Friday, July 24, 2009

The recession is over. Cue the painful recovery

The recession is over, but not the pain.

Canada's central bank predicted Thursday that the economy would expand this quarter, suggesting the economic contraction lasted for about nine months, considerably shorter than the previous two recessions in the early 1990s and the early 1980s.

The Bank of Canada’s reassessment of the state of the economy is perhaps the clearest signal yet that the worst of the recession is over.

Buoyed by the prospect of better days ahead, investors rushed to buy Canadian stocks, adding new life to an near five-month rally that economists said has played a big role in reversing Canada's fortunes.

The Standard & Poor’s /TSX Composite Index rose 243.33 points to 10,675.68, the highest in six weeks. Canada's dollar jumped about 1 per cent to 92.04 U.S. cents, the strongest in almost two months.

Yet Bank of Canada Governor Mark Carney stopped short of celebration, saying it will take more than a year to replace the wealth destroyed by the financial crisis.

A graphic example of the hole out of which Canada's economy has to climb is the “output gap,” which measures the difference between current economic activity and the level of production policy makers reckon the economy can sustain without causing rapid inflation.

The Bank of Canada's conventional measure of output gap was -4.3 per cent in the second quarter, the widest deficit on record dating back to 1985.

“We are on track for the recovery both in Canada and globally,” Mr. Carney said at a news conference. “But it's early days. It's a long road.”

Canadian policy makers attributed their brighter outlook to improved confidence around the globe, reflected in the Dow Jones Industrial Average’s 2-per-cent jump yesterday, sending the New York-based index above 9,000 for the first time since January.

The Bank of Canada, which employs more than 300 economists and runs 21 models, predicted in April that gross domestic product would contract 1 per cent in the current quarter and that growth wouldn't return until the final three months of 2009.

As it turns out, policy makers underestimated Canadian consumers' ability to weather the deepest global recession since the Second World War and the central bank's own ability to erect a bulwark against the storm.

Mr. Carney and his senior deputies remain surprised that household credit continued to expand through the recession, providing a measure of support for domestic spending that kept the collapse in exports and rising unemployment rates from taking a greater toll.

The fact that family borrowing continued to increase at its historic pace of about 8 per cent a quarter reflects an increase in home buying – purchases that were encouraged by mortgage rates that fell to record lows as the Bank of Canada dropped its benchmark lending rate to an unprecedented 0.25 per cent and set up emergency cash auctions to ensure banks had access to enough money to continue lending.

“We've seen some remarkable policy response to the economic issues, not just on a regional basis, but on a global basis,” said Daniel Bain, president and chief investment officer at Toronto-based Thornmark Asset Management Inc., which oversees investments worth about $460-million. “It's almost unimaginable where we would be if there had not been some intervention.”

It will be months before Statistics Canada officially dates the latest economic downturn.

Bank of Canada July 21 rate announcement: Analyst reaction

Posted: July 21, 2009, 9:43 AM by Vieira
Bank of Canada

Here is a roundup of analysts’ reaction to the Bank of Canada's rate decision Tuesday, in which it left its benchmark mark unchanged, at 0.25%, and revised upward its economic outlook:

It now sees some expansion in many countries, though the recovery is still "nascent" in the bank's words. Last meeting it talked of an improvement in financial conditions and commodity prices, which it repeated this statement, but added the observed improvement to Canadian business and consumer confidence. It still sees a higher Canadian dollar and corporate restructuring as being a drag on growth. One interesting reference in the statement is that the bank believes that early signs of strength in Canadian domestic demand “represents the bringing forward of household expenditures.” I would assume this is directed more to the latest housing figures we've seen, in addition to anecdotal evidence of a pick up in some auto sales because of incentives. In other words, the bank is not betting the farm on a quick snap back in demand and maybe a cooling off this summer. Stronger stock markets though and the recent slide in gasoline prices might just offer a lift.
Andrew Pyle, wealth advisor, ScotiaMcLeod

