Robust Jobs Report in June, Much Better Than Expected

General Bob Rees 10 Jul

 

Some more positive news!

 

 

Robust Jobs Report in June, Much Better Than Expected

The June Labour Force Survey, released this morning by Statistics Canada, reflects labour market conditions as of the week of June 14 to June 20. By that time, public health restrictions had been eased in most parts of the country. Tighter restrictions remained, however, in much of southwestern Ontario, including Toronto. Even though businesses reopened, physical distancing and other requirements reduced the employment impact of the easing lockdown provisions.

From February to April, 5.5 million Canadian workers–30% of the workforce– either lost their jobs or saw their hours significantly scaled back. Yet, nearly 8.2 million Canadians receive the $2,000 per month Canadian Emergency Response Benefit (CERB) payments. Is this a disincentive for some workers to return to work?

The benefits have been recently extended by eight weeks to roughly the end of August, and the NDP is urging Ottawa to continue them until early October. If you earn more than $1,000 per month, you lose the full $2,000 monthly payment, so clearly, this might preclude some from seeking new work or returning to their original employers.

CERB has cushioned the blow of the pandemic on households and helped to boost consumer confidence. Nevertheless, keep it in mind in assessing the speed at which the jobless are returning to work.

Blowout Jobs Report in JuneBy the week of June 14 to June 20, the number of workers affected by the COVID-19 economic shutdown was 3.1 million, down 43% since April.

Building on an initial recovery of 290,000 in May, employment rose by nearly one million in June (+953,000; +5.8%), with gains split between full-time work (+488,000 or +3.5%) and part-time work (+465,000 or +17.9%). With these two consecutive monthly increases, the total level of employment in June was 1.8 million (-9.2%) lower than in February.

The speed of job recovery has been much faster than in previous recessions, just as the pandemic-induced decline in jobs was more sudden. Men are closer to pre-shutdown employment levels than women in all age groups. The hardest-hit sectors, accommodation, food services, retail trade and personal services are heavily dominated by female employees. The burden of daycare with schools closed likely fell more heavily on women as evidenced by the higher unemployment rate for women with young children.

Unemployment Rate Drops in June After Reaching a Record High in May

The unemployment rate was 12.3% in June, a drop of 1.4 percentage points from a record-high of 13.7% in May. While this was the most significant monthly decline on record, the unemployment rate remains much higher than in February, when it was 5.6%.

Employment Increases in All Provinces

In Ontario, where the easing of COVID-19 restrictions began in late May and expanded on June 12, employment rose by 378,000 (+5.9%) in June, the first increase since the COVID-19 economic shutdown. The proportion of employed people who worked less than half of their usual hours declined by 6.5 percentage points to 14.1% in Ontario. The unemployment rate declined 1.4 percentage points to 12.2% as the number of people on temporary layoff declined (see table below).

In Toronto, where the easing of some COVID-19 restrictions was delayed until June 24, the recovery rate was slightly below that of Ontario in June. The employment level in Toronto was 89.6% of the February level, compared with 94.5% for the rest of the province (not adjusted for seasonality).

Quebec recorded employment gains of 248,000 (+6.5%) in June, adding to similar gains (+231,000) in May and bringing employment to 92.2% of its February level. At the same time, the number of unemployed people in the province declined for the second consecutive month in June (-119,000), pushing the unemployment rate down 3.0 percentage points to 10.7%. The decline in unemployment in Quebec was entirely driven by fewer people on temporary layoff.

The number of people employed in British Columbia rose by 118,000 (+5.4%) in June, following an increase of 43,000 in May. The proportion of employed people who worked less than half of their usual hours declined by 2.9 percentage points to 14.6%. The number of unemployed in the province was little changed in June, and the unemployment rate edged down 0.4 percentage points to 13.0%.

In the Western provinces, employment increased in Saskatchewan (+30,000) for the first time since the COVID-19 economic shutdown and rose for the second consecutive month in both Alberta (+92,000) and Manitoba (+29,000).

In New Brunswick, the first province to begin easing COVID-19 restrictions, employment increased by 22,000 in June. Combined with May gains, this brought employment in the province to 97.1% of its pre-COVID February level, the most complete employment recovery of all provinces to date.

Employment increased for the second consecutive month in Nova Scotia (+29,000), Newfoundland and Labrador (+6,000) and Prince Edward Island (+1,700).

Sectoral Variation in Job Growth

Those sectors that require proximity of workers to customers (accommodation and food services and retail trade other than online) remained hardest hit by the medically-induced job losses. As well, a high proportion of jobs in both the health care and social assistance and educational services industries involve proximity to others. Employment increased in all of these sectors, but remain well below pre-COVID levels.

Also hard hit was employment in businesses that rely on the gathering of large groups (information, culture and recreation industry). This sector was subject to some of the earliest public health restrictions in the form of the size of gatherings as all provinces continue to limit the number of people allowed to gather in public.In several services-producing industries—such as wholesale trade, public administration, and finance, insurance, real estate and rental and leasing—fewer than 40% of jobs involve proximity with others. In many of these industries, employment in June was at or near pre-COVID-shutdown levels.

Monthly employment gains were recorded in wholesale trade (+38,000) and finance, insurance, real estate and rental and leasing (+17,000). Employment returned to pre-COVID-19 levels in wholesale trade, while it was 1.0% lower than pre-COVID-19 levels in finance, insurance, real estate and rental and leasing.

