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Economy

David Rosenberg: The Canadian economy is mired in weak fundamentals and investors are taking note

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David Rosenberg is founder of Rosenberg Research, and author of the daily economic report, Breakfast with Dave.

The Canadian dollar has broken sharply lower to below 74 US cents, back to where it was in late May. At that time, oil prices (WTI) were US$68 per barrel; today they are near US$80. The CRB index, which tracks commodity markets, was 540 in May and has since edged up to 550. So here we have seen the loonie go back to the same level it was three months ago when commodity prices were lower than they are now.

This speaks to a downgrade of the domestic economy, and deservedly so.

We have now seen employment decline in two of the past three months and the number of weekly hours worked stagnate in the March-July period. The unemployment rate has climbed 0.6 of a percentage point from the cycle low to 5.5 per cent, a signal that a recession is quickly approaching.

Meanwhile, June’s real GDP declined and the trade picture has recently shifted from surplus to deficit. The once-hot housing market is also showing vivid signs of cooling down. Strip out the year-over-year surge of 30.6 per cent in mortgage interest costs, and headline inflation is running near target at 2.4 per cent, and at 2.3 per cent for the core index.

At the same time, the Bank of Canada is signalling another rate hike, which is beyond nutty, but is sure to be the last of this economic cycle.

From a big-picture standpoint, the Canadian economy is mired in weak fundamentals. The budgetary situation is out of control and there is no serious attempt in Ottawa to promote fiscal stability. There is a false glow attached to a 1.9-per-cent year-over-year real GDP growth rate at a time when the pace of population growth is running at a 2.4 per cent annual rate, courtesy of the immigration boom. That means the economy, in real per-capita terms, is contracting by 0.5 per cent on an annualized basis.

The real problem with the domestic economy is its composition. There is too much reliance on consumer spending, which has expanded by more than 20 per cent in the past decade. Housing has seen closer to high-single-digit growth. These are non-productive sources of growth. Business capital spending on both machinery/equipment and plants has contracted 10 per cent apiece over the past 10 years. Spending is in the wrong areas of the economy in terms of generating lasting positive multiplier impacts.

What is shocking is that there has been zero growth in these productive areas of the private sector over the past decade. That scenario is the product of a government which has lacked the will to use the tax and regulatory system to promote capital investment – it instead focuses on redistributing national income. As such, productivity in Canada is down 1.4 per cent year-over-year and has contracted outright sequentially for four consecutive quarters and in 10 of the past 11.

This is what is missing in Canada, and it is a sad state of affairs because productivity growth is the mother’s milk for future economic prosperity. Instead, what Ottawa has done is attempt to camouflage the situation via the most aggressive immigration program since the CPR embarked on building the transcontinental railway in the late 1870s.

This is not to say immigration is a bad thing. But its fast pace does complicate the inflation picture – especially in housing – while the beauty of productivity is that it promotes noninflationary growth and makes the Bank of Canada’s job a whole lot easier.

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Economy

Tentative deal reached in Metro Vancouver grain strike, federal minister says

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VANCOUVER – Canada’s labour minister says striking grain terminal workers in Metro Vancouver and their employers have reached a tentative labour deal.

Steven MacKinnon announced the agreement between Grain Workers Union Local 333 and the Vancouver Terminal Elevators’ Association in a post on social media platform X, but provided no other details.

The union confirmed the tentative deal in a statement on Facebook, saying its members will conduct the ratification vote by Oct. 4.

The notification from the union also says picket lines were to be removed Saturday and members will return to work pending ratification, ending the strike that had paralyzed grain shipments from Metro Vancouver’s port.

The dispute had previously led to picket lines going up at six Metro Vancouver grain terminals on Tuesday as about 600 workers went on strike.

Canadian grain producers had urged a resolution in the dispute, noting about 52 per cent of the country’s grains moved through Metro Vancouver terminals last year en route to being exported.

Farmers say the strike, happening during crop harvesting, would result in as much as $35 million per day in lost exports.

The Western Grain Elevator Association said on Friday that talks had stalled after two days of negotiations this week, with the employer saying it had increased its offers to settle “outstanding issues.”