The economic and inflation assessments were changed a bit, and the bank now expects a little bit of a stronger performance on both fronts. The follow through for the output gap and inflation is that the bank now expects it to close a quarter sooner than the original forecast of [the third quarter of] 2011. But the overall risks to the inflation project are still “tilted slightly to the downside.” The hot issue for this meeting was how the bank would address the currency issues, as the Canadian dollar has firmed recently, though the spate of appreciation has not been as significant, nor as rapid as the intermeeting period [prior] to the June [announcement]. The bank did mention the Canadian dollar as a variable that “is significantly moderating the pace of overall growth.” The tone of this specific statement is not that dissimilar to the one in June, though the bank did not specify the drivers of the currency this time around. … It seems that the bank is now a little less dour on the outlook. That said, the currency remains a potential obstacle, and will continue to be watched very closely.
Charmaine Buskas, senior economics strategist, TD Securities

I don’t think there were any huge surprises here. But I think at the margin they come across as being a little bit more bullish on the growth outlook. That’s not a big shock. But just the tone of the remarks sounds a little bit more upbeat then I might have expected. They still signal the high dollar is weighing on growth but overall its got slightly more upbeat tone then I would have anticipated. I don’t see the changes to the forecast as being that surprising. There is no real surprise on the view for 2009 that’s basically consensus, the decline of 2.3% for GDP. But the call for the 3% growth in 2010 is an upgrade from where they were before and it’s well above consensus. The bank is now significantly more optimistic then most forecasters for next year.
Douglas Porter, deputy chief economist, BMO Capital Markets

We’re looking at a little stronger growth environment and a little less worrying inflation outlook ... or disinflation or deflation outlook perhaps. It’s a small step toward an eventual increase in interest rates but a small step, nothing significant.
Craig Wright, chief economist, Royal Bank of Canada

Our central bank said the recovery has started. We agree. The outlook for inflation and the economy still necessitates the firmly expansionary monetary policy to stay in place, which makes sense to us. However, [we think] the Bank of Canada is somewhat optimistic about the strength of the recovery, based on robust growth in household expenditures. We will learn more on Thursday in the monetary policy report.
S├ębastien Lavoie, economist, Laurentian Bank Securities

Tuesday's policy announcement didn’t change anything that [the Bank of Canada] is doing, but the central bank is clearly less worried about the downside risks to growth. That degree of optimism, however, may understate the structural challenges to brisk growth abroad, and the risks to Canada from an overvalued exchange rate. ... The good news is that if the central bank has been too optimistic on 2010, it won’t really matter much for what the bank actually does. It will have plenty of time to observe actual growth and inflation conditions before making a decision to begin a tightening cycle.
Avery Shenfeld, chief economist, CIBC World Markets

Paul Vieira, with files from Reuters

End of Recession is Near

Kevin Carmichael
Ottawa — Globe and Mail Update Last updated on Wednesday, Jul. 22, 2009

The U.S. and Canadian central banks are promising to keep borrowing rates at record lows well into next year as they seek to foster a recovery that both institutions say won't hit its stride until 2011.

Both the U.S. Federal Reserve Board and the Bank of Canada signalled yesterday the recessions in their countries are all but over, echoing their counterparts at the Bank of Japan and Reserve Bank of Australia, which published similar assessments.

But just as they agree the worst is over, Fed chairman Ben Bernanke and Bank of Canada Governor Mark Carney are united in their nervousness over the fragility of a rebound that is being fuelled almost entirely by benchmark interest rates that are near zero and hundreds of billions of dollars in short-term government spending.

North America's climb out of the deepest global recession since the Great Depression is being slowed by rising unemployment that is a threat to consumer confidence and an impediment to domestic spending.

The two central banks said those concerns are offsetting what would otherwise be stronger gains from better financial conditions and increasing signs that economic activity is expanding in other parts of the world.

“I want to be clear: We have a very long haul here,” Mr. Bernanke said during three hours of testimony to the U.S. House financial services committee . “It's not going to feel like a very strong economy.”

Mr. Bernanke, who returns to Capitol Hill today to complete his semi-annual report to the U.S. Congress by submitting to questions from senators, reaffirmed that he intends to leave the federal funds rate at “exceptionally low levels for an extended period of time.”

The benchmark U.S. lending rate is currently in a range of zero to 0.25 per cent, while Canada's key overnight target is 0.25 per cent, the lowest it can go without roiling short-term money markets.

