That’s good news for those with jobs, but how good that is for the economy depends, at least in part, on whether they are also spending more, and where?
The spending habits of Canadians and their impact, for better or worse, on the economy, will be the focus of several economic reports this coming week, including June’s wholesale trade on Tuesday, retail sales on Wednesday and same-day car visits to the U.S — a proxy for cross-border shopping — on Thursday.
So far the evidence has not been encouraging.
Same-day care trips by Canadians to the U.S. have soared 8.2 per cent so far this year to a record 12.7 million, reflecting a surge in cross-border shopping that has flooded malls just south of the border to the point that even some Americans are complaining.
“Some residents of Washington state are so frustrated by the crowds of Canadian cross-border shoppers that they created a Facebook page called ‘Bellingham Costco needs a special time just for Americans’,” according to an article in the Ottawa Citizen this past week. The story, however, also noted that’s not the case in Upper New York State where Canadian shoppers are welcomed as an integral part of the local economy.
“Canadian business is very much a part of our commerce in Ogdensburg,” Sandra Porter, director of the city’s chamber of commerce told the Citizen.
That’s not good, however, for Canadian retailers, who are facing slumping sales, or the Canadian economy, which is also weakening. And a concern is that the Harper government’s recent move to increase the amount Canadians shoppers can bring back duty free will encourage even more Canadians to shop south of the border.
“Retail sales have failed to gain ground in recent months, restrained by weaker gasoline prices and waning vehicle sales,” notes CIBC World Markets economist Emanuella Enenajor. “June was likely no exception, as retail sales may have flat lined, held back by softer prices at the pump.
“Even if retail volumes move up mildly in June, declines in previous months point to a deceleration in consumer spending in the second quarter,” Enenajor says.
Combined with weakness in other sectors of the economy, CIBC projects the slump in retail sales, will limit overall GDP growth to an anemic annual pace of just 1.8 per cent in the spring quarter.
If consumers aren’t buying, retailers will also be cutting back on their purchases, and that’s expected to be reflected in a slowdown in wholesale trade, which Scotia Economics projects rose just 0.3 per cent in June, down from 0.9 per cent in May.
The slowdown in the economy, combined with last week’s report showing inflation has unexpectedly fallen to just 1.3 per cent, will also likely be reflected in more dovish monetary policy comments by Bank of Canada Mark Carney during a speech to Canadian Auto Workers in Toronto on Wednesday.
Further, the Bank of Canada in a report last week said the consumer price index overstates inflation by as much as 0.6 per cent a year, suggesting inflation now could in reality be less than one per cent.
And based on recent trends, inflation could be headed towards zero in coming months “even if it doesn’t show up in CPI,” says Scotia Economics economist Derek Holt.
“A serious undershooting of the Bank of Canada’s inflation target … combined with disappointingly soft economic growth are increasingly challenging the Bank of Canada’s hawkish rhetoric,” notes Holt. Scotia Economics forecasts that second quarter growth weakened to just 1.4 per cent, well below the central bank’s downwardly revised 1.8 per cent projection.
However, Carney during his speech to the union or the news conference that follows will also likely point to the healthy wage growth in recent months, though with inflation as low as it is, he would be hard pressed to justify any concerns about any wage inflation.
Also, the latest statistics on wage growth may be overstating the increase in earnings, says CIBC World Markets economist Avery Shenfeld, casting suspicions on the accuracy of another Statistics Canada report.
Among the reasons for questioning the accuracy of the wage data, collected during Statistics Canada’s monthly labour force survey, is that it is based in part on responses from households “about hours worked and pay for other members of their households.”
“Do you know how many hours your spouse or kids actually worked, or exactly what they got paid?” asks Shenfeld.
Shenfeld notes as well that the reported 3.9 per cent growth in wages is at odds with the Bank of Canada’s estimate of the slack in the economy, and that the jobless rate, at 7.3 per cent, is still well above the estimated 6.5 per cent below which demand for workers could start pushing up wages.
Meanwhile, Statistics Canada will also report on employment insurance which will be scrutinized to see whether the recent slump in jobs is showing up in increases in either recipients or payments, and on crop production, also of special interest in light of the recent drought in much of Canada.
However, Prime Minister Stephen Harper will be trying to shift the focus of Canadians northward with his annual summertime tour of the Arctic starting Monday. During his five-day trek across the three territories and northern Manitoba he is expected to make a string of federal funding announcements to promote economic development in the resource rich and rapidly thawing north.
