This coming week, Canadians will get a clearer picture of just how far the economy has sunk into what TD Bank last week called a “soft patch” but may find that in fact it’s now stuck in a sinkhole.Be forewarned, it doesn’t look good. With weakness widely expected in reports on both July retail sales Tuesday and overall economic growth Friday, one projection posits the economy actually contracted during the month and could be on track for a quarterly decline as well.
That would be “seriously” short of the two-per-cent quarterly growth the Bank of Canada is still projecting, which itself is a downward revision from its previous 2.4 per cent forecast, notes Derek Holt, economist at Scotia Economics, which expects overall output fell 0.3 per cent in July.
Last week’s reports of a deeper-than-expected slump in wholesale activity that month, another flood of cross border shopping by Canadians, and weakness in both imports and exports clearly don’t bode well for the economy.
“Our hunch is that retail sales won’t help the cause in that we already know that large hits were taken by auto sales, gasoline prices and Statistics’ Canada’s survey of large retailers for that month,” Holt says, adding that Scotia expects sales fell at least 0.5 per cent, and noting that would be the second straight monthly drop, the third in four months and fourth in the past six.
In other words, another decline in retail sales cannot be dismissed as a blip.
While other analysts are less pessimistic, generally projecting marginal growth in retail sales and a flat economy, most agree that growth will come in much weaker this quarter and this year than the central bank’s projections.
“Our near term outlook for growth over the balance of the year falls well below the Bank of Canada’s estimates in the July Monetary Policy Report,” says TD Economics.
Some analysts suspect governor Carney may acknowledge that reality in comments he will be making Monday to a business audience in Ottawa. If not the central bank will have little choice but to do so in the next Monetary Policy Report in October.
Regardless, most now expect the central bank, despite hints to the contrary from Carney, won’t be raising interest rates until well into next year at the earliest.
“Also, with inflation running well below their third quarter forecast, we’re at least a year away from any rate hikes,” says Robert Kavcic, economist at BMO Capital Markets.
Carney’s public acknowledgement that the odds of a rate hike in the near future have faded would also help rein in the strong dollar, which has been eroding the competitiveness of Canadian exporters and, along with sharply higher-duty free limits, also been encouraging Canadians to do more of their shopping south of the border.
The strong Canadian dollar may also be deterring Americans from coming north, the latest travel figures suggest. For example, while Canadians have made 3.8 per cent more visits to the U.S. this year than last, visits from the U.S. have fallen by five per cent, a decline that should be reflected in a Statscan report on the health of the tourism industry Friday.
Some analysts, meanwhile, are also wondering whether Carney, in his talk to business leaders will be as outspoken about the need for them, among other things, to start investing more of their “dead” money as he was when he first made the comments to organized labour.
“It will be interesting to see if Carney’s sharply critical messages … that have been focussed upon allegedly excessive cash holdings, poor productivity, conservative investment practices and a narrow US-centric focus on global trading opportunities are applied as stridently before this audience, and to what extent his audience reacts differently from more sympathetic audiences such as a recent speech before unionized auto workers,” says Holt.
Another Statistics Canada report, meanwhile, could add fuel to the cap-and-trade versus carbon tax debate raging in the Commons.
The latest “EnviroStats” on Wednesday, including figures on rising greenhouse gas emissions, could provide the opposition with ammunition to challenge the Harper government on how it plans to meet its commitment to reduce such emissions now that it has abandoned an earlier promise for a cap-and-trade plan, which the NDP supports, but which the Conservatives are now vilifying as a “carbon tax.”
Looking to the coming week in the U.S., analysts expect reports on home prices, sales and pending sales to confirm that the slow housing recovery, which is seen as key to an overall recovery in Canada’s main export market, is continuing.
“The U.S. housing market continues to recover, supported by the best affordability in at least four decades and the fact that home prices have stabilized, if not started to mildly appreciate,” says Michael Gregory, economist with BMO Capital Markets.
Increasing the importance of a housing recovery is that other sectors of that economy are showing signs of relapsing, including employment and incomes.
“There is no doubt that the housing recovery, while still occasionally halting, is well in hand, despite the constraints of sluggish job growth and begrudged mortgage availability,” Gregory says.