Mr. Carney, through the Bank of Canada's latest policy statement, recommitted to keep the overnight target at 0.25 per cent until June, 2010, conditional on an unexpected burst of inflation.

Economic conditions in Canada have improved enough to warrant a brighter outlook from the central bank.

Policy makers used yesterday's statement to adjust their forecast for 2009 to a contraction of 2.3 per cent, compared with an April prediction that gross domestic product would collapse 3 per cent. GDP will expand 3 per cent next year, compared with a previous estimate for growth of 2.5 per cent, the Bank of Canada said.

The revisions reflect what the central bank said are “increasing signs that economic activity has begun to expand in many countries” as a result of unprecedented monetary and fiscal stimulus.

“The recovery is nascent,” the Bank of Canada said.

“Effective and resolute policy implementation remains critical to sustained global growth.”

At home, domestic demand also is getting a boost from improved financial conditions, firmer commodity prices and a rebound in business and consumer confidence, the Bank of Canada said. Growth is being significantly offset by a higher dollar that is crimping exports and restructuring in the auto and forestry industries.

The central bank's revised outlook, which it will explain when it releases its latest quarterly economic report tomorrow, puts it in line with the 2009 forecasts of Canada's biggest banks and leaves it more optimistic about 2010.

Inflation remains tame and is unlikely to pose a threat for some time. Canadian policy makers don't expect the economy to return to a level at which it risks sparking rapid inflation until mid-2011.

Consumer debt rises sharply

90 days overdue; Delinquencies up as jobless households rise
Alia McMullen, Financial Post Published: Saturday, July 04, 2009

A growing number of Canadians have fallen behind on their credit and mortgage payments as unemployment rises, prompting a surge in consumer bankruptcies. It is a situation that is expected to get worse as unemployment continues to grow.

Canada's average delinquency rate for all types of consumer credit, excluding mortgages, reached 1.52% in May, up 19% from a year earlier, data compiled by Equifax Canada Consulting Solutions showed yesterday. The pace of growth accelerated from 13% in April. The delinquency rate is based on payments more than 90 days overdue.

"While we have seen delinquencies increase steadily since the beginning of the year, the rate of increase in the past three months has been significantly higher," said Nadim Abdo, vice-president of Equifax Canada.

He said the sharpest increase in the past year was in credit card and sales finance purchases, which increased by 38% and 58%, respectively.

"Such transactions typically represent the purchase of durable goods, such as furniture or electronics, and consumers appear to be willing to fall behind on them first before they miss payments on their bank loans and lines of credit."

Michael Gregory, a senior economist at BMO Capital Markets, said it was likely more than 150,000 households in Canada were experiencing some degree of stress in meeting consumer debt repayments.

"Canadian households were in relatively good shape with high debt levels, but still manageable. But the risk was always that if people started losing their jobs that it would be a lot harder to make ends meet because of debt payments," he said.

The unemployment rate reached an 11-year high of 8.4% in May. Mr. Gregory said the unemployment rate would likely rise to 9.3% by the first quarter of next year, causing a further increase in credit delinquencies.

Mortgage delinquencies have also risen. Figures released by the Canadian Bankers Association in April showed 15,628, or 0.4%, of all mortgages were in arrears, up from 0.26% in April 2008.

But the percentage of mortgage arrears remained below the 0.65% level hit during the 1990s recession when interest rates surged to about 14% and unemployment hit 12%.
Despite this, Derek Holt, chief economist at Scotia Capital, said consumer bankruptcies have hit record levels.

Consumer bankruptcies rose 31% to 14,455 in the year ended April, figures from the Office of the Superintendent of Bankruptcy show.

"As bad as the recession was in the early 1990s, today's bankruptcy picture is shaping up to be worse, even when properly adjusted for population growth over the years," Mr. Holt said.

amcmullen@nationalpost.com

Housing sales soar in Ontario’s biggest cities

Garry Marr, Financial Post Published: Monday, July 06, 2009

TORONTO - Despite all the talk of a housing downturn and economic crisis in Ontario, the province's two biggest cities both saw record housing resales last month for the month of June.

