Canadian Employment Gains Stronger than Expected in November, While Unemployment Rose and Hours Worked Fell

General Angela Calla 1 Dec

Jobless Rates Hits 22-Month High–Led by Losses in Finance and Real Estate Employment

Today’s StatsCanada Labour Force Survey for November was a mixed bag. Total employment gains were stronger than expected. However, the rising unemployment rate and drop in hours worked were signs of mounting economic weakness, especially in the financial and real estate sectors.

Employment in Canada rose by 24.9K in November 2023, following a 17.5K rise in October and above forecasts of 15K. Employment went up in manufacturing (+28K) and construction (+16K). On the other hand, there were declines in wholesale and retail trade (-27K) and finance, insurance, real estate, rental and leasing (-18K). November marks the fourth consecutive month of job gains. Still, the Bank of Canada noted in its October meeting that “recent job gains have been below labour force growth and job vacancies have continued to ease,” suggesting a slowdown in labour demand. The monthly employment gain averaged 39K so far this year, while monthly population growth has averaged 80.8K.

Rapid population growth–driven by Canada’s open-door policy–has boosted economic activity. Despite dramatic tightening by the Bank of Canada, labour markets remain resilient. While yesterday’s GDP release showed a 1.1% decline in growth in the third quarter, housing, government spending and private consumption added to growth. More recent data for Q4 suggest a pick-up in overall activity. Today’s employment data shows stronger-than-expected jobs gains in November.

In other data released last week, Canadian retail sales also surprised on the high side. Consumers splurged in September and October, a surprise resurgence in spending even as high interest rates restrict household budgets. Retail receipts rose 0.8% in October. That’s the biggest jump since April and followed an unexpected 0.6% increase in September, which far exceeded the median estimate of a flat reading in a Bloomberg survey of economists.

The unemployment rate increased for the second consecutive month, continuing its upward trend since April. The unemployment rate rose 0.1 percentage points to 5.8% in November, bringing the cumulative increase since April 2023 to 0.8 percentage points. Compared with a year earlier, unemployed people in November were more likely to have been laid off from their previous job, reflecting more difficult economic and labour market conditions in 2023 compared with 2022.

In construction, employment increased by 16K (+1.0%) in November, building on an increase of 23K (+1.5%) in October. While employment declined in construction through the spring and summer of 2023, gains in October and November brought employment levels to within 15,000 of the peak reached in January 2023. According to the most recent data on building construction, investment in building construction, mainly residential building construction, trended down for most of 2023 before partially rebounding in August and September.

Employment declined by 27K (-0.9%) in wholesale and retail trade in November, adding to a drop of 22K (-0.7%) in October. As of November, employment in the industry was at its lowest since December 2022.

Employment in finance, insurance, real estate, rental and leasing fell by 18K (-1.3%) in November. Since July, employment in this industry has declined by 63K (-4.4%), the steepest decrease of any sector over the period.

Wage growth was steady at +4.8% y/y, still well above what the Bank of Canada targets, given the productivity decline.

On the soft side, hours worked fell 0.7% despite a significant rise in full-time employment. That’s the largest monthly drop since early 2022 and doesn’t bode well for GDP growth in the month after the surprise strength in October’s flash estimate released yesterday.

Bottom Line

Last week, Governor Tiff Macklem said interest rates may be restrictive enough to restore price stability. He added that more downward pressure on inflation is in the pipeline, with the economy expected to remain weak for the next few quarters.

All the relevant data are in now for the Bank of Canada decision next Wednesday, December 6th. The Bank should maintain its pause and suggest that monetary easing may commence in the coming months depending on a continued decline in inflation. Right now, markets are forecasting the first rate cut in April 2024. That would certainly make for a robust spring housing market. I expect a 200 basis point drop in the overnight rate by the end of 2024 to 3.0%. This would imply a commensurate decline in VRMs. Fixed mortgage rates have already begun to drop owing to the sharp decline in mid-term bond yields. An acceleration in the drop in fixed mortgage rates is likely next year, as the spread between FMRs and market yields is still historically high.

 

(Article courtesy of Dr. Sherry Cooper, Chief Economist, DLC)

Angela Calla is an 19-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog. 

Angela Calla on the Jill Bennett Show

General Angela Calla 23 Nov

 

Angela Calla is an 19-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog. 

Stress Test Changes

General Angela Calla 22 Nov

What is a stress test?

