels of business investment in machinery and equipment an “emergency.”
Mr. Macklem said that Canada has been good at growing its economy by increasing the number of workers, but not by increasing output per worker. This needs to change for the Canadian standard of living to keep improving as the population ages and the country bumps up against the “limits” of immigration policy, he said in a press conference after the speech.
He said that politicians and policy makers need to get a grip on why business investment is relatively weak in Canada. And he offered a few ideas to improve the investment climate, including lowering interprovincial trade barriers and speeding up regulatory approvals for companies and projects.
“There are also a whole range of bigger questions that I think are going to need more thought,” he said. “The role of multinational versus home headquartered businesses. Investing in houses, investing in machinery and equipment. There are a number of big questions. I don’t have all the answers but I think we need we need to collectively be thinking about those.”
OTTAWA – Finance Minister Chrystia Freeland says the government is making some changes to mortgage rules to help more Canadians to purchase their first home.
She says the changes will come into force in December and better reflect the housing market.
The price cap for insured mortgages will be boosted for the first time since 2012, moving to $1.5 million from $1 million, to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
On Aug. 1 eligibility for the 30-year amortization was changed to include first-time buyers purchasing a newly-built home.
Justice Minister Arif Virani is also releasing drafts for a bill of rights for renters as well as one for homebuyers, both of which the government promised five months ago.
Virani says the government intends to work with provinces to prevent practices like renovictions, where landowners evict tenants and make minimal renovations and then seek higher rents.
The government touts today’s announced measures as the “boldest mortgage reforms in decades,” and it comes after a year of criticism over high housing costs.
The Liberals have been slumping in the polls for months, including among younger adults who say not being able to afford a house is one of their key concerns.
This report by The Canadian Press was first published Sept. 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales rose 1.4 per cent to $71 billion in July, helped by higher sales in the petroleum and coal and chemical product subsectors.
The increase followed a 1.7 per cent decrease in June.
The agency says sales in the petroleum and coal product subsector gained 6.7 per cent to total $8.6 billion in July as most refineries sold more, helped by higher prices and demand.
Chemical product sales rose 5.3 per cent to $5.6 billion in July, boosted by increased sales of pharmaceutical and medicine products.
Sales of wood products fell 4.8 per cent for the month to $2.9 billion, the lowest level since May 2023.
In constant dollar terms, overall manufacturing sales rose 0.9 per cent in July.
This report by The Canadian Press was first published Sept. 16, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