The Toronto Real Estate Board said Monday there were 10,955 sales in the Greater Toronto Area in June, a 27% increase from the 8,600 homes sold a year ago. It was the best June for sales since the board started tracking the numbers in the mid 196s.

In Ottawa, housing sales jumped 12.5% in June to 1,895, also a new record for the month.

The average sale price in the GTA last month $403,972, up 2% from a year earlier. In Ottawa, the average sale price rose 3% annually to $306,925.

"I think the next stage" might be price pressure, said Doug Porter, deputy chief economist at BMO Capital Markets. "The moderation we have seen in prices may not last long if this kind of sales and listing balance remains in place."

Porter said the mad scramble to buy a house is playing out across the country, as consumers wade back into the market tempted by interest rates the lowest they've been in 50 years. Five-year fixed rate mortgages were as low as 3.75% last month, though they've nudged back up to about 4.5% since.

"Vancouver sales were up about 76% from a year ago, the second best June ever for them. Calgary sales were up 27%, and Edmonton sales were up 38%," said the economist. "A lot of people emerged from their foxholes over the winter and have been brought in by low mortgage rates or a belief the economy is going to improve.

"There was some pent-up demand, things almost froze over solid over the winter."

With files from Ottawa Citizen

Retail sales rise more than expected in May

Financial Post

OTTAWA -- Canadian retail sales rose much more than expected in May after a surprise drop the previous month, Statistics Canada said Wednesday.

Sales increased 1.2% during the month to $34-billion, with gains in seven of eight sectors, led by a 2.4% increase in automotive products, the federal agency said.

"Retail sales have been generally rising since the beginning of 2009," it said.
Most economists has expected sales to rise by just 0.5% cent in May after a 0.6% decline in April.

"This sturdy report marks a nice reversal from April's sour note. It also drums home the point that Canadian consumers are not nearly as stressed as their U.S. counterparts, a point made amply clear by recent home sales data," said Douglas Porter, deputy chief economist at BMO Capital Markets.

Statistics Canada said the jump in auto sector sales was driven by a 3.4% increase in purchases at new car dealers. Sales of used and recreational motor vehicle, as well as auto parts, were up 1.8%, following declines in the previous six months, the agency said.

Sales at gasoline stations rose 0.9% in May after dropping 4.7\% over the previous two months, it said. Building and outdoor home supply stores saw sales rise 1%, double April's rate.

Retail sales were higher in nine provinces in May, with the biggest jump coming in New Brunswick, up 2.5%. Prince Edward Island was the only province to post a decline, down 0.7%.

Charmaine Buskas, senior economics strategist at TD Securities, said Wednesday's report "does not necessarily suggest a turnaround in retail sales."

"The backdrop for the Canadian economy remains soft, and consumers are sure to adjust their spending behaviour accordingly in the coming months," she said.

Canada's economy shrank 5.4% in the first quarter of this year, its fastest pace of contraction since 1991. That followed a 3.7% decline in the fourth quarter of 2008.

On Tuesday, the Bank of Canada revised its outlook for the economy, saying it will contract 2.3% this year, which is less than the 3% drop it forecast in April. The economy is then expected to grow 3% in 2010, up from its previous 2.5% projection.

In 2011, the bank forecast growth of 3.5%, which is down from its earlier call for an increase of 4.7%.

Last week, marketing and research group TNS Canadian Facts said Thursday its consumer confidence index edge up to 93.4 in July after slipping to 92 in June.

However, its buy index, which monitors views on whether now is a good time to make major purchases, eased this month to 103.2 from 104.5.

"While spending here is no ball of fire, it is gradually climbing back from the lows at the start of the year, with consumers poised to moderately contribute to the recovery," Mr. Porter said. "As the bank noted yesterday, domestic spending is on the road to recovery -- the issue is exports, both because of the strong loonie and still-soft U.S. demand."