Some U.S. economists, including Robert Reich who was Labor Secretary under President Bill Clinton are not so upbeat, however. He warns that the economy could get worse before it gets better and that that would be bad news for President Barack Obama re-election bid.
In Europe, currently the global economy’s basket case, the focus of markets this week will be on Spain, with the Spanish cabinet expected to approve and present its 2013 budget to Parliament on Thursday and with a possible euro-aid package for that struggling economy being announced the same day.
Now looking back to last week, here’s what was making economic headlines:
Apple iPhone 5 fever rages despite grumbling over maps – Reuters, Sep 21 – Apple fans queued around city blocks worldwide Friday to buy the new iPhone 5, pointing to a strong holiday season for the tech giant despite grumblings about a flawed mapping app in the new smartphone.
As Nexen deal approved, CSIS warns of foreign takeover risks – Canadian Press, Sep 20 – The same day shareholders of a Calgary-based energy company agreed to a takeover bid by a state firm from China, Canada’s spy agency is warning such purchases can pose a threat to national security.
Markets, loonie sink on dire economic signs – Globe and Mail, Sep 20 - Global stock markets tumbled today amid weaker economic signals, as the glow from central bank stimulus fades. The weak signs from China and Europe also hit currency and commodities markets, knocking down the Canadian dollar and prices for oil and gold.
Goldman’s Blankfein: Poor wealth redistribution behind social unrest in US – Financial Post, Sep 20 – The two goals of the economy should be to “expand the wealth of the world and to distribute [it] fairly, Lloyd Blankfein, head of Goldman Sach says. “And I think in the United States over the last generation or two we’ve been much better at generating wealth and much less good at distributing it.”
Richest Americans’ wealth jumps 13 per cent to $1.7 trillion: Forbes – Reuters, Sep 19 – The net worth of the richest Americans grew 13 per cent in the past year to $1.7 trillion, Forbes magazine said in a report which included a familiar cast at the top of the annual list, including Bill Gates, Warren Buffett, Larry Ellison and the Koch brothers.
U.S. single-family home building surges – Bloomberg, Sep 19 – New housing construction rose in August, boosted by the strongest pace of single-family home starts in more than two years that shows an improving U.S. real estate market.
BOJ unexpectedly follows Fed to bolster stimulus as growth falters – Bloomberg, Sep 19 – The Bank of Japan unexpectedly expanded its asset-purchase fund by 10 trillion yen ($126 billion), seeking to counter an increasing danger of contraction in the world’s third-largest economy.
Lowe’s exit from Quebec spells trouble for foreign investment: Corporate Canada – Bloomberg, Sep 19 – Lowe’s Cos Inc.’s withdrawal of a bid for Rona Inc. amid opposition from the Quebec government threatens future foreign investment as the Canadian province seeks funds to develop its northern natural resources.
Canada ties for 5th in world economic freedom as US plummets to 18th – National Post, Sep 18 – Canada edged up into a tie for 5th place in a global ranking of economic freedom, according to the Fraser Institute, which downgraded the US to 18th, and credited Canada’s rise to a shrinking Canadian government.
Apple Reaches $700 as IPhone 5 Shatters Sales Record – Bloomberg, Sep 18 – Apple Inc. surpassed $700 in early trading as record first-day orders for the latest iPhone fueled optimism that the company will keep generating the revenue growth that transformed it from a niche computer manufacturer into the world’s most valuable business.
Corporations will soon have to disclose federal lobbying – Canadian Press, Sep 17 – Mining giant Barrick Gold won’t say which of its people placed calls this year to Prime Minister Stephen Harper’s right-hand man, but soon companies won’t be able to shield the identity of all those involved in lobbying government officials.
Ford first to ink a deal with autoworkers – iPolitics, Sep 17 – The CAW reached a four-year tentative deal with Ford on Monday afternoon, narrowly avoiding a midnight strike deadline. The union’s top brass announced Ford as its target negotiating partner over the weekend, identifying it as the Detroit Three company most willing to play ball.
Original Article
Source: ipolitics
Author: Eric Beauchesne
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