The latest trade numbers suggest consumer demand is weakening, which, in theory, would allow the Bank of Canada to leave interest rates on hold because higher borrowing costs could be starting to bite.
Economy
Drop in trade imports ‘ominous’ sign for Canada’s economy
Statistics Canada reported May 4 that the value of imports dropped 2.9 per cent in March from February, and 5.9 per cent in volume terms.
“The ongoing weakness in import volumes, particularly in consumer goods and motor vehicles, suggests elevated interest rates may be weighing on household purchases heading into the middle of the year,” said Bartlett.
Seeking a ‘sweet spot’
The Bank of Canada would welcome weaker economic growth. Governor Tiff Macklem reiterated during a talk in Toronto that the economy still is in a state of “excess demand,” stoking inflationary pressure because suppliers can’t keep up with orders.
In other words, the Bank of Canada is open to leaving the benchmark interest rate at 4.5 per cent, which is four percentage points higher than it was this time a year ago.
However, the consumer price index, which the Bank of Canada uses to guide interest rates, is still increasing at annual rates that are well above the central bank’s target of two per cent. Headline inflation was 4.3 per cent in March, and while policymakers are confident it will slow to three per cent by the summer, Macklem told an audience assembled by the Greater Toronto Board of Trade that he’s worried inflation could then get stuck there.
The value of exports fell 0.7 per cent to $63.6 billion, the lowest since February 2022, mostly because of lower energy prices. Because the decline in imports was bigger, Canada recorded a trade surplus of about $922 million in March after recording a deficit the previous month, Statistics Canada said.
Rough patch
There are other signs that households are retrenching.
National Bank economist Jocelyn Pacquet observed in a note that Statistics Canada’s advance estimate of retail sales in March is for a drop of 1.4 per cent. “Household spending went through a bit of a rough patch at the end of the first quarter,” she said.
Cargo volumes fell three per cent in 2022, according to data from the Vancouver Fraser Port Authority. There were also reports of “full warehouses” near major centres such as Toronto and Montreal, as inventory piled up in March, the port authority chief executive, Robin Silvester, told The Canadian Press.
Stephen Brown, economist for Canada at Capital Economics, a research firm, said he revised his forecast for annualized growth in the first quarter to two per cent, down from 2.5 per cent. The Bank of Canada’s current forecast calls for an annualized rate of 2.3 per cent.
Bartlett at Desjardins said the drop in imports “should provide more support for the (Bank of Canada) to maintain its pause on interest rates.”
Still, consumption of goods is only one expression of consumer demand. The cost of services remains elevated, and Macklem reiterated that he won’t be satisfied until services inflation slows.
“There are some things we need to see happen that we haven’t seen yet,” he said. “If those things don’t fall into place, we are going to have a problem.”
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TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
The Canadian Press. All rights reserved.
OTTAWA – The economy added 47,000 jobs in September, while the unemployment rate declined for the first time since January to 6.5 per cent, Statistics Canada reported on Friday.
The agency says youth and women aged 25 to 54 drove employment gains last month, while full-time employment saw its largest gain since May 2022.
The overall job gains followed four consecutive months of little change, the agency said.
The unemployment rate has been steadily climbing over the past year and a half, hitting 6.6 per cent in August.
Inflation that month was two per cent, the lowest level in more than three years as lower gas prices helped it hit the Bank of Canada’s inflation target.
The central bank has cut its key interest rate three times this year, and is widely expected to keep cutting as inflation has subsided and the broader trend points to a weakening in the labour market.
Despite the job gains in September, the employment rate was lower in the month, reflecting continued growth in Canada’s population.
Statistics Canada said since the employment rate saw its most recent peak at 62.4 per cent in January and February 2023, it’s been following a downward trend as population growth has outpaced employment growth.
On a year-over-year basis, employment was up by 1.5 per cent in September, while the population aged 15 and older in the Labour Force Survey grew 3.6 per cent.
The information, culture and recreation industry saw employment rise 2.6 per cent between August and September, after seven months of little change, Statistics Canada said, with the increase concentrated in Quebec.
The wholesale and retail trade industry saw its first increase since January at 0.8 per cent, while employment in professional, scientific and technical services was up 1.1 per cent.
Average hourly wages among employees rose 4.6 per cent year-over-year to $35.59, a slowdown from the five-per-cent increase in August.
The unemployment rate among Black and South Asian Canadians between 25 and 54 rose year-over-year in September and was significantly higher than the unemployment rate for people who were not racialized and not Indigenous.
Black Canadians in that age group saw their unemployment rate rise to 11 per cent last month while for South Asian Canadians it was 7.3 per cent. For non-racialized, non-Indigenous people, it rose to 4.4 per cent.
This report by The Canadian Press was first published Oct. 11, 2024.
The Canadian Press. All rights reserved.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
The Canadian Press. All rights reserved.
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