CanwestNews Service

Royal Lepage boosts housing outlook

Financial Post Published: Wednesday, July 08, 2009

One of Canada's best-known real-estate firms has upgraded its housing-market outlook for the remainder of this year after second-quarter activity showed a thaw from the deep freeze in activity during the winter. Royal LePage said it expects an average price for home sales of $297,000 by year-end, which would be a 2% drop from last year. It forecasts unit sales of 430,000, down 1% from 2008. Its previous forecast called for housing sales to fall 3.5% this year to 416,000 transactions, and the average price to decline 3% to $295,000. Now, house prices are actually anticipated to appreciate somewhat in much of Central and Eastern Canada, while markets in the West -- such as Vancouver, Calgary and Edmonton -- see lower prices as an adjustment to above-average gains in previous years. "With our industry's busiest quarter behind us, we feel comfortable revising our 2009 forecast to the positive," said Phil Soper, chief executive of Royal LePage Real Estate Services.

Unemployment rises, but not as much as feared

Canada's economy lost 7,400 jobs in June, far less than expected, even as the country continued to struggle through an economic downturn.

The unemployment rate rose to an 11-year high of 8.6%, up from 8.4% in May, Statistics Canada said Friday.

"Full-time employment continued its downward trend in June, offsetting gains in part-time," the federal agency said. "Employment was little changed in June, leaving total net losses during the last three months at 13,000, much smaller than the 273,000 decline in the first three months of the year."

Most economists had expected 35,000 job losses in June, with the unemployment rate rising to 8.7%.

On Thursday, however, Finance Minister Jim Flaherty warned that job losses are likely to continue for the months ahead.

Most analysts forecast the jobless rate will peak at the mid-9% range some time next year.

"In the months ahead, given the very weak backdrop for the Canadian economy, we expect the negative labour market dynamics to continue and the pace of job losses to remain fairly brisk," Millan Mulraine, economics strategist at TD Economics, said ahead of Friday's report.

Canada's economy shrank 5.4% in the first quarter of this year, its fastest pace of contraction since 1991. That followed a 3.7% decline in the fourth quarter of 2008. The Bank of Canada expects the economy to contract a further 3.5% in the second quarter of 2009.

On Wednesday, the International Monetary Fund revised its outlook for the Canadian economy, saying GDP is now expected to contract by 2.3% this year, compared to its earlier forecast of a 2.5% decline. The IMF, which monitors the global economy, and provides financial and technical assistance to its 186 member nations, also raised its forecast for 2010 growth to 1.6% from the 1.2% it had predicted in April.

Canwest News Service

Worst may be over for the housing market

Garry Marr, Financial Post

New home construction rose for a second straight month in June, in what analysts say is another sign that the worst may be over for the Canadian housing market.

Canada Mortgage and Housing Corp. said Thursday there were 140,700 new homes constructed in June on a seasonally adjusted annualized basis. Construction was up almost 8% from the 130,300 May figure.

"There are some pretty good signs that we are starting to see in the housing market," said Bob Dugan, chief economist with CMHC. "We've seen it for quite a few months on the existing homes side."

Existing home sales rose 42% from January to May across the country and the early indications are that June was strongest month this year. Sales in Vancouver were up 76% last month compared with a year earlier and Calgary and Toronto both recorded 27% increases during the same period.

Existing home inventories have begun to shrink across the country, convincing builders to ramp up construction. CMHC said urban single family homes -- considered the best barometer of the new home market -- climbed 7.3% in May from a month earlier.

"It's well into seller's market territory again with the May and April numbers," said Mr. Dugan.

The optimism about the Canadian market comes despite the fact new construction at 140,000 units is way off the 200,000-plus figure the market in Canada has seen for the past seven years.

"I can only speculate, but maybe a lot of people are relieved we are not seeing the decreases we have seen in the U.S.," said Mr. Dugan. "Peak-to-trough, the decline in the U.S. was something like 80%. In Canada, that would mean we'd have to have 55,000 starts. Some people may have thought that's where the Canadian market was going."

The consensus among economist is construction won't return to pre-recession levels but will gradually improve in the coming months.

"This month's increase is an important confirmation that the Canadian housing sector is past the worst and in recovery mode," said Marco Lettieri, an economist with National Bank. "The recovery seems to be broad based with gains observed in both multiple [which includes condominium construction] and single units."

Robert Kavcic, an economist with Bank of Montreal, said there could be some room for modest growth in starts in the coming months.

"Higher affordability and improved consumer confidence brought buyers off the sidelines this spring," said Mr. Kavcic.

