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Economy

Red flags on Canadian economy abound, but it might be too soon to sound the alarm – Financial Post

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The Canadian economy is labouring.

Statistics Canada on Dec. 23 reported that gross domestic product dropped 0.1 per cent in October, the first decline in eight months. Last week, it observed a drop in sales at retailers, wholesalers and factories. And the agency’s latest inflation report showed that the average of the Bank of Canada’s three preferred price measures was 2.2 per cent, the highest in a decade.

Reasons for alarm? That depends on where you were sitting when this mini-parade of numbers started rolling out.

Veronica Clark, a Citibank economist in New York who keeps an eye on Canada, advised her clients after the GDP report that the “recent string of softer data does not yet raise concerns of a substantial slowdown, but it will be important to see activity data bounce back in early 2020.”

One of the main jobs of a Bay Street or Wall Street economist is predicting the trajectory of interest rates. Clark’s bet is that the Bank of Canada will leave borrowing costs unchanged next year. Rivals who think Governor Stephen Poloz and his deputies could be forced to cut interest rates have taken a dimmer view of the latest data.

“Don’t sound the ‘all clear’ for the Canadian economy just yet, as October’s GDP results, alongside the drop we saw in November employment, casts some doubt on momentum late this year,” said Avery Shenfeld, chief economist at CIBC World Markets.

Shenfeld noted that Canada’s economy is now on track to grow at an annual rate of less than one per cent in the fourth quarter, compared with the Bank of Canada’s October estimate of 1.3 per cent. “That’s not enough to put January on tap for a rate cut, but if joined by softer jobs performance, would leave a March rate cut alive,” he said.

About those November employment numbers: the outsized drop of 71,000 should be dismissed as an outlier along with the outsized gains of 107,000 and 81,000 that StatCan’s Labour Force Survey generated in April and August, respectively. StatCan’s measure of trend hiring shows employment growth is slowing, but at a high level.

“We don’t normally put a lot of weight on individual data points, especially the labour market report, which is a very volatile report,” Poloz told reporters in Toronto on Dec. 12. “You tend to see through these things and watch the trend. And the trend has been quite a positive one for the labour market.”

Last week, the Canadian unit of Automatic Data Processing Inc., a big provider of payroll services that uses its data to generate employment estimates, said Canada added almost 31,000 jobs in November, an increase from 3,000 new positions in October and 26,000 in September. There are weak spots, particularly Alberta, but the labour market overall still has momentum, if only because the technology industry continues to rapidly expand.

“We have capacity for 200 Canadians to come on board,” Will Buckley, Canada manger at Xero Ltd., a business software firm from New Zealand that opened an office in Toronto earlier this month, said in an interview. “We want to fill this building.”

Buckley said Xero, which targets smaller companies, was oblivious to signs of slower growth. That makes sense. Sometimes decisions are bigger than simple supply-and-demand calculations. The economy is going digital and companies must pay up to join the cloud or quit.

The information-and-communication technology sector represented about four per cent of the economy when StatCan started measuring its contribution to GDP in January 2007. The segment now represents around five per cent of GDP and continues to grow. Companies that are grouped under “computer assisted design and related services” generated output of $33.5 billion in October, seven per cent more than in October 2018 and 71 per cent more than in October 2007.

Traditional manufacturers, meanwhile, are struggling around the world. The trade wars are choking investment and demand, while tariffs have diminished profit margins. But it’s possible that 2019 could represent a nadir for global manufacturing. The new North American free-trade agreement is on its way to being ratified and the Donald Trump administration and China appear to have agreed to a ceasefire in their fight for commercial supremacy. China also cut tariffs on more than 800 products that Bloomberg said were worth close to US$400 billion in 2018.

It would be wrong to assume the world is back to normal, but it would also be a mistake to conclude that factory output will continue to be as weak as it was in 2019.

The reddest flags in the latest GDP report are retail and wholesale trade, which dropped 1.1 per cent and one per cent, respectively. (The drop in retail output was the biggest in three years.) Sellers of building materials and related supplies recorded less output for the fourth consecutive month, adding colour to the decision of Lowe’s Cos. Inc. in November to close 34 “underperforming” stores. Automobile sellers also posted a decline, highlighting the trend of generally weaker sales of cars and trucks around the world.

Poloz is sensitive to signs of flagging consumption. He’s assumed for years that record levels of household debt would eventually result in less spending. But that doesn’t mean he’s prepared to shrug off evidence that his assumption is coming true. The Bank of Canada in its last policy statement of 2019 said future decisions will depend in part on whether consumer spending continues to demonstrate resilience in the face of weaker overall economic growth.

StatCan’s reports on retail sales will factor into that decision, but it’s reasonable to assume the central bank will be gathering other data. During a speech at the San Francisco Federal Reserve in November, Poloz noted that Canadian purchases on Amazon are counted in the monthly trade data. “In Canada, everybody I’m talking to shops on Amazon,” the governor said. “Amazon doesn’t meet the definition of a Canadian retailer. No bricks and mortar,” he continued. “These are conventions. It takes a long time to build the methodology to get it right.”

