Archives for August 1, 2019

The Canadian economy grew for a third consecutive month in May, rising 0.2 per cent overall as 13 of 20 sectors advanced, Statistics Canada reported Wednesday.

The growth in gross domestic product was above analyst estimates of 0.1 per cent growth and showed renewed strength in manufacturing, which rebounded from an April dip, as well as continued growth in construction.

Douglas Porter, chief economist at BMO Capital Markets, said May’s growth was slightly more positive than the month’s numbers indicate because Statistics Canada also revised April’s number to 0.33 per cent growth from 0.26 per cent.

“The above-expected GDP gain is all the more impressive since it overcame declines in each of wholesale, retail, utilities, and oil and gas output (oilsands production pulled back six per cent from April),” Porter wrote in a commentary.

He said the slight upward revision to April and the “sturdy” details in May put a “relatively healthier glow on the economy’s spring-time performance.”

TD senior economist Brian DePratto said the May report underscores the strength of a recovery from a weak start to 2019, but noted that manufacturing and real estate were “coming back to life after earlier setbacks.”

“That said, a recovery is a recovery, and with upward revisions to the April report, we upgrade our second quarter GDP growth tracking again, to 3.0 per cent annualized,” DePratto wrote.

Porter agreed that growth for the second quarter will be close to three per cent.

“That compares with (BMO’s) call of 2.5 per cent, and the (Bank of Canada’s) latest official estimate of 2.3 per cent for the quarter,” Porter wrote.

Statistics Canada’s GDP report said wholesale trade fell 1.4 per cent in May, after four months of growth, with all subsectors contracting except building material and supplies (up 0.4 per cent).

Retail trade contracted 0.4 in May, the first month-over-month decline since last summer, while the mining, quarrying and oil-gas extraction sector contracted 0.8 per cent after a 5.5 per cent increase in April.

Oil and gas extraction decreased 2.5 per cent in May, after two months of growth. Excluding oilsands, crude petroleum and natural gas extraction rose 1.1 per cent.

Mining, excluding oil and gas extraction, was up for a third consecutive month with a gain of 2.7 per cent.

Metal ore mining was up 2.6 per cent, non-metallic mining was up 2.1 per cent, led by an export-driven gain in potash (up 3.0 per cent). Coal mining was up 8.3 per cent on higher exports of metallurgical coal, Statistics Canada said.

BC Transit is charting a course to a fully electric fleet by 2040.

The Crown corporation announced Tuesday it will replace nearly 1,200 buses and add another 350 over the next decade in an effort to reduce emissions.

That course starts with the deployment of 10 battery-based heavy-duty electric buses in fiscal year 2020-21, which were purchased with federal and provincial government funds.

Two years later, the Crown corporation will only purchase electric heavy-duty buses for its fleet, followed by exclusively purchasing electric high-capacity buses, light-duty buses and medium-duty buses in subsequent years.

BC Transit says nearly 150 electric vehicles are already on order. Through to fiscal year 2028-29, the organization plans to gradually replace nearly 1,200 buses, an effort that will more than halve its greenhouse gas emissions in 10 years, and beat its 2040 provincial reduction target a decade early.

When coupled with efforts to convert vehicles to low carbon technologies – such as compressed natural gas – the measure will cut the organization’s 2018-19 emissions by more than 80%.

BC Transit says it is looking to add 34 medium-duty and 68 heavy-duty compressed natural gas buses to its existing fleet of 128, which currently operate in the regional district of Nanaimo and within the City of Kamloops.

“British Columbia’s largest and fastest-growing source of carbon pollution is the transportation sector,” said B.C. Minister of Transportation and Infrastructure Claire Trevena, in a news release.

The plan builds on a federal and provincial funding commitment of $79 million announced earlier this month. The funds will support the purchase of 118 new buses for Victoria and B.C.

As next steps, BC Transit will work with the Ministry of Transportation and Infrastructure on anticipated funding requirements for its low carbon program. It will also work with BC Hydro to determine the readiness of B.C. infrastructure to support electric fleets across B.C.

Canada’s largest agriculture equipment dealer says it is scrapping its aggressive growth strategy in part because of farmer pessimism it blames on unsolved international trade disputes.

Rocky Mountain Dealerships Inc. cited the federal government’s inability to solve trade battles with China, India and Saudi Arabia as it reported second-quarter financial results that fell well short of analyst expectations.

It is reporting net earnings of $750,000, or four cents per share, on revenue of $195 million in the three months ended June 30, versus earnings of $6.06 million or 30 cents on revenue of $303 million in the same period of 2018.