A report this week from RBC Economics said declining prices and lower interest rates led to one of the biggest quarterly improvements in affordability in history. The bank said monthly payments on a typical detached bungalow in Canada had decreased by almost 17% from a year earlier.

Royal LePage Real Estate Services was also forced this week to upgrade its forecast for 2009 because of the improved market conditions. It now expects 430,000 sales this year, an improvement from its previous call of 416,000, but still down 1% from a year ago.

"I think 2009 will go down as a moderate correction as opposed to the deep and sustained recession that we had first feared," said Phil Soper, chief executive of the real estate company.

Royal LePage expects prices this year will still fall but not by as much as previously feared. It expects the average sale price in 2009 to be $297,000, a 2% drop from last year. It had previously forecast a 3.5% decline.

Monday, July 6, 2009

Weak rebound seen for Canada's housing market

Ka Yan Ng, Reuters Published: Thursday, July 02, 2009

TORONTO -- The worst of Canada's housing market woes appear to be past but the sector's rebound will be tenuous as a rise in mortgage rates and high unemployment limit the recovery in prices and sales.

Property experts say first-time buyers and Bank of Canada rate cuts have helped restore stability to a market that slumped from late 2008 to early this year, when the worst leg of the global financial crisis battered consumer confidence.

"We should be less fearful than we were six months ago, but I don't think we should be exuberant yet. The resale markets in Canada are very strong. May numbers were pretty good, and June numbers will be even better," said Will Dunning, an economic consultant who specializes in the housing market.

"But by July and into the fall there will be an offset of considerably slower activity. I don't think it's likely to go off a cliff. It'll depend on what happens in employment and the broader economy, and how that affects confidence."

Recent data suggests Canada's residential property market, which weathered the financial crisis much better than its hard-hit U.S. counterpart, has been thawing for several months.

The latest Canadian Real Estate Association data shows May resale home prices rose 0.4% to $319,757, topping the previous record set a year earlier. It was the first year-over-year increase since May last year. And sales activity climbed for a fourth straight month.

The industry group, which represents more than 97,000 real estate brokers and agents, also cut its forecast for a drop in home prices this year and said it expected sales activity to trend higher.

Meanwhile, Canada Mortgage and Housing Corp., the national housing agency, forecast in its second-quarter outlook that new home construction is expected to decline to 141,900 units in 2009 but rebound next year.

Still, no one predicts the residential property market is headed back to the heady times seen between 2002 and 2007, when prices surged and outpaced income growth. In some cities, such as Vancouver, British Columbia, and Calgary, Alberta, home prices doubled and are now going through a sharp correction.

A "stable but unremarkable" period for the real estate market is expected this year, said Philip Soper, chief executive officer of Brookfield Real Estate Services, an arm of Canadian property giant Brookfield Properties Corp. that holds real estate broker brand Royal LePage.

"Stability is something you can't overemphasize in terms of its importance for the housing market right now."

Unless the global financial system succumbs to another crisis, analysts expect the Canadian home market is likely to stabilize further.

Activity from first-time buyers appears to be providing support because of stimulative measures by the federal government that allow these buyers to defray closing costs and withdraw more from retirement funds.

The Bank of Canada has also pledged to keep interest rates near zero until mid-2010, which could underpin confidence.

But the economy is still on shaky ground, contracting for the ninth straight month in April. And the unemployment rate spiked to an 11-year high in May, boosted by massive layoffs in the factories of Ontario.

Experts warn that further job losses in pockets of Canada's export-oriented economy could slow the momentum that has been gathering in the housing sector.

"We don't expect the recession to end until the fall. It's clear that the spring fling in housing markets, this remarkable surge in resales and prices, has been driven by record low mortgage rates," said Sal Guatieri, senior economist at BMO Capital Markets.

These record low rates, whether variable or fixed, had increased affordability for many buyers. But weakness in the bond market, caused in part by reduced investor demand for safe-haven assets, has pushed mortgage rates higher.

The posted rate on a five-year mortgage at Royal Bank of Canada, the country's largest lender, has risen to 5.85% from 5.25% in April.

Brookfield's Mr. Soper has been telling his management team to prepare for softness in the housing market in the second half.

