Kevin Carmichael: Economy grew at an annual rate of 6.7 per cent in the fourth quarter, much faster than the Bank of Canada was expecting
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Mar 01, 2022 • 12 hours ago • 5 minute read • 46 Comments
The Canadian economy grew at an annual rate of 6.7 per cent in the fourth quarter, much faster than the Bank of Canada was expecting, guaranteeing an interest-rate increase when policy-makers announce the results of their latest policy deliberations on March 2.
A war in Europe has upended the near-term outlook, which was dominated entirely by inflation until the middle of last week, when Russian President Vladimir Putin stunned the world by sending a wave of troops into Ukraine. Inflation remains too high for the Bank of Canada to ignore, especially with evidence of strong demand.
“Canada’s economic engine was going almost full throttle,” Arlene Kish, director of Canadian economics at S&P Global Inc., said in a note to clients.
Kish predicted a quarter-point increase, a “first step in slowing demand as supply catches up,” she said. “Geopolitical events are impacting energy prices, adding to already strong inflationary pressures, and may require the Bank of Canada to act more swiftly during the initial monetary policy tightening cycle.”
Business investment, fees related to home sales and company stockpiling led the surge in economic growth in the fourth quarter, Statistics Canada said. The latter could help offset inflation pressures, since it suggests companies were either learning how to deal with all the supply disruptions that came with the pandemic, or had decided to build their inventories in anticipation of new ones.
“The inventory component of GDP was generally a much larger boost to (fourth-quarter) growth than we had penciled in, similar to end-of-2021 GDP data in the U.S.,” Veronica Clark, an economist at Citigroup Global Markets Inc., said in a note. “This could partly be due to continued global supply issues, as inventories of intermediate goods are accumulated while final production is stalled due to shortages of some final inputs.”
A separate Statistics Canada report showed that GDP, based on output by industries, was little changed in December, suggesting the economy held up in the face of the Omicron wave of COVID-19 infections. The agency said preliminary information suggests GDP increased 0.2 per cent in January, a positive surprise, because there had been speculation that strict health restrictions in Ontario and Quebec might have caused economic growth to stall at the beginning of the year.
“These reports clear the way for the Bank of Canada to begin its hiking process,” Phil Suttle, a former Bank of England and New York Fed economist who now runs his own research firm, Suttle Economics, said in a note to his clients.
The Bank of Canada in January predicted Canada’s gross domestic product would grow at an annual rate of 5.8 per cent in the fourth quarter, a strong enough estimate for the central bank to conclude the time had come to end its promise to keep the benchmark interest rate near zero until at least the spring of 2022.
Canada’s economy ended 2021 with considerable momentum, as the fourth-quarter acceleration followed growth at an annual rate of 5.5 per cent in the third quarter, which was also much faster than the country’s economy typically expands.
Overall, GDP grew 4.3 per cent in 2021, enough to get back to $2.13 trillion, slightly more than at the end of 2019. The eight-quarter recovery was a bit faster than the average 8.75 quarters it took GDP to recover during Canada’s five recessions since 1974, according to Jocelyn Paquet, an economist at National Bank Financial.
Household spending led the most recent recovery, as Canadians took advantage of elevated savings and low interest rates to buy houses. New construction, resales and renovations were at record levels. Mortgage debt climbed 10.3 per cent in 2021, an unprecedented increase of $182.4 billion, Statistics Canada said.
That consumption impulse could begin to fade, as household disposable income dropped 1.3 per cent in the fourth quarter from the previous quarter, even as employee compensation increased 1.9 per cent.
The main reason was the federal government’s tapering of emergency benefits, as government transfers to people dropped almost 12 per cent in the final three months of 2021. Transfers were about 19 per cent of all disposable income, marking a return to pre-pandemic levels of less than 20 per cent, Statistics Canada said.
The savings rate dropped to 6.4 per cent from nine per cent, still high by recent historical standards, but down from the previous five quarters, when the savings rate was above 10 per cent.
Prices for financial assets tied to short-term interest rates suggest traders’ confidence that the Bank of Canada will raise interest rates is fading, as worries that the financial and economic sanctions the West is using to hobble Putin’s ability to fight a war could lead to a global recession or financial instability.
Inflation is probably the greater threat to Canada, at least for now. The consumer price index surged to 5.1 per cent in January from a year earlier, the biggest increase since the central bank started targeting inflation in 1991.
Even if much of that inflation is related to supply issues, and, therefore, beyond the Bank of Canada’s control, the latest GDP numbers show there is also a demand element. Commodity prices are surging anew because of the war, and that will strengthen demand in Canada because the country exports much of what Russia and Ukraine export.
The Bank of Canada’s target for year-over-year increases in the CPI is two per cent. Some economists observed inflation might also now be hurting growth, as weaker consumption could be the result of higher prices.
“This morning’s GDP reports underline the risks from waiting,” economists at RBC Capital Markets said in a report. “From a fundamental perspective, there is no real justification for the BoC to avoid raising rates due to developments in Russia.”
• Email: kcarmichael@postmedia.com | Twitter: carmichaelkevin
HALIFAX – Ottawa is negotiating a $500-million bailout for Nova Scotia’s privately owned electric utility, saying the money will be used to prevent a big spike in electricity rates.
Federal Natural Resources Minister Jonathan Wilkinson made the announcement today in Halifax, saying Nova Scotia Power Inc. needs the money to cover higher costs resulting from the delayed delivery of electricity from the Muskrat Falls hydroelectric plant in Labrador.
Wilkinson says that without the money, the subsidiary of Emera Inc. would have had to increase rates by 19 per cent over “the short term.”
Nova Scotia Power CEO Peter Gregg says the deal, once approved by the province’s energy regulator, will keep rate increases limited “to be around the rate of inflation,” as costs are spread over a number of years.
The utility helped pay for construction of an underwater transmission link between Newfoundland and Nova Scotia, but the Muskrat Falls project has not been consistent in delivering electricity over the past five years.
Those delays forced Nova Scotia Power to spend more on generating its own electricity.
This report by The Canadian Press was first published Sept. 16, 2024.
The Canadian Press. All rights reserved.
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)
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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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