In most industries where few jobs require close physical proximity with others, workers have shifted to working from home on a large scale. In finance, insurance, real estate and rental and leasing, 6 in 10 (61.2%) were working from home during the week of June 14, more than double the proportion (28.5%) who usually do so. A larger-than-usual percentage of workers also continued to work from home in professional, scientific and technical services (73.2%) and public administration (53.8%).

After avoiding significant job losses in the first month of the COVID-19 economic shutdown, both the construction and manufacturing industries experienced heavy losses in April, followed by an initial recovery in May.

In June, employment in construction was 157,000 higher than in April, reaching 89.3% of its February level. In the manufacturing sector, employment gains in May and June totalled 160,000, bringing employment to 91.9% of its February level.

In each of the construction and manufacturing industries, both the proportion of people working less than 50% of their usual work hours and the number of people on temporary layoff fell markedly in June. Construction recorded a 53.8% decrease in the number of people on temporary layoff (not adjusted for seasonality).

Bottom Line 

This was an unambiguously strong jobs report, and we will likely see a continued rebound in employment as long as the economy can open further. Undoubtedly, however, Canada’s economy is still digging itself out of a deep hole, and some jobs are gone for good. But new sectors are growing rapidly as the pandemic accelerated the technological forces that were already in train. I expect to see strong job growth in the following new and burgeoning areas: telemedicine, big data, artificial intelligence, cloud services, cybersecurity, 5G, driverless transportation and clean energy. Online shopping will also continue to proliferate as Canadians have learned to use delivery services and online retail.

These new jobs require training and a high degree of expertise. Those who have suffered permanent job losses will need to adapt. What we do not want to see is government programs that slow the rate of adaptation or support businesses that are no longer viable. Support for those most in need with little likelihood of adaptation will remain necessary.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

Astonishing Fiscal Red Ink Announced Today

General Bob Rees 8 Jul

A great summary and breakdown of Canada’s Finance Minister’s announcement today!

 

 

Astonishing Fiscal Red Ink Announced Today
Finance Minister Bill Morneau presented his fiscal snapshot this afternoon. Most economists were expecting a budget deficit of roughly $260 billion. Instead, the government announced a deficit for the fiscal year 2020-21 of $343.2 billion–close to 16% of GDP. That compares to the $34.4 billion deficit projected before the pandemic.A big chunk of that additional deficit can be attributed to the $212 billion in direct support measures the federal government is providing to individuals and businesses. The deficit was initially estimated at C$256.2 billion by the Parliamentary Budget Officer, the country’s budget watchdog. The discrepancy reflects lower tax revenue, an eight-week extension of CERB and the wage subsidy increase.

Aside from the pandemic program spending, the economic slowdown is estimated to have added another $81.3 billion to the deficit in 2020-21, driving spending levels to their highest since 1945. The recession has also taken a toll on revenue, which will drop as a share of the economy to the lowest since 1929.

The prime minister argued the economy would be in much worse shape were it not for the government’s response, in part to thwart the need for households to take on more debt. “We made a very specific and deliberate choice throughout this pandemic to help Canadians, to recognize that overnight people had lost their jobs,” Trudeau told reporters in Ottawa. “We decided to take on that debt to prevent Canadians from having to do it.”

To be sure, the government can finance the debt at a much lower cost than households. Long-term interest rates for the government of Canada are at record lows–below the rate of inflation. The ten-year GOC yield is 0.56% and the 30-year bond yield is just a tad over 1.0%. In consequence, the interest cost to the government of the rising debt burden is very modest.

In addition, the vast majority of the temporary surge in Ottawa’s new debt is being absorbed by the Bank of Canada in its bond purchases. While the BoC’s holdings of federal government debt as a share of its total securities holdings has risen abruptly from less than 14% at the start of the year to around 27% now, that’s still below the share of domestic government debt held by central banks in Japan, Germany and Sweden, for example. Canada’s overall public sector net debt remains moderate among major economies, and especially when compared to the U.S., Britain, or the Euro Area.

GDP decline

The Canadian economy is projected in the report to shrink by 6.8% this year before bouncing back by 5.5% next year, making this crisis the worst economic contraction since the Great Depression. The economy is expected to decline in FY2020-21 more than twice as much as it did in FY2009-10 in response to the global financial crisis.

Between February and April, 5.5 million Canadians either lost their jobs or saw their work hours significantly reduced.  Those losses pushed the unemployment rate to 13.7% in May — the highest rise on record — from a pre-crisis low of 5.5% in January.

Finance Minister Bill Morneau said that without government pandemic programs, the GDP would have contracted by more than 10% and unemployment would have risen by another 2 percentage points.

Debt Strategy

The government now projects debt will rise to 49.1% of GDP in the fiscal year that started April 1, up from 31.1% last year. In his speech, Morneau didn’t provide any forecasts beyond 2020 or provide any indication of future fiscal plans other than to say Canada will continue to hold its low-debt advantage relative to other major economies. That status is facilitated by historically low interest rates, with public debt charges actually declining as borrowing costs fell.

“We, the collective we, will have to face up to our borrowing and ensure it is sustainable for future generations. Canada’s debt structure is prudent, it’s spread out over the long term, and it compares well to our G-7 peers,” the finance minister said. “And we will continue to make sure this is the case in the months and years to come.”