You may have heard the term ‘stress test’ but didn’t really know what that means.  Essentially, in June of 2021 the federal government required that any mortgage qualify at a rate of 5.25% or 2% higher than the contract value with the attempt to protect borrowers if rates increase.  With rates well above the 5.25%, borrowers are now being stress tested at current rates, plus 2% which in most cases if 8% or higher.

 

What’s the change?

The update will remove the stress test requirement for insured mortgage renewals only, including in cases where someone is switching lenders.

 

How does that make things different for borrowers?

Currently, if you’re worried about not being able to pass the stress test, you may feel pressure to stay with your existing lender, even if they don’t have the most competitive rates.

 

Don’t make this mistake, lenders are offering higher rates and not great terms upon renewal and in our ever-changing market that is the difference in your wealth protection and creation as our market shift.

Need more information, reach out to us at callateam@countoncalla.ca.

 

Angela Calla is an 19-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog. 

2023 Fall Economic Statement

General Angela Calla 22 Nov

2023 Fall Economic Statement

Angela Calla is an 19-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog. 

Canadian Inflation Fell to 3.1% (y/y) In October, Ensuring the BoC Holds Rates Steady

General Angela Calla 22 Nov

Good News On the Inflation Front Suggests Policy Rates Have Peaked

Today’s inflation report showed a continued improvement, mainly due to falling year-over-year (y/y) gasoline prices. The October Consumer Price Index (CPI) rose 3.1% y/y, down from the 3.8% rise in September. There were no surprises here, so markets moved little on the news. Excluding gasoline, the CPI rose 3.6% in October, compared to 3.7% the month before.

The most significant contributors to inflation remain mortgage interest costs, food purchased at stores, and rent.
Canadians continued to feel the impact of rising rent prices, which grew faster (y/y) in October (+8.2%) than in September (+7.3%). The national increase reflected acceleration across most provinces. The most significant increases in rent prices were seen in Nova Scotia (+14.6%), Alberta (+9.9%), British Columbia (+9.1%) and Quebec (+9.1%).
Property taxes and other special charges, priced annually in October, rose 4.9% yearly, compared with a 3.6% increase in October 2022. The national increase in October 2023 was the largest since October 1992, with homeowners paying more in all but one province, as municipalities required larger budgets to cover rising costs. Property taxes in Manitoba (-0.3%) declined for the third consecutive year, mainly due to reduced provincial education tax.

While goods prices decelerated by -1.6% as prices at the pump fell, prices for services rose 4.6% last month, primarily driven by higher prices for travel tours, rent and property taxes.

While grocery prices remained elevated, they also continued their trend of slower year-over-year growth, with a 5.4% increase in October following a 5.8% gain in September. While deceleration continued to be broad-based, fresh vegetables (+5.0%) contributed the most to the slowdown.

Excluding food and energy, inflation fell to 2.7% in October, down a tick from the September reading. Two other inflation measures closely tracked by the Bank of Canada–the so-called trim and median core rates–also eased, averaging 3.6% from an upwardly revised 3.8% a month earlier.

Bottom Line

According to Bloomberg calculations, another critical measure, a three-month moving average of underlying price pressures, fell to an annualized pace of 2.96% from 3.67% a month earlier. It’s an important metric because Bank of Canada Governor Tiff Macklem has said policymakers are tracking it closely to understand inflation trends.

Today’s news shows that tighter monetary policy is working to bring down the inflation rate. In its Monetary Policy Report last month, the Bank of Canada expected the CPI to average 3.5% through mid-2024. Cutting its economic forecast, the Bank forecasted it would hit its 2% inflation target in the second half of 2025.

Given today’s data and the likely significant slowdown in Q3 GDP growth, released on November 30, and the Labour Force Survey for November the following day, policy rates have peaked. Governor Tiff Macklem will give a speech on the cost of high inflation in New Brunswick tomorrow, and the subsequent decision date for the Governing Council is December 6th. The Bank’s inflation-chopping rhetoric may be relatively hawkish, but the expectation of rate cuts could spur the spring housing market.

The economists at BMO have pointed out that “three provinces now have an inflation rate below 2%, while only three are above 3%, so much of the country is already seeing serious signs of stabilization. (Unfortunately, the two largest provinces have the fastest inflation rates—Quebec at 4.2% and Ontario at 3.3%).” There is no need for the Bank to raise rates again, and they could begin to cut interest rates in the second quarter of next year.

(Article courtesy of Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres)

Angela Calla is an 19-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog. 

Calling all prospective First Time want to be HomeOwners, Newcomers, and Realtors!

General Angela Calla 20 Nov

I hope you’re talking about the First Home Savings Account (FHSA)!