Looking south to the U.S., the focus this week will be on the release Wednesday of minutes from the July 31-Aug. 1 Federal Reserve Board meeting for clues to what options it is looking at should it need to stimulate that economy and to a report on July home sales for evidence that the slow housing recovery is still underway.
Of special interest in Europe this week will be the meeting Thursday between Angela Merkel, fresh from her visit here, and Greek Prime Minister Antonis Samaras during which the German chancellor will likely be demanding tangible evidence she can take to the voters at home that Greece is making progress in cleaning up its fiscal mess.
Now, looking back to last week, here’s what was making economic news.
TSX climbs as Merkel lauds Canadian fiscal discipline - Bloomberg, Aug 16 – Canadian stocks rose, sending the Standard & Poor’s/TSX Composite Index to the highest level since May, after German Chancellor Angela Merkel affirmed support for the euro during a press conference in Ottawa and U.S. building permits jumped to a four-year high.
Worldwide, businesses back Obama – The Financial Times, Aug 16 – A new worldwide poll of business leaders indicates a majority say a second Obama term will have a better impact on the world economy that a Mitt Romney presidency.
Moody’s reaffirms Canada’s triple-A credit rating – Canadian Press, Aug 16 – New York-based Moody’s Investors Service Canada said Thursday that Canada’s economic performance and the financial position of its federal government have held up well enough to maintain the company’s top credit rating.
Merkel, Harper stop short of joint commitment to trade talk deadline – iPolitics, Aug 16 – There is hope for a quick resolution to Canada-EU free trade negotiations, but no firm commitment emerged Thursday from either Canada or Germany that they would be wrapped up by the end of the year.
U.S. economy buoyed by increased factory output, builder confidence – Canadian Press, Aug 15 – The U.S. economy looked more resilient Wednesday after reports showed factories produced more goods in July, homebuilders grew more confident in the housing recovery, and consumer prices stayed flat.
Not just oil: Report says Canada-China clean tech trade has potential – iPolitics, Aug 15 – Canada’s trade relationship with China is often whittled down to the exchange of natural resources for cheap consumer goods, but a bilateral government study released on Wednesday argues there are plenty of opportunities for Canadian clean technology companies – they just need to be fully exploited.
Canadian, German firms meet as Merkel arrives in Ottawa – Canadian Press, Aug 15 – As Chancellor Angela Merkel and Stephen Harper kicked off their two-day visit at the prime minister’s retreat Wednesday night, a major German warship-builder and a leading Canadian defence contractor were among 10 companies poised for talks of their own.
Flaherty still firm on denying Europe further IMF funds – iPolitics, Aug 15 – Finance Minister Jim Flaherty told reporters ahead of his annual policy retreat that Canada would stay out of donating more funds to the IMF in an effort to ease financial woes in Europe – a view consistent to one he expressed months ago.
Drought and drop in demand dampen Deere’s outlook – Bloomberg, Aug 15 – Deere & Co., the largest maker of farm equipment, posted fiscal third-quarter profit that trailed analysts’ estimates and cut its full-year earnings forecast after demand slowed outside the U.S. and Canada.
Staples cuts outlook on weak global demand – Reuters, Aug 15 – The largest U.S. office supply chain reported lower-than-expected quarterly results on weak demand in North America, Europe and Australia, prompting it to cut its profit and sales forecasts for the year.
Australian court OKs logo ban on cigarettes – Canadian Press, Aug 14 – Australia’s highest court upheld the world’s toughest law on cigarette promotion on Wednesday despite protests from tobacco companies that argued the value of their trademarks will be destroyed under new rules that will strip all logos from cigarette packs.
Canadian market faces worst decline since ’98 – Bloomberg, Aug 13 – Canadian stocks are poised for their worst year since 1998 relative to global equities as a slowing economy weighs on commodities and analysts predict the first drop in corporate profits in three years.
Charest jumps on economic nationalism bandwagon – Canadian Press, Aug 13 – Quebec could become the first province to arm companies with a veto power over foreign takeovers, under a proposal with potential domino-effect implications for other parts of the country.
Big Three, autoworkers face off – iPolitics, Aug 13 – Contracts, costs, and cars on the line beginning Tuesday as the CAW sits down in Toronto with Ford, General Motors and Chrysler to negotiate new three-year contracts.
Ontario government, RIM team up to aid laid-off workers – Canadian Press, Aug 13 – The Ontario government is teaming up with Research In Motion to help laid off workers in the city where the company, which is working through a restructuring that includes slashing jobs, is based.
Source: ipolitics
Author: Eric Beauchesne
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