Federal government spending, along with the deficit, is poised to hit all-time highs as a share of GDP outside of World War II. Program expenses will surge 69% to C$592.6 billion, or 27.5% of GDP. That figure has averaged about 15% in the past half-century.

That includes a cost of C$80 billion for the main income support program — the Canada Emergency Response Benefit, or CERB. One change in Wednesday’s documents is a top-up of almost C$40 billion in the government’s wage subsidy program to C$82.3 billion. The numbers suggest the government anticipates transition Canadians from the C$2,000-per-month cash support beginning in September.

Bottom Line

The government has asserted bragging rights as having the most comprehensive fiscal response to the pandemic in the G20 (see chart below).

The fiscal snapshot states, “Canada’s strong fiscal position going into the pandemic has allowed the government to implement an ambitious economic response plan by international standards. Direct fiscal support measures alone represented over 10% of Canada’s GDP, relative to 6.7% on average for G7 countries, with the bulk of support directed at individuals and households. In comparison, the U.S. plan also devotes a large share of direct support to individuals and households but to a lesser extent than Canada. Beyond its total size, which is among the most significant in the G7 and the G20, Canada’s plan is also among the most comprehensive, covering a broader range of measures than most plans announced in peer countries. Canada is notably one of the few countries that has announced both a national program to provide commercial rent assistance for small businesses and forgivable credit to SMEs.”

Let us hope that the government does not consider restraint measures until it is certain that the pandemic has been contained and the economic recovery is on firm ground. The last thing we need right now is tax increases, which many people fear will be the outcome of all of this red ink. Much of the one-time fiscal costs will roll off as the economy recovers. it is essential, however, that we avoid supporting businesses that are no longer viable in a post-pandemic world. We also want to assure that the CERB and other income supports do not discourage people from returning to work that is available.

The government did not forecast beyond the current fiscal year. Given the uncertainty surrounding a possible second wave of the virus and the timing of a vaccine, that forecast would be highly unreliable. Morneau will get back to us with an update in the fall.

– Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres

First Formal Remarks By Tiff Macklem, Bank of Canada Governor

General Bob Rees 22 Jun

Hot off the Press after Bank of Canada meeting!

First Formal Remarks By Tiff Macklem, Bank of Canada Governor

There were no surprises this morning from Governor Macklem’s virtual presentation to the Canadian Clubs of Canada. His opening written statement was quite brief and it was followed up with a Q and A. Here are the key points that he emphasized.

  • Negative interest rates are off the table as they “lead to distortions in the behaviour of financial markets.”
  • Therefore, no additional Bank of Canada rate cuts is coming.
  • The BoC will continue its securities purchase program to provide liquidity to financial markets.
  • In response to questions, he said he expects lasting damage to demand and supply in the economy. He said the recovery will be “long and bumpy” and “slow and gradual”.
  • The inflation target of 2% will remain the beacon for BoC policy. Currently, inflation is below target.
  • “This recession is a deep one. Women have been particularly hard hit because they work disproportionately in the hard-hit service sector and women are disproportionately caring for children and the elderly”.
  • Fiscal support programs lay the foundation for the recovery of particular groups.
  • Oil-producing regions are hard hit by the oil price shock. The price of oil has moved up recently to WTI $40, but the pandemic clearly “weakens oil demand”.
  • Household debt levels are a concern. Fiscal transfers help and households have reduced their spending. The role of the BoC is to provide the required stimulus to encourage households to spend. The macroprudential measures already in place will discourage highly indebted households from taking on more debt.
  • He expects “pretty good growth in jobs and GDP in Q3”. Beyond that is more uncertain as we will need to repair the economy.
  • All institutions must speed up actions to deal with climate change, including the BoC. We will need to get a handle on the implications of this for the economy.
  • Chartered banks are more conservative in their lending practices since the pandemic hit. The securities-purchase programs are intended to keep credit flowing from the banks. The banks are an important shock absorber during this recession. Conditions in financial markets are much improved since the beginning of the crisis. “Markets have normalized and credit is flowing more freely”.
  • Both the government and the BoC have introduced extraordinary programs to deal with this crisis. He said, however, that we could use “additional international assistance and cooperation”.
  • Real estate question–How much risk does this sector represent? The Governor commented that different sectors will behave differently Warehouse and fulfillment centre demand is quite strong. Commercial real estate outlook is uncertain– particularly office space and shopping malls. Housing–he commented that “sharp drops in housing activity” has led to “little change in prices” thus far. This will vary by region and type of housing in the future.  
  • “The pace of change is accelerating. Societies around the world are having trouble keeping up. The central bank must get ahead of this” and be prepared for the unknowns, be agile and resolute.
  • Asked about the potential for a second wave of a pandemic, he said, “The outlook is fraught with uncertainty. The biggest uncertainty is the course of the virus. There will be increases in the number of cases. We need testing and tracing with quick responses locally. We need to determine how to open up safely.”
  • When asked for his last word, he said, “We are going to get through this. Canadians are resourceful, business ingenuity is strong, this will be a long slow recovery and there will be setbacks. We have avoided the worst scenario. Not all jobs will come back. The Bank is laser-focused on supporting this recovery and getting Canadians back to work”.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

CANADIAN HOME SALES AND NEW LISTINGS RECOVER ONE-THIRD OF PANDEMIC LOSS IN MAY

General Bob Rees 16 Jun

Some more GOOD NEWS!  Thank you Dr Cooper 🙂

 

CANADIAN HOME SALES AND NEW LISTINGS RECOVER ONE-THIRD OF PANDEMIC LOSS IN MAY


Record Gains in Canadian Home
Sales and Listings in May

There was good news today on the housing front. Home sales surged by a record 56.9% in May from April’s unprecedented collapse. Data released this morning from the Canadian Real Estate Association (CREA) showed national home sales recovered roughly one-third of the COVID-induced loss between February and April (see chart below). On a year-over-year (y-o-y) basis, sales activity was still down almost 40%, but the jump in sales and an even larger surge in new listings shows pent-up demand remains for housing as buyers wish to take advantage of historically low mortgage rates.