If you and your partner each open a First Home Savings Account (FHSA) and contribute the maximum contribution amount for 2023 of $8,000, you’ll receive a $16,000 tax deduction that you can use to reduce your taxable income. Don’t delay!  Not opening one this year will loose the contribution room.

When you buy your first home, you’ll be able to withdrawal your entire FHSA balance tax-free and not be required to repay any withdrawals like you would when using a Home Buyers Plan (HBP) through a Registered Retirement Savings Plan (RRSP).

If you don’t end up buying a house? No problem, you can roll your FHSA balance into your RRSP and not pay any taxes or fees.

Regardless if you’re buying your first home next week, next month or next year, our office would love to share more information on how a FHSA can help you accomplish your goal of buying your first home. 🙋🏼‍♂️🏡

Let’s make sure we elevate financial literacy for our fellow Canadians

Email: angela@countoncalla.ca

 

Angela Calla is an 19-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog. 

Canadian Inflation Dips to 3.8% Keeping BoC On The Sidelines

General Angela Calla 17 Oct

Good News On the Inflation Front Suggests Policy Rates Have Peaked

Today’s inflation report for September was considerably better than expected, ending the three-month rise in inflation. Not only did the headline inflation rate fall, but so did the core measures of inflation on a year-over-year basis and a three-month moving average basis. This, in combination with the weak Business Outlook Survey released yesterday, suggests that the overnight policy rate at 5% may be the peak in rates. While I do not expect the Bank to begin cutting rates until the middle of next year, the worst of the tightening cycle may well be over.

Offsetting the deceleration in the all-items CPI was a year-over-year increase in gasoline prices, which rose faster in September (+7.5%) compared with August (+0.8%) due to a base-year effect. Excluding gasoline, the CPI rose 3.7% in September, following a 4.1% increase in August. Looking ahead to the October inflation report, the base effect for headline CPI is favourable, as CPI surged in October 2022. Gasoline prices are down about 7% so far this month. Given the war in the Middle East, however, there is no guarantee that this will hold, but if it does, the October headline CPI could move into the low-3% range.

On a monthly basis, the CPI fell 0.1% in September after a 0.4% gain in August. The monthly slowdown was mainly driven by lower month-over-month prices for gasoline (-1.3%) in September. Goods inflation fell 0.3% from a month earlier, the first time since December 2022, and grew 3.6% from a year ago versus 3.7% in August. Services inflation was unchanged from August, the first time it hasn’t grown on a monthly basis since November 2021, while the rate slowed to 3.9% on a yearly basis, from 4.3% in August.

Yesterday’s Survey of Consumer Expectations showed that perceptions of current inflation remain well above actual inflation.  One reason is the very visible level of grocery and gasoline prices. As the chart below shows, food inflation–though still elevated–decelerated to 5.9% last month, and CPI excluding food and energy fell to a cycle-low 2.8%. Large monthly gains in September 2022, when grocery prices increased at the fastest pace in 41 years, fell out of the 12-month movements and put downward pressure on the indexes.

 

Prices for durable goods rose at a slower pace year over year in September (+0.4%) compared with August (+1.4%). The purchase of new passenger vehicles index contributed the most to the slowdown, rising 1.7% year over year in September, following a 3.1% gain in August. The deceleration in the price of new passenger vehicles was partly attributable to improved inventory levels compared with a year ago.

Additionally, furniture prices (-4.6%) and household appliances (-2.3%) continued to decline year-over-year in September, contributing to the slowdown in durable goods. Consumers paid less on a year-over-year basis for air transportation (-21.1 %) in September, coinciding with a gradual increase in airline flights over the previous 12 months.

Other measures of core inflation followed by the Bank of Canada also decelerated.

Bottom Line

According to Bloomberg News calculations, “A three-month moving average of underlying price pressures that Governor Tiff Macklem has flagged as key to policymakers’ thinking fell to an annualized pace of 3.67%, from 4.29% a month earlier.”  While this is still well above the Bank’s 2% target, the global economy is slowing, the Canadian and US economies are slowing, and with any luck at all, the Bank of Canada might see inflation move to within its target range next year. However, the central bank will be cautious, refraining from rate cuts until the middle of next year. The full impact of rate hikes has yet to be felt. The next move by the Bank of Canada could be a rate cut, but not until next year.

Article courtesy of Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres

 

Angela Calla is an 19-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog. 

