Tag Archives: Economic Updates

Jun 01

Benjamin Tal Economic Buzz-Spring 2012

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Benjamin Tal Deputy Chief Economist CIBC World Markets

The American consumer is starting to move in the right direction.
First quarter US GDP was OK, but nothing to write home about. What's important, however, is that the American consumer is starting to move in the right direction. Will the bruised American consumer regain its traditional role as the main engine of America’s economic growth? We think so. An array of indicators suggests that consumers will build on recent momentum and will probably surprise the market with their regained resiliency.

In Europe, both the UK and Spain are now officially in a recession and once again the market gets nervous. While the European Central Bank will take its time to intervene, there are already some communications from the Bank that it will be willing to reintroduce its lending program if needed. The likelihood is that this kind of merry-go-round will dominate the European markets in the coming months.

Bank of Canada might start raising rates before the end of the year.
In Canada, the government is giving Canada’s banking regulator—The Office of the Superintendent of Financial Institutions—new authority to oversee Canadian Mortgage and Housing Corporation (CMHC). The government is also putting a stop to banks using mortgages insured by CMHC as collateral on covered bonds. We view these two developments as marginally negative to the mortgage market.

It appears that the Bank of Canada is turning hawkish again suggesting that it might start raising rates before the end of the year. Note that exactly a year ago, we were in the same situation when the Bank hinted even more strongly that it will start raising rates, but had to change its mind due to the increased global macro economic uncertainty. At this point the likelihood of a move before the end of the year is about 50%—but even if the Bank starts moving, say in the 4th quarter, it will be a very slow and hesitant move.

Feb 27

Forecast-Slow Growth & Stable Interest Rates-Winter 2012

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Benjamin Tal Deputy Chief Economist CIBC World Markets

After bleeding workers in recent months, Canadian factories boosted headcount in December, helping employment register its first positive reading after two straight losses. Canadian jobs edged up by 17,500, led by hiring in the manufacturing sector. However, we don't expect a renewed pick-up in manufacturing hiring as that sector continues to struggle with the pain of an elevated Canadian dollar that's inflating the wages of manufacturing workers relative to global competitors.

US in somewhat better shape as 2011 came to a close
In the US, employment gains are putting more money in household pockets, but we expect only a slightly stronger than consensus retail report for December. All told, not enough here to change the prevailing view that America's economic engines were in somewhat better shape as 2011 came to a close.

December's pace of hiring in Canada, taken together with the last few months' employment reports, still suggests a weak deceleration in job creation and economic growth. That's consistent with our view that Canada's fourth quarter Gross Domestic Product (the size of our economy with inflation factored in) scaled down to around a 2% annual pace.

In December, we forecast that the Bank of Canada would likely continue to hold interest rates steady through to the end of 2013. Governor Mark Carney's "flexible" targeting approach gives the Bank some latitude in responding to inflation. Notwithstanding the risks created by payroll tax wrangling in the US, we're sticking with that rate forecast.

Using your mortgage to help manage post holiday debt
If holiday spending has made it expensive to maintain your credit card debts, your mortgage broker may be able to help. It may be possible to refinance your mortgage and consolidate household debts at more affordable mortgage rates, resulting in significantly lower monthly payments.

Oct 19

Benjamin Tal Economic Buzz – Fall 2011

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Benjamin Tal Deputy Chief Economist CIBC World Markets

Accidents can happen to any economy.
Temporary troubles in energy and autos hit exports hard during the second quarter, which was enough to push Canada's Gross Domestic Product (the size of our economy with inflation factored in) into a decline—even though demand was healthy at home. This made the quarter look worse than it really was, and a rebound is therefore likely in the third quarter. Indeed, June's monthly data showed a decent 0.2% gain as a signpost of an upward trend.
Aside from January's strong growth, Canada's GDP has been essentially flat for five months. Flat economies don't inevitably signal a recession—both Canada and the US have gone through many extended flat stretches which were followed by growth. However, with the US economy so fragile, it won't take much of a miss to find the US and then Canada in recession or something close to it. Plus, there are enough clouds on the global horizon to be concerned about the next several months.

The Bank of Canada is no longer as worried about inflation
Until the global economy is on a more solid track, the Bank of Canada is being very patient in raising rates. It hinted at rate hikes for July and September, neither of which materialized. Now the Bank is no longer as worried that low interest rates will trigger inflation, and therefore the need to withdraw monetary stimulus has diminished.

Smart mortgage strategies for covering education costs
The cost of post-secondary education continues to rise every year. If you’re finding it a challenge to cover your children’s current or future plans, talk to your mortgage broker today. It may make sense to refinance your mortgage so you can fund their education at affordable mortgage rates, instead of paying for expensive consumer loans.
 

May 01

Benjamin Tal-Deputy Chief Economist, CIBC World Markets “Economic Buzz”

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Benjamin Tal Deputy Chief Economist CIBC World Markets

Spring 2011 – Strong First Quarter Growth To Slow As Year Progresses

Canada's fourth quarter growth rate of 3.3% hints of a robust pace to start 2011. Final domestic demand accelerated to 4.7% with healthy gains in all categories except housing construction. Exports posted a more than 17% annualized gain. Corporate profits are 16% above year ago levels, and businesses recorded an over 10% annualized gain in capital spending. Bottom line improvements generally trigger an acceleration in employment growth, so we expect that another 30,000 jobs will have been added in February.

Of course, none of this negates the potential headwinds that lie ahead. Government spending should decelerate with fiscal tightening, consumers will push the savings rate even higher as borrowing costs rise, and exports will feel the deceleration we expect in the global economy through 2011.

Still, Canada is in an enviable position to deal with all of these challenges compared to countries that rely on imported oil or have larger fiscal imbalances.

Interest rates likely to start climbing by July

While we expect growth to slow after such a robust first quarter, our expectation is that the Bank of Canada will begin raising interest rates by July.

Applying Your Tax Refund To Your Mortgage

If you're expecting a tax refund this year, consider using it to make a lump sum payment on your mortgage. You'll be surprised how even a relatively modest amount can have a big impact over time. Your mortgage broker can analyze your situation and show you exactly how much you can save in total interest costs by putting your tax refund to work in this way. Talk to your broker today.