Transactions were up on a month-over-month (m-o-m) basis across the country. Among Canada’s largest markets, sales rose by 53% in the Greater Toronto Area (GTA), 92.3% in Montreal, 31.5% in Greater Vancouver, 20.5% in the Fraser Valley, 68.7% in Calgary, 46.5% in Edmonton, 45.6% in Winnipeg, 69.4% in Hamilton-Burlington and 30.5% in Ottawa. Not surprisingly, the cities with the smallest gains posted the smallest declines in prior months.

More importantly, anecdotal data suggest that housing activity has been steadily rising from the middle of April until the first week in June.

NEW LISTINGS

The number of newly listed homes shot up by a record 69% in May compared to the prior month with gains recorded across the country.

With new listings having recovered by more than sales in May, the national sales-to-new listings ratio fell to 58.8% compared to 63.3% posted in April. While this statistic has moved lower, the bigger picture is that this measure of market balance has been remarkably stable considering the extent to which current economic and social conditions are impacting both buyers and sellers.

There were 5.6 months of inventory on a national basis at the end of May 2020, down from 9 months in April. The temporary jump in this measure recorded in April reflected the fact that sales were expected to fall right away amid lockdowns; whereas, other variables like active listings would be expected to fall at a much slower pace. The CREA report suggests many sellers who already had homes on the market before mid-March may have left the listings up for now but drastically curtailed the extent to which they were showing their homes during the lockdown. With many of those now coming off the market, overall active listings have fallen by about a quarter as of the end of May, bringing them down among the lowest levels on record for that time of the year.

HOME PRICES

Home prices were little changed in May compared to April across Canada. Of the 19 markets tracked by the MLS Home Price Index (HPI), 18 recorded either m-o-m increases or smaller decreases than in April. Five markets posted price gains in May following a decline in April (see the table below for local details).

In general, since the pandemic crisis began small declines in prices have been posted in British Columbia while declining trends already in place in Alberta have accelerated. With the recent surge in oil prices, however, sales activity has actually improved across the Prairies and price trends have been stabilizing.

Despite the pandemic, home prices in the Greater Golden Horsehoe area around and including Toronto have fallen very little and remain well above year-ago levels. In Ottawa, Montreal and Moncton, prices have continued to climb, albeit at a slower pace than before.

BOTTOM LINE

CMHC has recently forecast that national average sales prices will fall 9%-to-18% in 2020 and not return to yearend-2019 levels until as late as 2022. I continue to believe that this forecast is overly pessimistic. Firstly, average sales prices are highly misleading, especially on a national basis because they vary so much depending on the location of the activity, as well as the types of property sold.

There is no national housing market. All housing markets are local. A glance at Table 1 above shows a wide variation in regional sales price action, but if anything, trends appear to be converging on moderate positive pressure on prices. Today’s economic recession is like no other. The record stimulus introduced by the Bank of Canada and the federal government will assure that the housing markets will continue to function, even with social-distancing measures in place, and those who enjoy steady employment will proceed in due course with regular housing decisions.

Those who permanently lose their jobs are the real concern. Many of those people will be in the hardest hit and slowest-to-recover sectors of our economy, such as hospitality (accommodation and food), non-essential retail trade, and the leisure industry (arts, entertainment and recreation). Statistics Canada census data for 2016 in the table below, shows that the homeownership rate in these sectors is relatively low. Unfortunately, most of those who will be hardest hit by the pandemic can least afford it. This is an issue that fiscal policy must address, investing in retraining programs and universal income guarantees.

Dr. Sherry Cooper

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

GENWORTH MI CANADA INC. CONFIRMS THAT IT DOES NOT PLAN TO CHANGE ITS UNDERWRITING POLICY

General Bob Rees 8 Jun

This is a relief!

 
Last week – CMHC announced changes to their approval criteria that reduced a Home Buyers buying power by 12-15%. Other changes eliminated some buyers all together … as the minimum credit score requirement increased.
 
Today – Genworth (an alternative to CMHC) announced it WILL NOT make any changes to it’s lending rules.
 
In Summary – Great News for Buyers! Buying power intact and credit score requirements unchanged!

GENWORTH MI CANADA INC. CONFIRMS THAT IT DOES NOT PLAN TO CHANGE ITS UNDERWRITING POLICY

June 8, 2020

TORONTO, June 8, 2020 /CNW/ – Genworth MI Canada Inc. (the “Company“) (TSX: MIC) confirms that it has no plans to change its underwriting policy related to debt service ratio limits, minimum credit score and down payment requirements. One of the Company’s competitors announced changes to their internal underwriting guidelines with respect to the aforementioned underwriting criteria on June 4, 2020.