Amazon said last month’s Black Friday sales produced the biggest shopping day in the company’s history. Ottawa-based Shopify Inc., which makes e-commerce software for smaller companies, said its merchants generated almost US$3 billion in sales that weekend, compared with about US$2 billion in 2018.

Those are fuzzy indicators and there’s no indication of how much of that activity occurred in Canada. Still, it’s reasonable to assume that an economy at full employment did its share of Black Friday shopping. Canada probably has a little more steam heading into 2020 than the most recent data suggest.

Financial Post

• Email: kcarmichael@nationalpost.com | Twitter:

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Economy

Mark Carney to lead Liberal economic task force ahead of next election

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NANAIMO, B.C. – Former Bank of Canada governor Mark Carney will chair a Liberal task force on economic growth, the party announced Monday as Liberal MPs meet to strategize for the upcoming election year.

Long touted as a possible leadership successor to Prime Minister Justin Trudeau, Carney was already scheduled to address caucus as part of the retreat in Nanaimo, B.C., this week.

The Liberals say he will help shape the party’s policies for the next election, and will report to Trudeau and the Liberal platform committee.

“As chair of the Leader’s Task Force on Economic Growth, Mark’s unique ideas and perspectives will play a vital role in shaping the next steps in our plan to continue to grow our economy and strengthen the middle class, and to urgently seize new opportunities for Canadian jobs and prosperity in a fast-changing world,” Trudeau said in a statement Monday.

Trudeau is expected to address Liberal members of Parliament later this week. It will be the first time he faces them as a group since MPs left Ottawa in the spring.

Still stinging from a devastating byelection loss earlier this summer, the caucus is now also reeling from news that its national campaign director has resigned and the party can no longer count on the NDP to stave off an early election.

Last week, NDP Leader Jagmeet Singh ended his agreement with Trudeau to have the New Democrats support the government on key votes in exchange for movement on priorities such as dental care.

All of this comes as the Liberals remain well behind the Conservatives in the polls despite efforts to refocus on issues like housing and affordability.

Some Liberal MPs hope to hear more about how Trudeau plans to win Canadians back when he addresses his team this week.

Carney appears to be part of that plan, attempting to bring some economic heft to a government that has struggled to resonate with voters who are struggling with inflation and soaring housing costs.

Trudeau said several weeks ago that he has long tried to coax Carney to join his government. The economist and former investment banker spent five years as the governor of the Bank of Canada during the last Conservative government before hopping across the pond to head up the Bank of England for seven years.

Carney is just one of a host of names suggested as possible successors to Trudeau, who has insisted he will lead the party into the next election despite simmering calls for him to step aside.

Those calls reached a new intensity earlier this summer when the Conservatives won a longtime Liberal stronghold in a major byelection upset in Toronto—St. Paul’s.

But Trudeau held fast to his decision to stay and rejected calls to convene his entire caucus over the summer to respond to their concerns about their collective prospects.

The prime minister has spoken with Liberal MPs one-on-one over the last few months and attended several regional meetings ahead of the Nanaimo retreat, including Ontario and Quebec, which together account for 70 per cent of the caucus.

While several Liberals who don’t feel comfortable speaking publicly say the meetings were positive, the party leader has mainly held to his message that he is simply focused on “delivering for Canadians.”

Conservative House leader Andrew Scheer was in Nanaimo ahead of the meeting to express his scorn for the Liberal strategy session, and for Carney’s involvement.

“It doesn’t matter what happens in this retreat, doesn’t matter what kinds of (communications) exercise they go through, or what kind of speculation they all entertain about who might lead them in the next election,” said Scheer, who called a small press conference on the Nanaimo harbourfront Monday.

“It’s the same failed Liberal policies causing the same hardships for Canadians.”

He said Carney and Trudeau are “basically the same people,” and that Carney has supported Liberal policies, including the carbon tax.

The three-day retreat is expected to include breakout meetings for the Indigenous, rural and women’s caucuses before the full group convenes later this week.

This report by The Canadian Press was first published Sept. 9, 2024.

The Canadian Press. All rights reserved.

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Economy

S&P/TSX composite down more than 200 points, U.S. stock markets also fall

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TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.

The S&P/TSX composite index was down 239.24 points at 22,749.04.

In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.

The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.

The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.

The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.

This report by The Canadian Press was first published Sept. 6, 2024.

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

The Canadian Press. All rights reserved.

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Economy

Here’s a quick glance at unemployment rates for August, by province

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OTTAWA – Canada’s national unemployment rate was 6.6 per cent in August. Here are the jobless rates last month by province (numbers from the previous month in brackets):

_ Newfoundland and Labrador 10.4 per cent (9.6)

_ Prince Edward Island 8.2 per cent (8.9)

_ Nova Scotia 6.7 per cent (7.0)

_ New Brunswick 6.5 per cent (7.2)

_ Quebec 5.7 per cent (5.7)

_ Ontario 7.1 per cent (6.7)

_ Manitoba 5.8 per cent (5.7)

_ Saskatchewan 5.4 per cent (5.4)

_ Alberta 7.7 per cent (7.1)

_ British Columbia 5.8 per cent (5.5)

This report by The Canadian Press was first published Sept. 6, 2024.

The Canadian Press. All rights reserved.

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