The Canadian consumer has been one of the unsung heroes of the economy, but the latest retail sales data shows consumption fatigue at a time when the Canadian businesses need them to open up their wallets.
Retail sales growth slowed to just 1.6 per cent in 2019 — the slowest pace since 2009, according to data from Statistics Canada. Of particular concern was that December sales were flat — a time when shops see their biggest traffic in the year.
“The holiday period didn’t really accelerate things,” said Ed Strapagiel, a Scarborough, Ont., retail and marketing consultant. He says that declines in brick-and-mortar shopping, automotive and gasoline sales dragged down the sector in particular.
As commodity prices falter and manufacturing sees uncertainty, the Canadian consumer has stepped up to the plate, driving up, among other things, retail sales over the past few years.
Canadians racked up outstanding credit card balances of more than $100 billion in the third quarter of 2019 for the first time, according to TransUnion Co. And the average Canadian’s non-mortgage debt may rise by another 1 per cent to $31,531 by the end of 2020, according to a forecast by the credit-tracking agency.
But broader economic factors are sapping consumer sentiment.
“The lagged impact of earlier interest rate hikes cutting into household spending power likely is part of the explanation, and also helps to explain why household insolvency rates edged higher last year,” said RBC Capital Market economist Nathan Janzen in a research note last week.
One potential bright spot in the retail data are e-commerce sales, which grew by 31.1 per cent in the month of December from the same time last year, to 4.6 per cent of all retail sales, a record high online market share. Given the difficulty of tracking online sales, that number could be even higher.
“What’s not captured in the Canadian data is what Canadians are spending on foreign websites. Statistics Canada does its surveys on strictly Canadian businesses,” Strapagiel said, which leaves out some online spending at foreign retailers.
Strapagiel says that the retail slowdown is a cyclical issue as the economy worsens, and that inflation and population growth should continue to push up sales over the long-term.
“All things considered, retail should be doing about 3.5 per cent per annum,” he said, describing the long-term trend, “and we’re quite well below that now.”
Statistics Canada is expected to release fourth quarter GDP numbers on Friday, which could help the Bank of Canada decide on interest rates next Wednesday.
RBC Capital Markets thinks transitory factors cut about 0.5 percentage points from annualized growth in the final quarter of 2019, slightly more than in the previous quarter.
“With underlying growth also appearing to have slowed, our Q4/19 forecast has been lowered to 0.3 per cent,” RBC said, noting that the first quarter of 2019 may see a below-trend 1.4 per cent GDP gain.
“A permanent hit to auto production following the closure of the GM Oshawa plant will subtract a couple of tenths from growth in the quarter. The coronavirus outbreak will also represent an economic headwind in early-2020.”
The retail slowdown, combined with disruptions from the coronavirus, or COVID-19, and the shutdown of rail networks, has some analysts warning the risk of recession in the Canadian economy is high.
“Auto, rail, and teacher strikes, manufacturing and retail sector layoffs, the COVID-19 outbreak and now rail blockades are all hitting an already vulnerable Canadian economy,” said Tony Stillo, an analyst at Oxford Economics. “We think Canada’s 12-month recession odds remain worrisome at 40 per cent.”
• Email: KMartine@postmedia.com
Statistics Are Mixed But On Balance Say The Economy Is Weak – Forbes
If you listen to the White House, you hear that the economy is strong. Others will tell you that it has already sunk into recession. Such “analytical” differences are common at almost all times and almost always reflect the speaker’s political agenda more than any straightforward reading of the statistical evidence. These days things look more ambiguous than usual. Statistics offer ammunition for both views. The president can point, and he does, to the robust growth in payrolls. Those with a less sanguine view of things can point to among other things two consecutive quarterly declines in the nation’s real gross domestic product (GDP). Although the balance of the evidence points clearly toward a weakening economy, it is also fair to admit that the statistics paint a strangely mixed picture.
The Labor Department’s monthly employment report illustrates. On the positive side, the July survey of employers showed a striking expansion in payrolls, a gain of 528,000 positions. Private payrolls expanded by 471,000 positions. Though these are not record increases, they are nonetheless beyond most historical experience and far beyond where consensus expectations were. But in the same report, the survey of households showed July jobs up only 179,000. This tells quite a different story from the employers’ tally. The jobs gain was not only much smaller but was insufficient to overcome the June decline in jobs so that over the two months June and July the nation by this measure shed some 136,000 jobs.
Despite this contrast – still unexplained by the Labor Department – what tips the balance to the negative side is the flow of information from elsewhere and from the rest of the department’s monthly report. True, the unemployment rate dipped slightly from 3.6% of the workforce in June to 3.5% in July, but department also reported that some 538,000 people dropped out of the workforce in July. Since they are neither working nor seeking work, this movement more than accounts for the fall in the unemployment rate. What is more, the average weekly hours worked remained unchanged in July at 34.6, still down from April’s measure.
Outside the Labor Department’s accounting, there are of course the first and second quarter declines in real GDP, precipitous declines in consumer confidence, and reporting by the Institute of Supply Management (ISM) of slowing overall and an outright decline in the new orders part of the measure. This list of negatives is of course far from complete, but it is nonetheless indicative.