“Genworth Canada believes that its risk management framework, its dynamic underwriting policies and processes and its ongoing monitoring of conditions and market developments allow it to prudently adjudicate and manage its mortgage insurance exposure, including its exposure to this segment of borrowers with lower credit scores or higher debt service ratios,” said Stuart Levings, President and CEO.

 

 

SOURCE OF ABOVE:

http://genworth.ca/en/about-us/news-releases.aspx

More Green Shoots–Employment Rebounds 10.6% in May 

General Bob Rees 7 Jun

I LOVE positive information!  Thank you Dr Cooper 🙂

 

More Green Shoots–Employment Rebounds 10.6% in May 

The doomsayers have been proven wrong by this employment report and by the high-frequency data that have been pointing to the start of a rebound in Canada’s economic activity. We have been signalling green shoots in the economy for several weeks, and while these are early days, those green shoots are surely growing. We are optimistic but mindful that just under 5 million Canadians remain without work or with substantially reduced hours.Job Market Has Improved From Mid-April to Mid-May

Canada’s  Labour Force Survey (LFS) results for May, released this morning by StatsCanada, reflect jobs market conditions as of the week of May 10 to May 16. By then, some provinces had begun to gradually ease the pandemic lockdown that has thrown our economy into recession. Already, as of mid-May, the jobs market had shown a marked improvement, and no doubt, it has subsequently continued to revive.

From February to April, 5.5 million Canadian workers were affected by the pandemic shutdown. This included a drop in employment of 3.0 million and a COVID-related rise in absences from work of 2.5 million. Economists were expecting another 500,000 job losses last month. They were wrong.

In May, employment rose by 289,600 (1.8%), while the number of people who worked less than half their usual hours dropped by 292,00 (-8.6%). Combined, these changes represented a recovery of 10.6% of the pandemic-related employment losses and absences recorded in the previous two months. Three-quarters of the employment gains from April to May were in full-time work. The growth was across most industries and provinces, though largely driven by higher employment in Quebec, the province hardest hit by the pandemic. 

Compared to February–prior to the lockdown–however, full-time employment was down 11.1% in May, while part-time work was down 27.6%.

Unemployment Rate Rises As More Canadians Look For WorkEven though we posted employment gains from mid-April to mid-May, the jobless rate rose to 13.7%–up from 13.0%–as easing restrictions caused more discouraged workers to actively look for employment (see chart below). The 13.7% figure is the highest jobless rate recorded since comparable data became available in 1976. In February, prior to the economic shutdown, the unemployment rate was a mere 5.6%. It shot up to 7.8% in March and to 13% in April.

Unlike previous economic downturns. the bulk of the job losses were felt first in the services sector. The pandemic impact subsequently spread to the goods-producing and construction industries in April. Last month, employment rebounded more sharply in the goods-producing sector ( +5.0% or 165,000) than in services (+1.0% or 125,000). The construction industry enjoyed the largest gains in hours worked from April to May with 19.0% growth.

Quebec Accounts For Nearly 80% Of Overall Employment Gains in May

The Quebec provincial government eased restrictions on business activity before the jobs report reference week of May 10 to May 16, notably in construction from mid-April, and in retail trade and manufacturing outside Montréal from May 4. The proportion of workers labourers from a location other than home increased from 60% in April to 65% in May.

The largest employment increases in Quebec were in construction (+58,000), manufacturing (+56,000) and wholesale and retail trade (+54,000), three industries with a relatively high proportion of jobs that are difficult to do from home.

Employment increased by 97,000 (+5.3%) within the Montréal census metropolitan area.

Employment Declines Continued in Ontario But At A Slower Pace

Ontario was the only province where employment continued to fall in May. This is consistent with the fact that most restrictions on economic activity remained in place in Ontario during the week of May 10 to May 16.

While employment declined in Ontario in May (-65,000), it did so at a much slower pace than in March (-403,000) and April (-689,000). All of the employment decline in the province in May was in the services-producing sector (-80,000). At the same time, employment rose by 15,000 in the goods-producing sector, driven by manufacturing (+14,000).

The proportion of employed people in Ontario who worked less than half their usual hours dropped from 22.1% in April to 21.2% in May.

In Ontario, 55% of workers worked from a location other than home in May, the lowest proportion of all provinces and little changed from April.

As most restrictions on economic activity remained in place in Ontario, the number of people who were not in the labour force but wanted to work and did not look for a job was little changed. The unemployment rate continued its upward trend, rising from 11.3% in April to 13.6% in May (see the table below).

Employment Picture Mixed In Western Provinces

Employment in British Columbia increased by 43,000 in May and the unemployment rate rose 1.9 percentage points to 13.4%, as more people looked for work. Almost all of the employment increase in the province was in the services-producing sector (+41,000), led by accommodation and food services (+12,000), educational services (+12,000), and wholesale and retail trade (+12,000).

British Columbia announced a first phase of reopening on May 6, with a plan to lift restrictions on non-essential medical services and parts of the retail trade industry starting May 19, after the reference week.

The number of employed people in Alberta grew by 28,000 in May, following a cumulative decline of 361,000 from February to April. The employment increase in the province was entirely driven by the services-producing sector (+33,000). The unemployment rate increased by 2.1 percentage points to 15.5%.