Analysts had expected net earnings of $2.6 million, or 18 cents per share, on revenue of $269 million, according to financial markets data firm Refinitiv.

The Calgary-based company says it has decided to abandon a plan announced in May 2018 to increase annual revenues to at least $1.5 billion by 2023, due to a poor North American farm business climate and a lack of availability of attractive acquisition targets.

It says farm confidence has tumbled because of factors such as China’s ban on Canadian canola and pork, India’s increased tariffs on lentil imports and Saudi Arabia’s decision last year to stop buying Canadian wheat and barley.

“While some industry fundamentals remain solid, unfortunately, political and macroeconomic issues continue to create significant uncertainty for Canadian farmers and our business,” said CEO Garrett Ganden in a news release.

“The inability of the Canadian government to make meaningful progress toward improving international trade relations with several key partners only exacerbates this uncertainty.”

U.S. central bank expected to drop interbank lending rate by 25 basis points

The U.S. Federal Reserve is widely expected to cut its interest rate Wednesday for the first time in over a decade — a big step, though one unlikely to pull Canada’s central bank out of its holding pattern any time soon.

The Bank of Canada sent signals earlier this month that the Canadian economy is very much on its own path and, at least in the short term, has no reason to follow any move by the Fed to lower rates.

One thing appears certain — Bank of Canada governor Stephen Poloz and his team will dissect the Fed’s explanation behind the decision.

“What’s going to matter most to markets, to economists, to global central banks is not what the Fed does on Wednesday — but why the Fed moves,” said Frances Donald, managing director and chief economist for Manulife Investment Management.

When Canadians look south of the border, Donald said, they should care deeply about whether the Fed is cutting rates to deal with weak inflationary pressures or because it predicts the economy is heading into a recession.

“The reason for that is because if the U.S. economy suffers a recession, so too will Canada — with an approximate six- to 12-month lag,” Donald said.

“So, governor Poloz will be watching very carefully.”

Earlier this month, Fed Chairman Jerome Powell signalled a U.S. rate cut was likely due to slowing global growth and trade wars. He’s set to announce the Fed’s monetary policy at a news conference at 2:30 p.m. ET.

The benchmark lending rate is currently set to a range between 2.25 per cent and 2.50 per cent, and it could be brought down to a target range of 2 per cent to 2.25 per cent.

A rate reduction by the Fed would be the first since the Great Recession of 2008. It would come at a time when the U.S. economy is still in decent shape — unemployment numbers are as low as they’ve been in decades and American consumer confidence has looked strong.

The U.S. is facing external challenges related to the global economy and trade conflicts. At home, inflation has been running below target and central banks can drop interest rates as a way to lift consumer prices.

Craig Alexander, chief economist for Deloitte, said the expected rate cut should be viewed as “taking out insurance on the economic expansion” and not a sign Powell sees a larger downturn on the way.

The two central banks didn’t move in lockstep with rates going up, so they don’t need to move in lockstep with rates coming down​

– Economist Craig Alexander

“I don’t think the economic indicators, at this point, are flashing that a recession is upon us,” Alexander said.

He doesn’t see any urgency for the Bank of Canada to follow the Fed’s lead.

“The two central banks didn’t move in lockstep with rates going up, so they don’t need to move in lockstep with rates coming down,” Alexander said.

“One could argue that the Fed went farther faster and now it’s going reverse some of that, so there isn’t the pressure on the Bank of Canada to respond.”

The Bank of Canada should also be careful about “expending ammunition” that could be used later to deal with a downturn, he said.

Alexander added that a rate cut by the Fed could bring benefits to trade-dependent Canada by bolstering U.S. and foreign demand. It could also put additional upward pressure on the Canadian dollar.

Bank of Canada rate at 1.75%

Earlier this month, the Bank of Canada kept its interest rate at 1.75 per cent for a sixth-straight policy meeting. Canadian economic growth has shown signs of re-emerging after it nearly stalled in late 2018 and early 2019.

The bank, however, showed no urgency at the July meeting to make a policy change even though the Fed had already signalled its intention to lower the U.S. rate.

Carolyn Wilkins, the Bank of Canada’s senior deputy governor, explained at the time that the U.S. and Canada were at different points in the economic cycle.

“The fact that Canada is picking up while the U.S. economy is slowing sounds like a divergence. In fact, it’s a process of convergence,” said Wilkins, noting Canada’s interest rate was already lower than the Fed’s.

“The United States is slowing to a more sustainable pace, while Canada is moving back up to its trend growth… By the second half of this year, growth should be similar in both economies as they converge on their respective potential level of activity.”