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Canada's economy is slowing quickly as inflation, rising rates take hold – The Globe and Mail

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A multi-family development under construction in Vancouver on May 13.DARRYL DYCK/The Globe and Mail

The Canadian economy posted robust growth in the second quarter, but there are mounting signs of a slowdown as consumers grapple with sky-high inflation and rising interest rates.

Real gross domestic product stalled in May, which was better than the initial estimate of a 0.2-per-cent drop, Statistics Canada said in a report on Friday. The economy eked out growth of 0.1 per cent in June, according to a preliminary estimate. Thanks to stronger growth in April, Canada’s economy is on track to expand by 1.1 per cent in the second quarter, or an annualized rate of 4.6 per cent.

For financial analysts on Bay Street, the report was a mixed bag. Economic growth in the April-to-June period was stronger than the Bank of Canada’s forecast of 4 per cent. It was also markedly better than in the United States, which has posted two consecutive quarters of declining GDP, sparking a hearty debate over whether the country is mired in a recession.

On the other hand, recent months have seen sluggish growth in Canada. Consumer and business confidence is tumbling. The real estate industry has turned cold. And some high-profile companies in the tech sector – such as Shopify Inc. – are announcing layoffs.

Canada’s labour shortage is the country’s greatest economic threat

Stephen Brown, senior economist at Capital Economics, said he was surprised by the tepid estimate for June growth, given that hours worked that month jumped by 1.3 per cent. Moreover, he noted that Canada’s economic recovery from COVID-19 has lagged behind the U.S. pace, and therefore Canada’s better fortunes of late are not as impressive as they seem.

“The fact that we’re already seeing a slowdown is a bit concerning,” Mr. Brown said. “We’ve been fairly bearish on the outlook for Canada, just because of the housing sector, but it does seem that we’re getting broader weakness elsewhere than was maybe anticipated.”

Despite the shift, the Bank of Canada is widely expected to continue hiking interest rates as it looks to tamp down inflation that is running near a four-decade high. The bank has raised its policy rate to 2.5 per cent from a pandemic low of 0.25 per cent in less than five months.

“The Bank of Canada is still expected to deliver a further, non-standard, rate hike at its next meeting” in September, said Andrew Grantham, a senior economist at CIBC Capital Markets, in a note to clients. “However, we expect that the impact on disposable incomes of high inflation and rising interest rates will start to show up more widely in economic data for the second half of the year, allowing the Bank of Canada to pause with rates just above 3 per cent.”

Friday’s report showed a split between the goods and services sides of the economy, the latter of which is getting a boost from consumers embracing the travel and entertainment industries.

The transportation and warehousing sector rose 1.9 per cent in May. Despite well-publicized headaches at major airports, economic output in air transportation jumped 14.1 per cent.

The hospitality sector also rose 1.9 per cent, its fourth consecutive month of expansion. Restaurant sales grew quickly this spring, in spite of sticker shock on menus.

The goods side was undoubtedly weaker. Real GDP fell 1.7 per cent in manufacturing, the first decline in eight months. Statscan said auto production was hampered by the lingering semiconductor shortage, in addition to refurbishments of some assembly plants.

Output fell 1.6 per cent in construction, the industry’s second consecutive monthly drop. Statscan noted that many of Ontario’s unionized construction workers were on strike in May, leading to delays for various projects. Residential-building construction dropped in May, but activity was 11 per cent higher than at the outset of the pandemic.

“We’re seeing a downturn in renovations and improvements, which is linked to the housing market,” Mr. Brown said. “Obviously, to the extent fewer investors are flipping homes, that means they’re going to be putting less money into improving them.”

Mr. Brown also pointed to preconstruction home sales in Toronto, which have fallen sharply. “That suggests we’ll see a downturn in housing starts over the second half of the year, just because so many developers rely on those preconstruction sales to get the initial funding.”

The outlook for Canada’s economy is murky. Recession fears are rising, although very few economists are projecting a sustained downturn. The Bank of Canada forecasts growth will slow to an annualized rate of 2 per cent in the third quarter. It also expects the economy to grow 1.8 per cent in 2023 – a hefty downgrade from 3.2 per cent in a previous forecast.

“On balance, we look for growth to cool notably in the second half to below a 1-per-cent annualized clip, a marked slowdown, albeit firmer than U.S. trends,” Bank of Montreal chief economist Doug Porter wrote in a research note.

The country, he added, “can’t fully avoid the pull of a slowing U.S. economy and the Bank of Canada’s aggressive rate hike campaign.”

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Roots sees room for expansion in activewear, reports $5.2M Q2 loss and sales drop

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September 13, 2024

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TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.

The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.

“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.

The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.

But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.

Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.

“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.

“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”

Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.

The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.

In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.

Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.

The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.

The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.

Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.

Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.

It will also re-evaluate its design ranks.

Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.

Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.

This report by The Canadian Press was first published Sept. 13, 2024.

Companies in this story: (TSX:ROOT)

The Canadian Press. All rights reserved.

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Talks on today over HandyDART strike affecting vulnerable people in Metro Vancouver

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September 12, 2024

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VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.

No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.

About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.

Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.

Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.

A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”

This report by The Canadian Press was first published Sept. 12, 2024.

The Canadian Press. All rights reserved.

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Transat AT reports $39.9M Q3 loss compared with $57.3M profit a year earlier

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September 12, 2024

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MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.

The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.

The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.

Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.

On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.

Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.

This report by The Canadian Press was first published Sept. 12, 2024.

Companies in this story: (TSX:TRZ)

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