Alberta allowed some businesses such as restaurants and non-essential shops to start operating from May 14.

In Manitoba, employment increased by 13,000 in May. At the same time, the proportion of employed Manitobans who worked less than half their usual hours fell by 1.7 percentage points to 12.9%. In May, most of the employment increase in Manitoba was in the services-producing sector (+12,000), the majority of which was in wholesale and retail trade (+7,000).

On May 4, Manitoba allowed a number of services businesses to resume their activities, with limited occupancy and physical distancing requirements.

There was little change in overall employment in Saskatchewan. Increases in wholesale and retail trade, manufacturing and accommodation and food services were offset by declines in many sectors, led by information, culture and recreation as well as in construction.

Employment increases in all Atlantic provinces

With the exception of Nova Scotia, provincial governments in the Atlantic provinces started to ease restrictions in early May, with New Brunswick reopening most of its economy from May 8. The number of employed people increased in New Brunswick (+17,000), Newfoundland and Labrador (+10,000), Nova Scotia (+8,600) and Prince Edward Island (+2,600).

Green Shoots

There is increasing evidence that the economy has bottomed and is gradually improving. Business shutdowns are easing, and while it will be some time before we see a complete reopening, early signs of improvement are evident.

A Bloomberg News poll taken at the end of May found that 30% of respondents who had lost their job or seen hours decline because of the coronavirus pandemic said they were re-employed or working more. The survey, conducted by Nanos Research, is consistent with other high-frequency data from Indeed Canada and Google that suggest stabilization in labour conditions and economic activity over the past few weeks.

The rebound story is also reinforced by Canadians’ movement patterns. Mobility data from Apple and Google smartphones during the latter half of May suggest more people present in retail stores and parks — coinciding with re-openings across Canada. While transit usage remains down, driving and walking have picked up, a positive sign for commerce.

In addition, the Office of the Superintendent of Bankruptcy Canada reported that the total number of insolvencies (bankruptcies and proposals) decreased by 38.7% in April compared to the previous month. Bankruptcies decreased by 41.5% and proposals decreased by 37.2%. The total number of insolvencies in April 2020 was 43.5% lower than the total number of insolvencies in April 2019. Consumer insolvencies decreased by 43.1%, while business insolvencies decreased by 54.8%.

On another positive note, commodity prices have rebounded. Most notably for Canada, oil prices have risen sharply–great news for Alberta and Saskatchewan. As well, the Canadian stock market has rebounded significantly and the Canadian dollar is up. The Bank of Canada noted this week that the worst of the pandemic decline is behind us.

The Royal Bank economists survey of consumer spending in May shows continued recovery as discretionary spending is returning.

  • “As Canadian provinces take steps to reopen their economies, consumers have begun spending more on the discretionary items they shunned during the early phase of the pandemic.
  • Entertainment and art spending has benefited most from easing restrictions.
  • Spending on dining out continues to recover from lows, as restaurants adapt to take-out and other delivery models.
  • Formerly slow spending at merchants selling apparel, gifts & jewelry picked up steam in early May; Canadians spent more at clothing stores in particular.
  • Spending at merchants selling household goods remains strong, reflecting spending at DIY construction stores, and on appliances and furniture.
  • Canadians began to drive more through early May, and card spending on auto expenses continued to pick up.
  • In mid-May, spending at entertainment and art merchants was down 37% from a year earlier, compared with a 58% drop in late April.
  • Golfers dusted off their putters as golf courses opened up around the country. Those who prefer playing inside continued to spend on online and console gaming.”

Concerning the housing market, before the pandemic, we were going into the spring season with the prospect of record sales activity in much of the country. Aside from oil country–Alberta and Saskatchewan–all indications were for a red-hot housing market. So the underlying fundamentals for housing remain positive as the economy recovers. How long that will take depends on the course of the virus and whether we see a second wave in the fall.

Real estate boards report a pick-up in home sales in May in the GTA and GVA.

Interest rates have plummeted. Thanks to the 150 basis point decline in the prime rate, variable rate mortgage rates have fallen for the first time since late 2018. Once the Bank of Canada was able to establish enough liquidity in financial markets, even fixed-rate mortgage rates have fallen.

The posted mortgage rate finally fell to 4.94% last week, but it remains well above contract rates; but with any luck at all, this qualifying rate for mortgage stress tests will ease in coming months and the regulators will change the qualifying rate to a contract rate plus 200 basis points, as planned to happen in April before the pandemic hit.

The Bank of Canada will remain extremely accommodating. In my view, interest rates will not rise until 2022.

One piece of bad news for housing was yesterday’s CMHC announcement of a tightening in mortgage qualification rules for mortgage borrowers with less than a 20% down payment. As I wrote yesterday, I believe this action flies in the face of measures taken by the Bank of Canada, OSFI, and the Department of Finance to cushion the blow of the pandemic and prevent unnecessary insolvencies. CMHC’s tightening measures reduce housing affordability, especially for first-time home buyers, by more than 10% and are totally unwarranted from a prudential perspective. For more on that, see yesterday’s report. As well, Bloomberg News also suggested the same in their article, Canadian Housing Agency Draws Fire For Tightening Mortgage Rules.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

HUGE CHANGE COMING FOR BUYERS

General Bob Rees 4 Jun

RULE UPDATE

 

HUGE CHANGE COMING FOR BUYERS ….. CMHC has made the below change effective July 1, 2020 .. if you or someone you know is buying with less than 20% down … this will reduce the amount you can borrow.  The average impact will be a 14-15% REDUCTION in maximum purchase price!