"The advice I have been giving ... is to accept the recovery this spring with humility, to continue to plan for a difficult second half of the year although the comparables are going to be positive simply because the second half of 2008 was so poor," he said in an interview.

"But at least we have a stable market and stable prices, which is something that you need to encourage consumers to trade."
© Thomson Reuters 2009

More Canadians miss payments

Half-million consumers fall more than 90 days behind on credit bills

RECORD NEWS SERVICES

More than half a million Canadians have fallen behind on their various credit payments, fuelling a 19 per cent rise in the average national delinquency rate in the one-year period ending May 31, says a new report from Equifax Canada.

The credit bureau called the double-digit jump "alarming," noting the average delinquency rate for Canada hit 1.52 per cent at the end of May.

Much of the trouble stemmed from missed payments on credit card bills and for sales finance purchases of items such as furniture and electronics.

Equifax defines delinquent bills as those that are at least 90 days overdue.

Its latest snapshot on delinquencies comes just days after a Senate committee released a report urging the federal government to take more aggressive action to shield consumers and small businesses from rising interest rates and fees in the credit and debit card markets.

Finance Minister Jim Flaherty continues to review all input on credit cards and will announce his final intentions once that process is complete, a spokesperson said.

While his office gave no timeline, Pierrette Ringuette, the Liberal senator who spearheaded the study, appeared to up the ante yesterday by vowing to introduce legislation in September if the government fails to act before then.

Legislation, except money bills, can be introduced in the Senate, although most originates in the House of Commons. It was unclear what kind of support such a bill would garner in a minority Parliament.

The Senate report, released Tuesday, recommended the government create an "oversight board" and also take steps to clamp down on the rates and fees paid by consumers and merchants for the use of Visa, MasterCard and other card brands.

If Flaherty takes no action by the fall, "I'm going to be very, very disappointed," Ringuette said in a phone interview. "The small and medium businesses of this country are not asking for a bailout."

"They're only asking for fairness -- just like consumers are only asking for fairness. I think it's high time that government paid attention to them."

The Equifax report, meanwhile, was the latest study to suggest that increasing numbers of Canadians are struggling to pay their bills.

Nadim Abdo, an Equifax vice-president, stressed that the "sharpest increase" in delinquencies resulted from credit card and sales finance purchases, which have risen by 38 per cent and 58 per cent, respectively, since May 2008.

Rising delinquencies in those areas are troubling because consumers tend to miss payments on those unsecured credit products before they fail to pay back collateral-backed loans such as mortgages, bank loans and lines of credit, Abdo said.

While that's likely to spell higher loan losses for banks, consumers who skip payments will also suffer longer-term consequences because of tarnished credit scores.

"When economic conditions get better, whenever that is, if they want to go get a mortgage or get a line of credit -- with a negative rating on their credit file, that's not going to help them," Abdo said.

The Equifax data follows a Bank of Canada report last month that suggested climbing debt levels have put households under increased financial strain amid the recession.

The Financial System Review also said that households are increasingly vulnerable to "adverse shocks" such as higher unemployment.

Don’t believe the housing hype

There are plenty of signs that the Canadian housing market is still on some very shaky ground

Judging by the latest real estate data, the Canadian housing market could scarcely be better. Average home prices are up more than 16 per cent this year, and in May they hit an all-time monthly high, according to the Canadian Real Estate Association. By those numbers, Canada didn’t just sidestep the housing market crash that continues to plague the United States, it sailed right through it virtually unscathed. And yet, there are plenty of signs that the Canadian housing market is still sitting on some very shaky ground—and even the potential that Canada’s big housing crash is yet to come.

There is one particular statistic that suggests trouble could be brewing. Unlike in the U.S., Britain and most European countries, household debt in Canada is, incredibly, still growing. That rising debt is being driven largely by record-low interest rates. Canadians have been buying homes not so much because they can afford them, but because many believe there’s never been a better time to buy, with lending rates so low. “There is no doubt that record-low mortgage rates have juiced Canada’s housing market,” wrote BMO economist Sal Guatieri, in a recent newsletter. Houses are barely more affordable now than they were during the market peak. And as people keep buying, houses may only become less and less affordable.

Not everyone agrees with the CRE figures that suggest the market has managed such a quick and painless turnaround, either. According to the Teranet-National Bank housing price index, Canada’s housing market is not recovering yet. Home prices have been falling for the past eight months, according to its latest statistics. Vancouver, Calgary and Toronto have each experienced significant price drops compared to last year. This would seem more in line with what one would expect after an unprecedented six-year housing boom in which home prices shot up 80 per cent.

It is, of course, possible that the correction will, ultimately, be modest. Guatieri expects that interest rates will remain low and income growth will remain subdued this year, before picking up next year. That will keep housing prices down, but would likely mean the worst of the correction is behind us.

But if mortgage rates go up sharply then “affordability will get crunched again,” says Guatieri, in an interview. Things could get much, much worse. And that’s not an unthinkable scenario. Some banks have already boosted interest rates twice this year. Then there is the possibility that job losses continue and the economy doesn’t recover quickly, putting further strains on household finances. The low interest rates and continued debt problems mean that Canadians could find them themselves badly over-exposed.

Guatieri isn’t forecasting a housing market crash. But, as he wrote last week, “it’s worth remembering that the further house prices go up and the longer household finances get stretched, the greater the risk of a painful correction. Anyone who doubts that should talk to an American or British homeowner.”

Canada economy 'not out of the woods just yet'

John Morrissy, Financial Post Published: Tuesday, June 30, 2009

OTTAWA -- Canadians hoping the economy would finally show signs of life after enduring the worst global decline since the Great Depression were given a rude awakening Tuesday when key data showed the downturn continues, but at least at a slower pace.

The mood south of the border was equally sombre, as an unexpected drop in consumer confidence rattled investors' hopes for any pending economic recovery and sent stock markets tumbling across North America and Europe.

"While the pace of economic contraction is slowing, we're not out of the woods just yet," said CIBC World Markets' Krishen Rangasamy.

The Canadian economy shrank for the ninth consecutive month in April, the federal agency reported, contracting 0.1% in April, after falling by an annualized 5.4% in the first quarter and 3.7% in the fourth quarter of 2008.

While the pace of contraction appeared to slow in April, following the 0.3% annualized drop in March, Rangasamy said the reprieve might prove only temporary, thanks to the closing in May and June of several GM and Chrysler plants.

"You're going to see a big drop in May and June," said Mr. Rangasamy, adding that the 0.1% drop in April "is going to look good by comparison." The Bank of Canada expects the economy to contract another 3.5% in the second quarter of 2009.

Further signs of an economy struggling to prosper were found in data showing manufacturers getting caught in the squeeze between rising costs for materials and prices for their products driven lower by a strong Canadian dollar.

"It's a double whammy for exporters," said Sal Gauteri, senior economist at BMO Capital Markets, referring to a Statistics Canada report showing factory prices falling more than expected in May. "Their input costs are going up, especially for fuel, at the same time that demand for their products remains fairly weak and the dollar remains strong."

The tone for the markets Tuesday was set by the morning release of U.S. consumer confidence numbers that fell in June for the first time in four months. Equities and commodity prices immediately tumbled, shaving about 1% from both the S&P/TSX composite index and Dow Jones industrial average by day's end.

"Optimism is all good, but it's got to be based on something, and the markets were expecting a recovery probably a little too soon," said Mr. Rangasamy.

"Without the U.S. consumer it's difficult to see a strong recovery taking hold any time soon," said Mr. Gauteri. "And if the U.S. consumer stays home, Canadian exports will remain in the tank."

Yet while Tuesday's releases were a sobering reminder that the global recession has yet to be subdued, there were still signs that its grip is weakening.

Douglas Porter, deputy chief economist at BMO Capital Markets, said the "mild drop in April GDP reinforces the point that the worst of the declines for the economy are behind."

Added Mr. Rangasamy:"At the turn of the year, our economy was virtually in free fall, much like the rest of the world, and we've seen evidence that the rate of contraction is slowing, not just in Canada but in many other countries."

And while the outlook for third quarter is negative, most economists are expecting Canadian economic activity to return to growth in the fourth quarter.

Canwest News Service