Understanding Responsibilities of being a Co Signer or Guarantor on a Mortgage

General Angela Calla 18 Sep

With changes in qualifying rates, increased housing prices, changes in relationship, it’s not uncommon for a parent, or sibling, aunt or cousin or even strangers to consider working together to achieve there home ownership dreams. The ability to buy a spouse out or even obtain a better mortgage renewal to improve your finances are most Canadians desire and that brings up a very important question.

What will the lenders approve for you to do?

Will they insist that all borrowers are co signer/borrowers? Or ,will they allow a party to the mortgage to go on as a guarantor? Is either of those what the other desires for as they plan for the future?

Being a co-signer or guarantor on a mortgage in British Columbia, Canada, can have significant financial, tax and legal implications. It’s important to understand the pros and cons of each role before making a decision. Here’s an overview of the advantages and disadvantages of being a co-signer vs. a guarantor:

 

Co-Signer:

Pros:

Helps Qualify for the Mortgage: Being a co-signer can help someone who might not otherwise qualify for a mortgage due to insufficient income or credit history. Your strong financial position can strengthen their application.

Shared Responsibility: As a co-signer, you share the responsibility for the mortgage payments and any associated debt. This can provide a sense of security for the primary borrower.

Builds Credit: If the mortgage is paid on time and in full, it can positively impact your credit score, as the account is reported on your credit history.

Cons:

Financial Responsibility: Co-signing makes you equally responsible for repaying the mortgage. If the primary borrower defaults, you’re obligated to cover the payments. This can lead to financial strain or damage your credit if payments are missed.

Risk to Assets: If the primary borrower defaults and the property is foreclosed upon, your assets may be at risk if the sale proceeds don’t cover the outstanding mortgage balance.

Limited Control: You have limited control over the property. You don’t have full ownership rights, but you’re responsible for the debt. This impacts your ability to obtain credit for borrowing for yourself in future as this loas is included in your ratios. Not living in the property also will trigger property transfer tax and future capital gains taxes potentially.

 

Guarantor:

Pros:

Assists with Qualification: As a guarantor, you provide a guarantee that the primary borrower will fulfill their mortgage obligations. This can help them secure the mortgage.

Limited Liability: Your financial liability is limited to the guarantee amount specified in the contract. You’re not automatically responsible for mortgage payments.

Maintain Ownership: Unlike co-signers, guarantors typically do not have any ownership stake in the property, so your personal assets are less likely to be at risk.

Cons:

Risk of Paying: While you’re not automatically responsible for payments, if the primary borrower defaults, you may be called upon to cover the mortgage, which can affect your financial stability. This also will be calculated in your ratios limiting future borrowing power. If not living in the property, property purchase tax and capital gains may be applicable

Credit Risk: Being a guarantor can impact your credit if the primary borrower defaults and you’re called upon to cover the mortgage payments.

Limited Control: Similar to co-signers, guarantors don’t have control or ownership rights over the property.

Difficulty Removing Guarantee: It can be challenging to remove your guarantee from the mortgage, as this typically requires the primary borrower to meet certain financial criteria and refinance the loan.

Before becoming a co-signer or guarantor, it’s crucial to carefully review the mortgage agreement and consider consulting with a legal and tax advisor. Additionally, open and honest communication with the primary borrower about their financial responsibility is essential to avoid potential conflicts and financial hardships down the road. It is the borrowers responsibility to ensure they have consulted the appropriate parties prior to funding a mortgage.

Angela Calla is an 19-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog. 

Bank of Canada Holds The Overnight Policy Rate Steady at 5%

General Angela Calla 6 Sep

Bank of Canada Holds Rates Steady Acknowledging Economic Slowdown

With last Friday’s publication of the anemic second-quarter GDP data, it was obvious that the Bank of Canada would refrain from raising rates at today’s meeting. Economic activity declined by 0.2% in Q2; the first quarter growth estimate decreased from 3.1% to 2.6%.

Today’s press release announced, “The Canadian economy has entered a period of weaker growth, which is needed to relieve price pressures.” The Q2 slowdown in output reflected a “marked weakening in consumption growth and a decline in housing activity, as well as the impact of wildfires in many regions of the country. Household credit growth slowed as the impact of higher rates restrained spending among a wider range of borrowers. Final domestic demand grew by 1% in the second quarter, supported by government spending and a boost to business investment. The tightness in the labour market has continued to ease gradually. However, wage growth has remained around 4% to 5%.”

Lest we get too comfy with a more dovish stance in monetary policy, the central bank warned that the Governing Council remains resolute in its commitment to restoring price stability.