The employers group had said they’ve reached the end of their “financial ability to conclude an agreement that industry can absorb” with the last offer, and it was up to the federally appointed mediator to report the results to MacKinnon for the next steps.

MacKinnon says in his tweet that both parties put in “the work necessary to get a deal done.”

This report by The Canadian Press was first published Sept. 28, 2024.

The Canadian Press. All rights reserved.

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S&P/TSX composite down Friday, U.S. markets mixed as Dow notches another high

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TORONTO – Canada’s main stock index dipped lower Friday despite strength in energy stocks, while U.S. markets were mixed as the Dow eked out another record but tech stocks dragged.

The mood Friday was mixed after a strong week for equities in both Canada and the U.S., said Andrew Buntain, vice-president and portfolio manager at Fiduciary Trust Canada.

The S&P/TSX composite index closed down 77.01 points at 23,956.82, one day after it . It closed over 24,000 for the first time on Thursday.

The strength this past week wasn’t just in North American markets, noted Buntain, as Chinese stocks enjoyed a rally after the country’s central banks announced a suite of measures intended to boost the economy.

Meanwhile, an undercurrent of broadening strength continued this week as investors spread out their interest beyond a narrow set of tech giants, said Buntain.

“Some of the sectors that have been ignored for several years have been some of the better performers this year,” he said.

“We’re very encouraged by that.”

In New York on Friday, the Dow Jones industrial average was up 137.89 points at 42,313. The S&P 500 index was down 7.20 points at 5,738.17 after setting an all-time high on Thursday, while the Nasdaq composite was down 70.70 points at 18,119.59.

A report Friday on one of the U.S. central bank’s preferred measures of inflation — the personal consumption expenditures price index — showed continued cooling.

The Federal Reserve started lowering its key interest rate last week, and is expected to keep going this fall and into 2025.

However, the Fed’s next interest rate decision isn’t until November, noted Buntain, so there’s plenty of data for the central bank to take in yet — including next week’s labour report.

The job market has been an increasingly key focus for the central bank after recent reports showed cooling in that area of the economy. Friday’s report also showed consumer spending in August didn’t meet economists’ expectations.

In Canada, where the Bank of Canada is set for its next rate decision later in October, Friday brought a GDP report that was a little stronger than expected, said Buntain.

“The Bank of Canada has already delivered three cuts and signalled maybe some further reductions,” he said.

If inflation continues to move lower, Buntain added, the Bank of Canada could even announce an outsized half-percentage-point cut, echoing the Fed’s move last week.

The Canadian dollar traded for 74.08 cents US compared with 74.22 cents US on Thursday.

The November crude oil contract was up 51 cents at US$68.18 per barrel and the November natural gas contract was up 15 cents at US$2.90 per mmBTU.

The December gold contract was down US$26.80 at US$2,668.10 an ounce and the December copper contract was down four cents at US$4.60 a pound.

— With files from The Associated Press

This report by The Canadian Press was first published Sept. 27, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Statistics Canada reports real GDP grew 0.2% in July

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OTTAWA – Statistics Canada says real gross domestic product grew 0.2 per cent in July, following essentially no change in June, helped by strength in the retail trade sector.

The agency says the growth came as services-producing industries grew 0.2 per cent for the month.

The retail trade sector was the largest contributor to overall growth in July as it gained one per cent, helped by the motor vehicles and parts dealers subsector which gained 2.8 per cent.

The public sector aggregate, which includes the educational services, health care and social assistance, and public administration sectors, gained 0.3 per cent, while the finance and insurance sector rose 0.5 per cent.

Meanwhile, goods-producing industries gained 0.1 per cent in July as the utilities sector rose 1.3 per cent and the manufacturing sector grew 0.3 per cent.

Statistics Canada’s early estimate for August suggests real GDP for the month was essentially unchanged, as increases in oil and gas extraction and the public sector were offset by decreases in manufacturing and transportation and warehousing.

This report by The Canadian Press was first published Sept. 27, 2024.

The Canadian Press. All rights reserved.

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