Apart from the current statistics that point to economic decline, two other considerations weigh heavily on the economy’s prospects. One is the ongoing inflation. At last measure, for June, the consumer price index (CPI) rose 9.1% from year-ago levels. This kind of price pressure seems likely to last. Even if it abates some — say to 8% or 7% — it will remain sufficient to impair economic growth prospects by eroding business and consumer confidence and discouraging the saving and investment on which economic growth ultimately depends. These effects could bring on recession all on their own. It certainly would not be the first time in history that inflation did so.
A still more potent recessionary threat emerges from the Federal Reserve’s (Fed’s) fight against inflation. The Fed began this effort last March. Before then, it had pursued a pro-inflationary monetary policy. It had kept short-term interest rates near zero and poured new money into financial markets buying bonds directly – mostly treasuries and mortgages – a practice the Fed refers to as “quantitative easing.” But since the March policy shift, the Fed has drained money from financial markets by selling from the hoard of bonds it had previously acquired and by pushing up short-term interest rates some 1.75 percentage points. While these are standard anti-inflation moves, they also restrain economic activity. What is more, the Fed seems determined to take further steps along these lines in coming weeks and months – a pattern that will make recession still more likely.
If this assessment is correct – and it does seem likely – then the statistics on which the optimists rely – including the White House – will turn negative in coming months. The evidence of economic weakness, if not outright recession, will become overwhelming. Whether this resolution of the economic picture takes place in the next month or two remains uncertain, but it is hardly likely that the ambiguities will remain in place very much longer.
Ontario Supports Significant Aerospace Investment to Boost Regional Economy – Government of Ontario News
How to Improve your Credit Score in Canada
Improving your credit score is important for many reasons. First, it could help you get a lower interest rate on your loans or mortgages. Second, it could help you qualify for better rates on car loans, cell phone plans, and other types of loans. Third, having a good credit score could increase your chances of being approved for a job or apartment. Finally, keeping your credit score high can help you avoid becoming financially stressed in the future. Here are some of the ways you can improve your credit score in Canada:
Monitor your payment history
Your payment history is the most important factor for your credit score.
To improve your payment history:
- always make your payments on time
- make at least the minimum payment if you can’t pay the full amount that you owe
- contact the lender right away if you think you’ll have trouble paying a bill
- don’t skip a payment even if a bill is in dispute
Use credit wisely
Don’t go over your credit limit. If you have a credit card with a $5,000 limit, try not to go over that limit. Borrowing more than the authorized limit on a credit card can lower your credit score.
Try to use less than 35% of your available credit. It’s better to have a higher credit limit and use less of it each month.
- a credit card with a $5,000 limit and an average borrowing amount of $1,000 equals a credit usage rate of 20%
- a credit card with a $1,000 limit and an average borrowing amount of $500 equals a credit usage rate of 50%
If you use a lot of your available credit, lenders see you as a greater risk. This is true even if you pay your balance in full by the due date.
To figure out the best way to use your available credit, calculate your credit usage rate. You can do this by adding up the credit limits for all your credit products.
- credit cards
- lines of credit
For example, if you have a credit card with a $5,000 limit and a line of credit with a $10,000 limit, your available credit is $15,000.
Once you know how much credit you have available, calculate how much you are using. Try to use less than 35% of your available credit.
For example, if your available credit is $15,000, try not to borrow more than $5,250 at a time, which is 35% of $15,000.
Increase the length of your credit history
The longer you have a credit account open and in use, the better it is for your score. Your credit score may be lower if you have credit accounts that are relatively new.
If you transfer an older account to a new account, the new account is considered new credit.
For example, some credit card offers come with a low introductory interest rate for balance transfers. This means you can transfer your current balance to this new product. The new product is considered new credit.
Consider keeping an older account open even if you don’t need it. Use it from time to time to keep it active. Make sure there is no fee if the account is open but you don’t use it. Check your credit agreement to find out if there is a fee.
Limit your number of credit applications or credit checks
It’s normal and expected that you’ll apply for credit from time to time. When lenders and others ask a credit bureau for your credit report, it’s recorded as an inquiry. Inquiries are also known as credit checks.
If there are too many credit checks in your credit report, lenders may think that you’re:
- urgently seeking credit
- trying to live beyond your means
How to control the number of credit checks
To control the number of credit checks in your report:
- limit the number of times you apply for credit
- get your quotes from different lenders within a two-week period when shopping around for a car or a mortgage. Your inquiries will be combined and treated as a single inquiry for your credit score.
- apply for credit only when you really need it
“Hard hits” versus “soft hits”
“Hard hits” are credit checks that appear in your credit report and count toward your credit score. Anyone who views your credit report will see these inquiries.
Examples of hard hits include:
- an application for a credit card
- some rental applications
- some employment applications
“Soft hits” are credit checks that appear in your credit report but only you can see them. These credit checks don’t affect your credit score in any way.
Examples of soft hits include:
- requesting your own credit report
- businesses asking for your credit report to update their records about an existing account you have with them
Use different types of credit
Your score may be lower if you only have one type of credit product, such as a credit card.
It’s better to have a mix of different types of credit, such as:
- a credit card
- a car loan
- a line of credit
A mix of credit products may improve your credit score. Make sure you can pay back any money you borrow. Otherwise, you could end up hurting your score by taking on too much debt.
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