 

SAMPLE IMPACT:

$300,000 Max Purchase Price today

$260,000 Max Purchase Price after July 1st

 

RULE CHANGE:

* Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to our standard requirements of 35/42;

* Establish minimum credit score of 680 for at least one borrower; and

* Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes.

 

 

I am here if any questions arise.

 

 

Cheers,

 

 

Bob Rees

Mortgage Broker

Powered by Maximal Mortgages and Dominion Lending Centres DLC

Call/Text: 780-975-9747

 

 

Bank of Canada Takes A More Positive Tone

General Bob Rees 3 Jun

Thank you Dr Cooper …. happy to hear some “positive” info for a change 🙂

 

On the heels of a devastating decline in the Canadian economy, the Bank of Canada suggested today that the worst of the pandemic’s negative impact on the global economy is behind us, conceding, however, that uncertainty remains high. The Bank today maintained its target overnight rate at 0.25%. No additional rate cut was expected as the Bank has described the 0.25% level as the effective lower bound of the policy rate. Governor Poloz has all but ruled out negative interest rates unless the economy deteriorates dramatically further.

Today’s Governing Council meeting is Stephen Poloz’s swan song, as the new Governor, Tiff Macklem, takes the helm today. Macklem took part as an observer in the Governing Council’s deliberations and endorsed today’s rate decision and measures announced in the press release, thereby assuring continuity in monetary policy.

The Bank has taken very aggressive action to support liquidity and the full functioning of financial markets by buying short- and long-term securities. The central bank’s balance sheet holdings of securities have grown to about 20% of Canada’s GDP, up from 5% pre-crisis. That’s still well below the levels seen at the US Federal Reserve, the Bank of Japan, and the European Central Bank, which have conducted these quantitative easing operations since the financial crisis more than a decade ago. However, the Bank of Canada’s securities purchases have been extraordinary in relation to the size of our economy.

“Decisive and targeted fiscal actions, combined with lower interest rates, are buffering the impact of the shutdown on disposable income and helping to lay the foundation for economic recovery.” According to the central bank, the Canadian economy appears to have avoided the most severe scenario presented in the Bank’s April Monetary Policy Report (MPR).

The level of real GDP in Q1 was 2.1% below the level in the fourth quarter of 2019. The Bank of Canada is now predicting that real GDP in Q2 will likely post a further decline of 10%-to-20%, as continued shutdowns and sharply lower investment in the energy sector take an additional toll on output. That suggests a peak-to-trough decline of 12% to 22%, instead of the 15% to 30% scenario the central bank had previously been estimating. “The Canadian economy appears to have avoided the most severe scenario,” the Bank of Canada said.

Bottom Line: While the degree of uncertainty remains high, there is evidence that the worst of the economic downturn is behind us. Preliminary data for May suggests that home sales picked up on a month-over-month basis in May in the GTA and GVA, although home sales continued to be down significantly from levels one year ago.

Some people are concerned that the extraordinary stimulus in monetary and fiscal measures in recent months might, in time, be inflationary. Governor Poloz has made it clear that the dire results of the economic shutdown would have been highly deflationary had these actions not been taken. Deflation, coupled with high debt levels, would have triggered a depression. Economic models are ill-equipped to deal with the fallout of the pandemic. Policymakers need to be nimble in responding, and when the economy has recovered sufficiently, they will begin the unwinding of all of this stimulus, which will require an equally deft response on both the fiscal and monetary side.

 

 

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

 

Bank of Canada maintains target for the overnight rate …………

General Bob Rees 3 Jun

Bank of Canada maintains target for the overnight rate, scales back some market operations as financial conditions improve

Available as: PDF

The Bank of Canada today maintained its target for the overnight rate at the effective lower bound of ¼ percent. The Bank Rate is correspondingly ½ percent and the deposit rate is ¼ percent.

Incoming data confirm the severe impact of the COVID-19 pandemic on the global economy. This impact appears to have peaked, although uncertainty about how the recovery will unfold remains high. Massive policy responses in advanced economies have helped to replace lost income and cushion the effect of economic shutdowns. Financial conditions have improved, and commodity prices have risen in recent weeks after falling sharply earlier this year. Because different countries’ containment measures will be lifted at different times, the global recovery likely will be protracted and uneven.

In Canada, the pandemic has led to historic losses in output and jobs. Still, the Canadian economy appears to have avoided the most severe scenario presented in the Bank’s April Monetary Policy Report (MPR). The level of real GDP in the first quarter was 2.1 percent lower than in the fourth quarter of 2019. This GDP reading is in the middle of the Bank’s April monitoring range and reflects the combined impact of falling oil prices and widespread shutdowns. The level of real GDP in the second quarter will likely show a further decline of 10-20 percent, as continued shutdowns and sharply lower investment in the energy sector take a further toll on output. Decisive and targeted fiscal actions, combined with lower interest rates, are buffering the impact of the shutdown on disposable income and helping to lay the foundation for economic recovery. While the outlook for the second half of 2020 and beyond remains heavily clouded, the Bank expects the economy to resume growth in the third quarter.