Inflationary pressures remain broad-based. CPI inflation rose to 3.3% in July after falling to 2.8% in June. Much of the rise in July was caused by the statistical base effect. Nevertheless, current harbingers of inflation remain troubling. The increase in gasoline prices in August will boost inflation soon before easing again. “Year-over-year and three-month measures of core inflation are now running at about 3.5%, indicating little recent downward momentum in underlying inflation. The longer high inflation persists, the greater the risk that elevated inflation becomes entrenched, making it more difficult to restore price stability.”

The Bank also continues to normalize its balance sheet by letting maturing bonds run off. This quantitative tightening keeps upward pressure on longer-term interest rates.

Tiff Macklem and company concede that excess demand is diminishing and the labour markets are easing. The unemployment rate rose to 5.5% in July, up from a cycle low of 4.9%, and job vacancies continue to decline. Net exports have slowed, and the Chinese economy has weakened sharply. Consumers are tightening their belts as the saving rate rose and household spending slowed markedly in Q1.

Monetary policy actions have a lagged effect on the economy. As mortgage renewals rise, peaking in 2026, the economic impact of higher interest rates will grow. Homeowners renewing mortgages this year are seeing roughly a doubling in interest rates.

The Governing Council will focus on the movement in excess demand, inflation expectations, wage growth and corporate price decisions.

Bottom Line

The Bank of Canada, though independent, is coming under increasing political pressure. In an unusual move, the premiers of both BC and Ontario have publicly called for a cessation of rate hikes. Even so, the BoC is keeping its hawkish bias to avoid a bond rally that could trigger another boost in the housing market, similar to what we saw last April. The government bond yield is hovering just under 5%, having breached that level recently with the release of robust US economic data.

There are two more meetings before the end of this year, and many are expecting another rate hike in one of those meetings. The odds of this are less than even, given the downward momentum in the economy.

The central bank’s next decision is due October 25, after two releases of jobs, inflation and retail data, gross domestic product numbers for July and an August estimate.

(Courtesy of Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres)

Angela Calla is an 19-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog. 

Rate Hikes Off The Table With Weak Q2 GDP Growth In Canada

General Angela Calla 1 Sep

Rate Hikes Are Definitely Off The Table

The Canadian economy weakened surprisingly more in the second quarter than the market and the Bank of Canada expected. Real GDP edged downward by a 0.2% annual rate in Q2. The consensus was looking for a 1.2% rise. The modest decline followed a downwardly revised 2.6% growth pace in Q1. (Originally, Q1 growth was posted at 3.1%.) According to the latest monthly data, growth dipped by 0.2% in June, and the advance estimate for economic growth in July was essentially unchanged. This implies that the third quarter got off to a weak start.

The Bank of Canada forecasted growth of 1.5% in Q2 and Q3 in its latest Monetary Policy Report released in July. The central bank is now justified in pausing interest rate hikes when it meets again on September 6th. Today’s report is consistent with the recent rise in unemployment. It suggests that excess demand is diminishing, even when accounting for such special dampening factors as the expansive wildfires and the BC port strike.

Some details of Q2 Growth

Housing investment fell 2.1% in Q2, the fifth consecutive quarterly decline, led by a sharp drop in new construction and renovations. No surprise, given the higher borrowing costs and lower demand for mortgage funds, as the BoC raised the overnight rate to 4.75% in Q2. Despite higher mortgage rates, home resale activity rose in Q2, posting the first increase since the last quarter of 2021.

Significantly, the growth in consumer spending slowed appreciably in Q2 and was revised downward in Q1.

Bottom Line

The weakness in today’s data release may be a harbinger of the peak in interest rates. Inflation is still an issue, but the 5% policy rate should be high enough to return inflation to its 2% target in the next year or so. As annual mortgage renewals peak in 2026, the increase in monthly payments will further slow economic activity and break the back of inflation.

The Bank of Canada will be slow to ease monetary policy, cutting rates only gradually–likely beginning in the middle of next year. In the meantime, the central bank will continue to assert its determination to do whatever it takes to achieve sustained disinflationary forces.

Today’s release of the US jobs report for August supports the view that the Canadian overnight rate has peaked at 5%. (The Canadian jobs report is due next Friday). Though the headline number of job gains in the US came in at a higher-than-expected 187,000, the unemployment rate rose to 3.8% as labour force participation picked up, growth in hourly wages was modest, and job gains in June and July were revised downward.

In Canada, 5-year bond yields have fallen to 3.83%, well below their recent peak shown in the chart below.

 

(article courtesy of Dr. Sherry Cooper – Chief Economist, Dominion Lending Centres)

Angela Calla is an 19-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.

Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.

Click here to view the latest news on our blog. 

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