CPI inflation has decreased to near zero, as anticipated in the April MPR, mainly due to lower prices for gasoline. The Bank expects temporary factors to keep CPI inflation below the target band in the near term. The Bank’s core measures of inflation have drifted down, although by much less than the CPI, and are now between 1.6 and 2 percent.

The Bank’s programs to improve market function are having their intended effect. After significant strains in March, short-term funding conditions have improved. Therefore, the Bank is reducing the frequency of its term repo operations to once per week, and its program to purchase bankers’ acceptances to bi-weekly operations. The Bank stands ready to adjust these programs if market conditions warrant. Meanwhile, its other programs to purchase federal, provincial, and corporate debt are continuing at their present frequency and scope.

As market function improves and containment restrictions ease, the Bank’s focus will shift to supporting the resumption of growth in output and employment. The Bank maintains its commitment to continue large-scale asset purchases until the economic recovery is well underway. Any further policy actions would be calibrated to provide the necessary degree of monetary policy accommodation required to achieve the inflation target.

Information notes

Tiff Macklem assumes his role as the Bank’s tenth Governor today. He participated as an observer in Governing Council’s deliberations for this policy interest rate decision and endorses the rate decision and measures announced in this press release.

The next scheduled date for announcing the overnight rate target is July 15, 2020. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR at the same time.

Content Type(s)PressPress Releases

Near-Record Decline in Q1 GDP Better Than Flash Estimate

General Bob Rees 29 May

Thank you for the insight Dr Cooper.  I personally appreciate her positive view on CMHC’s most recent press release as its does appear the market is bouncing back and that the initial “drops” are not as significant as originally expected …. still drops just the same, but we are a strong and resilient bunch!

 

Near-Record Decline in Q1 GDP Better Than Flash Estimate

The hand-wringing about the Q1 GDP data released today misses the point that the data were actually better than expected. The Canadian economy declined at an 8.2% annualized rate in the first quarter, less harsh than the earlier estimate by StatsCan of -10%. Of course, every sector of the economy was hit by the enforced shutdown, but not by nearly as much as most economists anticipated. For the month of March, the decline was 7.2%, less dire than the -9% earlier estimate.

In light of the current unprecedented national and global economic environment, StatsCan is providing leading indicators of economic activity. Their preliminary flash estimate for April is an 11% decline in real GDP. This estimate will be revised as more info becomes available, but the March and April decreases are likely to be the largest consecutive monthly declines on record.

The Economy Has Bottomed

It looks increasingly likely that we are already past the bottom of the latest economic downturn, with GDP potentially getting back on a positive growth trajectory as early as May.

That won’t be enough to prevent a historically large drop in Q2 output– likely multiples of the decline in Q1–but it would leave the data tracking along the more “optimistic” end of the -15% to -30% growth range estimated by the Bank of Canada in their last Monetary Policy Report. Government support programs for those losing work have been unprecedented–household disposable income actually edged up slightly in Q1 despite the large drop in overall economic activity, boosted by government transfers. With the decline in spending in March and April and the rise in disposable income, the savings rate is soaring. All of us are saving money by doing our own cooking and cleaning. We aren’t travelling and shopping is certainly limited, not to mention the savings on gasoline, entertainment, hairstyling and gym memberships. Hopefully, this could provide a cushion to support spending and the economy will turn sharply higher in Q3.

Still, the three million jobs lost over March and April will not be recouped quickly. The lockdown is easing only gradually, and any activities requiring large gatherings–think tourism, conferences, concerts, movies and sports–will remain closed until there is a vaccine or effective treatment. We expect things will begin to get better from this point, but still look for the unemployment rate to remain elevated at 8.5% in Q4 of this year. It is currently 13%.

The Housing Outlook

Much has been made of the recent CMHC Housing Market Outlook report released this week. The gloomy outlook of up to an 18% drop in home prices, a delayed recovery not until 2022, and a 20% arrears rate garnered headlines. First-time homebuyers were warned that housing was no longer a good investment, at least not over a three-year horizon. But the CMHC’s own data shows that home prices have risen an average of 5% annually over the past twenty-five years. And though no one’s retirement nest egg should consist solely of their residential real estate, a home is one of the few investments that you can actually use. People buy homes for many reasons well beyond wealth accumulation. The pride of ownership and lifestyle choice dominates the decision to buy for many.

Also this week, the Governor of the Bank of Canada suggested that the doomsters were overly pessimistic and asserted his view that the economy would recover from its medically induced coma much faster than the pessimists were suggesting. Clearly, none of us have a crystal ball, nor have we ever before experienced a pandemic recession. While we rise from the abyss, the pain may well be far from over. People are still losing jobs and many businesses continue to sink. Any recovery is dependent on whether the virus cases keep slowing and whether there is a second wave of infections.

But oil prices have risen sharply, a major boon for Alberta and some high-frequency data have improved. The stock market is well off its lows, interest rates have fallen sharply and the qualifying rate for mortgage stress tests has fallen to 4.94%. Actual mortgage rates are near record lows and are likely to remain low for the foreseeable future.

In time, immigration to Canada will restart, and foreign students will return. New businesses are blossoming even now and many sectors will continue to advance. To name a few, we are seeing burgeoning growth in telemedicine, artificial intelligence, big data analysis, cloud services, cybersecurity, 5G, home entertainment, virtual everything, home fitness, DYI renovations, indeed, DIY anything.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres