More young Canadians taking advantage of low interest rates in housing market
By Luann Lasalle, The Canadian Press
MONTREAL - Younger Canadians are expected to lead the way with home buying this year as they take advantage of low interest rates, new jobs and what they consider "good prices," a bank survey says.
The survey for the Royal Bank suggested that 15 per cent of Canadians between the ages of 18 and 24 were very likely to buy, almost double from eight per cent in 2009.
It's a marked shift in the attitudes of younger Canadians, who have tightened their budgets over the past few years to cope with tough jobs markets and the recession.
"Our poll found that 35 per cent of younger Canadians, between the ages of 18 and 24, are intending to buy a home due to good real estate prices," Marcia Moffat, RBC's head of home equity financing in Toronto, said Monday.
The national average price for a home was $328,537 in January, according to the Canadian Real Estate Association.
Thirty-one per cent of 18 to 24-year-olds surveyed in the online poll said they would buy a house because of a new job. The survey also found 22 per cent in that young age group wanted to buy a home because they considered interest rates were good.
CIBC World Markets senior economist Benjamin Tal said more young people are getting into the real estate market, taking advantage of low interest rates, lower down payments and more years to pay off their mortgages.
Tal said he estimates the young people getting into the market as a bit older, between the ages of 22 and 28.
"Basically parents are begging their kids to buy now because they remember when they were paying 12 to 15 per cent mortgage interest," Tal said.
"So there's a sense of urgency to get into the market and young people are a part of it."
Tal described the coming real estate market of the next three or four years as "boring."
"I think that what we are doing now is that we are basically stealing activity from the future."
The RBC survey also suggested that overall attitudes are changing as more Canadians return to shopping for homes as the economy recovers, even though it's considered a seller's market.
"Confidence in the housing market is back, essentially," RBC senior economist Robert Hogue said.
Royal Bank said the study found more Canadians are "very likely" to buy a new home in the next two years.
Ten per cent of the 2,047 people of all ages surveyed for the study said they planned to buy a home within two years - up from seven per cent two years ago.
The RBC study also found that 91 per cent of Canadian homeowners believe a home is a good investment, the highest level in 12 years.
"At this stage last year, there was doom and gloom all around and it definitely affected the housing market," Hogue said.
One-quarter of those surveyed, 26 per cent, said they expect their home to be their primary source of income when they retire.
However, the surge in optimism doesn't necessarily mean that Canadians have forgotten about past economic troubles.
The survey found they are still more cautious when it comes to mortgages. Forty-four per cent of those surveyed who plan to buy a home in the next two years said they would take a fixed-rate mortgage.
Also on Monday, the latest new homes numbers showed that the annual rate of housing starts were up in February.
The Canada Mortgage and Housing Corp. said that the seasonally adjusted annual rate of housing starts reached 196,700 units in February, an increase from 185,400 in January 2010.
Senior CMHC economist Bill Clark said the market is seeing a lot of "catch-up" and consumers in Ontario and B.C. are likely trying to avoid the harmonized sales tax before the summer.
"So if you roll all of that together it's really sort of one big recipe for housing starts to go up," Clark said.
The report showed the gain was concentrated in the multiple starts segment, particularly in Toronto.
Urban starts increased nine per cent to 179,100 units in February.
Urban multiple starts increased by 19.1 per cent to 89,900 units, while single urban starts increased by 0.5 per cent to 89,200 units.
The annual rate of urban starts increased 28.6 per cent in Ontario in February, 14.3 per cent in Atlantic Canada, 10.8 per cent in the Prairies and by eight per cent in British Columbia.
In Quebec, urban starts fell 14.1 per cent.
Rural starts were estimated at a seasonally adjusted annual rate of 17,600 units in February.
Tuesday, March 9, 2010
Home purchase intentions full steam ahead: RBC poll
Vast majority of Canadians view buying a home as a good investment
TORONTO, March 8 /CNW/ - Homebuying momentum in Canada continues to gain steam with the portion of Canadians who are very likely to purchase a home in the next two years rising to 10 per cent from seven per cent two years ago, according to the 17th Annual RBC Homeownership Study. Younger Canadians, aged 18 to 24, will lead the charge this year, with those very likely to buy almost doubling to 15 per cent from eight per cent in 2009.
The RBC study conducted by Ipsos Reid found that 91 per cent of Canadian homeowners believe a home is a good investment, the highest level in 12 years, and one-quarter (26 per cent) expect their home to be their primary source of income when they retire.
"With the Canadian housing market showing continued vigour, it's not surprising that Canadians feel more confident in the long-term value of owning a home," said Robert Hogue, senior economist, RBC. "Exceptionally low mortgage rates and improved affordability have been key reasons for the resurgence in the housing market this past year."
Most Canadians who intend to buy a new home in the next two years are planning to take a fixed rate mortgage (44 per cent). However, combination mortgages had the highest increase in popularity this year, with 40 per cent intending to take both a variable and fixed rate component, up from 32 per cent last year.
For Canadians planning to take a fixed rate or combination mortgage, seven-in-10 intend to take a term of five years or longer. Sixteen per cent said they intend to take a variable rate mortgage, down from 20 per cent in 2009.
"Canadians seem to be opting for more caution this year and may be factoring in potential rate increases down the road," said Marcia Moffat, RBC's head of home equity financing. "Choosing a combination mortgage can take some of the guesswork out of making a decision between whether it is better to lock in to a longer-term or stay in a variable rate."
In the wake of the recent housing rebound, most Canadians (six-in-10) also believe housing prices will rise in 2010, up significantly from 25 per cent in 2009. Similarly, a majority (64 per cent) believe mortgage rates will be higher over the next year, also up from 33 per cent a year ago.
"The expectation of higher mortgage rates on the horizon could be motivating buying intentions this year. But it's important that homeowners - especially first time buyers - get solid advice about what they can afford, not only today, but down the road," added Moffat.
In addition to seeking customized advice from a financial advisor, Moffat provides the following tips:
For homebuyers:
1. Lock in your rate when you apply for your mortgage.
Depending on your situation, there are rate guarantees that allow you to lock in your mortgage rate for up to 120 days.
2. "Stress test" your mortgage for rate increases.
If you are concerned about affordability down the road, knowing what your payments would be with a one - three per cent rate increase will give you greater peace of mind that your new home is affordable both today and in a few years time, when rates might be higher.
3. For first time homebuyers, leave some wiggle room.
With a pre-approved mortgage you will know what you can afford today. But before making a decision to find a home at the top of your pre-approval amount, also consider your current lifestyle preferences and how future changes in your circumstances could impact your payment comfort zone.
For homeowners renewing their mortgage:
1. Take advantage of early renewal options.
Some mortgages allow you to renew up to 120 days before the end of your term. This means you can lock in your new mortgage rate early.
2. Consider a combination (hybrid) mortgage to manage your interest costs.
If you are unsure of where rates are headed, consider splitting your mortgage into part fixed and part variable. You will have rate protection on the fixed rate mortgage portion, while you benefit from today's low interest rates on the variable rate mortgage portion. Transmitted by CNW Group
TORONTO, March 8 /CNW/ - Homebuying momentum in Canada continues to gain steam with the portion of Canadians who are very likely to purchase a home in the next two years rising to 10 per cent from seven per cent two years ago, according to the 17th Annual RBC Homeownership Study. Younger Canadians, aged 18 to 24, will lead the charge this year, with those very likely to buy almost doubling to 15 per cent from eight per cent in 2009.
The RBC study conducted by Ipsos Reid found that 91 per cent of Canadian homeowners believe a home is a good investment, the highest level in 12 years, and one-quarter (26 per cent) expect their home to be their primary source of income when they retire.
"With the Canadian housing market showing continued vigour, it's not surprising that Canadians feel more confident in the long-term value of owning a home," said Robert Hogue, senior economist, RBC. "Exceptionally low mortgage rates and improved affordability have been key reasons for the resurgence in the housing market this past year."
Most Canadians who intend to buy a new home in the next two years are planning to take a fixed rate mortgage (44 per cent). However, combination mortgages had the highest increase in popularity this year, with 40 per cent intending to take both a variable and fixed rate component, up from 32 per cent last year.
For Canadians planning to take a fixed rate or combination mortgage, seven-in-10 intend to take a term of five years or longer. Sixteen per cent said they intend to take a variable rate mortgage, down from 20 per cent in 2009.
"Canadians seem to be opting for more caution this year and may be factoring in potential rate increases down the road," said Marcia Moffat, RBC's head of home equity financing. "Choosing a combination mortgage can take some of the guesswork out of making a decision between whether it is better to lock in to a longer-term or stay in a variable rate."
In the wake of the recent housing rebound, most Canadians (six-in-10) also believe housing prices will rise in 2010, up significantly from 25 per cent in 2009. Similarly, a majority (64 per cent) believe mortgage rates will be higher over the next year, also up from 33 per cent a year ago.
"The expectation of higher mortgage rates on the horizon could be motivating buying intentions this year. But it's important that homeowners - especially first time buyers - get solid advice about what they can afford, not only today, but down the road," added Moffat.
In addition to seeking customized advice from a financial advisor, Moffat provides the following tips:
For homebuyers:
1. Lock in your rate when you apply for your mortgage.
Depending on your situation, there are rate guarantees that allow you to lock in your mortgage rate for up to 120 days.
2. "Stress test" your mortgage for rate increases.
If you are concerned about affordability down the road, knowing what your payments would be with a one - three per cent rate increase will give you greater peace of mind that your new home is affordable both today and in a few years time, when rates might be higher.
3. For first time homebuyers, leave some wiggle room.
With a pre-approved mortgage you will know what you can afford today. But before making a decision to find a home at the top of your pre-approval amount, also consider your current lifestyle preferences and how future changes in your circumstances could impact your payment comfort zone.
For homeowners renewing their mortgage:
1. Take advantage of early renewal options.
Some mortgages allow you to renew up to 120 days before the end of your term. This means you can lock in your new mortgage rate early.
2. Consider a combination (hybrid) mortgage to manage your interest costs.
If you are unsure of where rates are headed, consider splitting your mortgage into part fixed and part variable. You will have rate protection on the fixed rate mortgage portion, while you benefit from today's low interest rates on the variable rate mortgage portion. Transmitted by CNW Group
Monday, March 8, 2010
Canadian mortgage industry gets praise from southern neighbour
Canadian mortgage industry gets praise from southern neighbour
| Monday, 1 March 2010
A U.S. scholar recently has lavished praise on Canada's "marvelous" mortgage and banking system in an article published for the American Enterprise Institute.
Mark Perry, a visiting scholar at the institute, says Canada's system proved "more prudent, more resilient, and much less prone to excesses." He says examining the differences between the U.S. and Canada might lead to more insight as to how America's difficulties started and what reforms are necessary.
He outlines eight major advantages to Canada's system: full recourse mortgages, shorter-term fixed rates, mortgage insurance is more common in Canada, no tax deductibility of mortgage interest, higher repayment penalties, public policy differences on low-income housing, a more concentrated bank system, and a lower rate of loan originations.
"While Canada's banking system has promoted responsible borrowing and prudent lending and underwriting practices with little politically motivated interference, the U.S. banking system seems to have encouraged excessive lending to risky borrowers because of the political obsession with homeownership," Perry writes.
| Monday, 1 March 2010
A U.S. scholar recently has lavished praise on Canada's "marvelous" mortgage and banking system in an article published for the American Enterprise Institute.
Mark Perry, a visiting scholar at the institute, says Canada's system proved "more prudent, more resilient, and much less prone to excesses." He says examining the differences between the U.S. and Canada might lead to more insight as to how America's difficulties started and what reforms are necessary.
He outlines eight major advantages to Canada's system: full recourse mortgages, shorter-term fixed rates, mortgage insurance is more common in Canada, no tax deductibility of mortgage interest, higher repayment penalties, public policy differences on low-income housing, a more concentrated bank system, and a lower rate of loan originations.
"While Canada's banking system has promoted responsible borrowing and prudent lending and underwriting practices with little politically motivated interference, the U.S. banking system seems to have encouraged excessive lending to risky borrowers because of the political obsession with homeownership," Perry writes.
Wednesday, March 3, 2010
Australia central bank raises interest rates
Australia central bank raises interest rates
Wayne Cole, Reuters
SYDNEY-- Australia's central bank raised its benchmark interst rate by 25 basis points to 4.0% on Tuesday and flagged further hikes ahead, saying a surprisingly strong recovery allowed it to move policy toward more normal settings.
Interest rate futures slid as investors priced in further gradual hikes from the Reserve Bank of Australia (RBA). A rise in April was seen as unlikely but the odds of an increase in May were evenly split and almost fully priced in for June.
"It is very likely the RBA will hike again in the next three months," said Rory Robertson, interest rate strategist at Macquarie. "It's a ‘normalisation' of policy given the economy has performed better than anyone dreamed a year ago."
This was the fourth increase in five policy meetings, putting Australia far ahead of most other rich nations where rates are at 1% or less.
Indeed, RBA Governor Glenn Stevens flatly stated that lending rates were still below average and Tuesday's move was just a step toward getting back there.
"With growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average," Stevens said in a statement.
Last month he estimated a more normal range for lending rates would be between 4.25 and 4.75%, and investors assume the bank will get to the top of that band by year-end.
Interbank futures are fully priced for a move to 4.25% by July, and then in stages to 4.75% by December. One-year swap rates edged up to 4.65%.
Reaction in the currency market was restrained as the Australian dollar had already risen sharply in recent days, hitting a record high on the euro and a 25-year peak on sterling.
Treasurer Wayne Swan spun the hike as a sign of Australia's relative strength. Rising mortgage rates are always unpopular in a country obsessed with home ownership.
"The economy is recovering and rate rises are an inevitable consequence of a recovering economy that is outperforming the rest of the world," Swan told reporters.
BACK TO GROWTH
His optimism should be supported by figures due on Wednesday which are expected to show the economy grew by a solid 0.9% in the fourth quarter of 2009, a marked step up from 0.2% the previous quarter.
Growth for the year is seen accelerating to around 2.4%, from a pedestrian 0.5% in the third quarter.
Some of that revival was courtesy of fiscal stimulus which saw public spending jump 3.8% last quarter, the biggest rise in a decade. That alone should add 0.9%age points to gross domestic product (GDP) in the quarter.
By concentrating on the labour-intensive building sector, the fiscal splurge also helped keep people in jobs and was one reason unemployment surprised everyone by falling late last year.
The drop in the jobless rate to just 5.3% in January from a high of 5.8% in October, is a critical plank in the case for higher interest rates.
And there was more evidence the revival had gathered steam this year. Data out Tuesday showed retail sales jumped 1.2% in January, well above forecasts for a 0.5% gain and a return to growth after December's 0.9% drop.
Retail sales account for around 23% of GDP and the sector is the biggest single employer.
"It all hints at a consumer little affected by higher borrowing costs and is spending without any fiscal assistance," said Su-Lin Ong, senior economist at RBC Capital Markets.
"The bottom line is that a 3.75% cash rate was too low for an economy that is returning to 3%-plus growth, underpinned by a recovery in the terms of trade, and with limited capacity in both goods and labour markets," she added.
The buoyant outlook for trade was underlined by the country's official commodities forecaster which predicted that exports of liquefied natural gas would nearly double by 2014/15, while exports of iron ore could rise almost 70%.
If correct, that would deliver a huge windfall to Australian profits, investment, wages and tax receipts and is a major reason the RBA is so bullish on the country's longer-term outlook.
Read more: http://www.financialpost.com/news-sectors/story.html?id=2631549#ixzz0h3vSj2ws
Wayne Cole, Reuters
SYDNEY-- Australia's central bank raised its benchmark interst rate by 25 basis points to 4.0% on Tuesday and flagged further hikes ahead, saying a surprisingly strong recovery allowed it to move policy toward more normal settings.
Interest rate futures slid as investors priced in further gradual hikes from the Reserve Bank of Australia (RBA). A rise in April was seen as unlikely but the odds of an increase in May were evenly split and almost fully priced in for June.
"It is very likely the RBA will hike again in the next three months," said Rory Robertson, interest rate strategist at Macquarie. "It's a ‘normalisation' of policy given the economy has performed better than anyone dreamed a year ago."
This was the fourth increase in five policy meetings, putting Australia far ahead of most other rich nations where rates are at 1% or less.
Indeed, RBA Governor Glenn Stevens flatly stated that lending rates were still below average and Tuesday's move was just a step toward getting back there.
"With growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average," Stevens said in a statement.
Last month he estimated a more normal range for lending rates would be between 4.25 and 4.75%, and investors assume the bank will get to the top of that band by year-end.
Interbank futures are fully priced for a move to 4.25% by July, and then in stages to 4.75% by December. One-year swap rates edged up to 4.65%.
Reaction in the currency market was restrained as the Australian dollar had already risen sharply in recent days, hitting a record high on the euro and a 25-year peak on sterling.
Treasurer Wayne Swan spun the hike as a sign of Australia's relative strength. Rising mortgage rates are always unpopular in a country obsessed with home ownership.
"The economy is recovering and rate rises are an inevitable consequence of a recovering economy that is outperforming the rest of the world," Swan told reporters.
BACK TO GROWTH
His optimism should be supported by figures due on Wednesday which are expected to show the economy grew by a solid 0.9% in the fourth quarter of 2009, a marked step up from 0.2% the previous quarter.
Growth for the year is seen accelerating to around 2.4%, from a pedestrian 0.5% in the third quarter.
Some of that revival was courtesy of fiscal stimulus which saw public spending jump 3.8% last quarter, the biggest rise in a decade. That alone should add 0.9%age points to gross domestic product (GDP) in the quarter.
By concentrating on the labour-intensive building sector, the fiscal splurge also helped keep people in jobs and was one reason unemployment surprised everyone by falling late last year.
The drop in the jobless rate to just 5.3% in January from a high of 5.8% in October, is a critical plank in the case for higher interest rates.
And there was more evidence the revival had gathered steam this year. Data out Tuesday showed retail sales jumped 1.2% in January, well above forecasts for a 0.5% gain and a return to growth after December's 0.9% drop.
Retail sales account for around 23% of GDP and the sector is the biggest single employer.
"It all hints at a consumer little affected by higher borrowing costs and is spending without any fiscal assistance," said Su-Lin Ong, senior economist at RBC Capital Markets.
"The bottom line is that a 3.75% cash rate was too low for an economy that is returning to 3%-plus growth, underpinned by a recovery in the terms of trade, and with limited capacity in both goods and labour markets," she added.
The buoyant outlook for trade was underlined by the country's official commodities forecaster which predicted that exports of liquefied natural gas would nearly double by 2014/15, while exports of iron ore could rise almost 70%.
If correct, that would deliver a huge windfall to Australian profits, investment, wages and tax receipts and is a major reason the RBA is so bullish on the country's longer-term outlook.
Read more: http://www.financialpost.com/news-sectors/story.html?id=2631549#ixzz0h3vSj2ws
Economy improving, but interest rates to stay at historic lows for now
Economy improving, but interest rates to stay at historic lows for now
By Julian Beltrame, The Canadian Press
OTTAWA - The Bank of Canada is keeping interest rates at historic lows for a few more months, while sending out signals that the economy is rebounding strongly and could trigger inflationary pressures.
The central bank's more positive take on the economy followed a Statistics Canada report Monday of a surprising five per cent growth spurt in the fourth quarter of 2009 and sent a strong loonie even higher.
"The level of economic activity in Canada has been slightly higher than the bank had projected in January," the bank said Tuesday morning before markets opened.
"The economy grew at an annual rate of five per cent in the fourth quarter of 2009, spurred by vigorous domestic spending and further recovery in exports."
"Slightly higher" may be an understatement, as the bank had projected growth of only 3.3 per cent for the last three months of 2009.
The bank also noted that "core inflation" has been slightly firmer than projected, although it added that some of the price increases were due to transitory factors.
The governing council continued to reiterate that despite the improved conditions, they would likely leave the overnight rate where it has been since last spring - at 0.25 per cent - until at least July.
But some economists weren't buying it and the reaction of money markets suggested that there may be some pressure on governor Mark Carney to move on interest rates ahead of schedule.
"They are getting ready to take away the punch bowl," said Derek Holt, vice-president of economics with Scotia Capital.
"I think they are priming the markets for a second-quarter hike."
The next interest rate announcement comes in April, but June would be a more likely time to move, said Holt, if indeed the bank is preparing to act. http://ca.news.finance.yahoo.com/s/02032010/2/biz-finance-economy-improving-interest-rates-stay-historic-lows.html
By Julian Beltrame, The Canadian Press
OTTAWA - The Bank of Canada is keeping interest rates at historic lows for a few more months, while sending out signals that the economy is rebounding strongly and could trigger inflationary pressures.
The central bank's more positive take on the economy followed a Statistics Canada report Monday of a surprising five per cent growth spurt in the fourth quarter of 2009 and sent a strong loonie even higher.
"The level of economic activity in Canada has been slightly higher than the bank had projected in January," the bank said Tuesday morning before markets opened.
"The economy grew at an annual rate of five per cent in the fourth quarter of 2009, spurred by vigorous domestic spending and further recovery in exports."
"Slightly higher" may be an understatement, as the bank had projected growth of only 3.3 per cent for the last three months of 2009.
The bank also noted that "core inflation" has been slightly firmer than projected, although it added that some of the price increases were due to transitory factors.
The governing council continued to reiterate that despite the improved conditions, they would likely leave the overnight rate where it has been since last spring - at 0.25 per cent - until at least July.
But some economists weren't buying it and the reaction of money markets suggested that there may be some pressure on governor Mark Carney to move on interest rates ahead of schedule.
"They are getting ready to take away the punch bowl," said Derek Holt, vice-president of economics with Scotia Capital.
"I think they are priming the markets for a second-quarter hike."
The next interest rate announcement comes in April, but June would be a more likely time to move, said Holt, if indeed the bank is preparing to act. http://ca.news.finance.yahoo.com/s/02032010/2/biz-finance-economy-improving-interest-rates-stay-historic-lows.html
Tuesday, March 2, 2010
Pressure grows for Bank of Canada to hike rates
Pressure grows for Bank of Canada to hike rates
Paul Vieira, Financial Post
OTTAWA -- Pressure on the Bank of Canada to move early on raising interest rates mounted Monday after data on fourth-quarter gross domestic product suggested the economy is roaring its way out of recession after recording the fastest pace of growth in nearly a decade.
The central bank could provide hints of a change Tuesday morning when it releases its latest statement on interest rates. Its plan for almost a year has been to conditionally keep its benchmark rate at 0.25% until July in an effort to pump up economic growth after the great recession.
Data from Statistics Canada suggest the emergency-level rates have worked their magic, perhaps faster and better than anticipated.
The economy expanded 5% in the final three months of 2009, blasting past market expectations for a 4% gain - and the bank's own 3.3% forecast - and setting the stage for robust growth this quarter. It is also the fastest pace of quarterly economic growth since late 2000. Further, the data were solid across the board, with personal consumption and net trade contributing to the performance.
Third-quarter data were also revised upward, with growth of 0.9% as opposed to the original 0.4% reading.
This comes on top of January inflation data that indicated price increases have moved closer to the central bank's 2% target earlier than envisaged.
"With growth being stronger than expected and inflation sticky ... we remain of the view that the Bank of Canada has the full green light to hike as emergency conditions have passed and with it justification for sticking to the zero lower bound on rates," said economists Derek Holt and Karen Cordes from Scotia Capital.
Yanick Desnoyers, assistant chief economist at National Bank Financial, said a rate hike could come as early as next month, when data might show the output gap - or the amount of slack in the economy - is narrowing faster than the central bank expected.
He added the headline GDP data might be underestimating how quickly economic slack is being absorbed. For instance, gross domestic income – or the sum of all wages, corporate profits and tax revenue – climbed by 8.5% in the quarter, the best showing since 2005. And that follows a 4.5% gain in the third quarter.
Sheryl King, chief economist and strategist at Bank of America/Merrill Lynch Canada, said she expects a rate hike in June, based on a belief the central bank will want to see through its conditional pledge for as long as possible.
Among the data points she said she found most encouraging was a 4% gain in real wage growth – defined as gains in household income excluding transfers from governments. The last time there was growth in this category was prior to the recession.
"This signals that risk taking and organic growth is coming back in Canada," she said.
Of course, not all analysts believe the data will push Bank of Canada governor Mark Carney to veer off course. Douglas Porter, deputy chief economist at BMO Capital Markets, said the data surely raises the odds of a July rate rise but anything earlier than that remained remote. Analysts at TD Securities also shared a similar view.
Also, the data contained one key blemish – a 9.2% drop in machinery and equipment investment by Canadian companies, which does not bode well for efforts to boost abysmal productivity levels.
The GDP data attracted investors, as the Canadian dollar gained a full US1¢, to US96.01¢, on the possibility of an early rate hike.
Canadian growth should remain robust as the global recovery takes hold. Business surveys released Monday indicated manufacturers continue to lead the recovery, with factory activity expanding last month across Asia, the United States and Europe.
Read more: http://www.financialpost.com/news-sectors/economy/story.html?id=2628952#ixzz0gySOg5Bz
Paul Vieira, Financial Post
OTTAWA -- Pressure on the Bank of Canada to move early on raising interest rates mounted Monday after data on fourth-quarter gross domestic product suggested the economy is roaring its way out of recession after recording the fastest pace of growth in nearly a decade.
The central bank could provide hints of a change Tuesday morning when it releases its latest statement on interest rates. Its plan for almost a year has been to conditionally keep its benchmark rate at 0.25% until July in an effort to pump up economic growth after the great recession.
Data from Statistics Canada suggest the emergency-level rates have worked their magic, perhaps faster and better than anticipated.
The economy expanded 5% in the final three months of 2009, blasting past market expectations for a 4% gain - and the bank's own 3.3% forecast - and setting the stage for robust growth this quarter. It is also the fastest pace of quarterly economic growth since late 2000. Further, the data were solid across the board, with personal consumption and net trade contributing to the performance.
Third-quarter data were also revised upward, with growth of 0.9% as opposed to the original 0.4% reading.
This comes on top of January inflation data that indicated price increases have moved closer to the central bank's 2% target earlier than envisaged.
"With growth being stronger than expected and inflation sticky ... we remain of the view that the Bank of Canada has the full green light to hike as emergency conditions have passed and with it justification for sticking to the zero lower bound on rates," said economists Derek Holt and Karen Cordes from Scotia Capital.
Yanick Desnoyers, assistant chief economist at National Bank Financial, said a rate hike could come as early as next month, when data might show the output gap - or the amount of slack in the economy - is narrowing faster than the central bank expected.
He added the headline GDP data might be underestimating how quickly economic slack is being absorbed. For instance, gross domestic income – or the sum of all wages, corporate profits and tax revenue – climbed by 8.5% in the quarter, the best showing since 2005. And that follows a 4.5% gain in the third quarter.
Sheryl King, chief economist and strategist at Bank of America/Merrill Lynch Canada, said she expects a rate hike in June, based on a belief the central bank will want to see through its conditional pledge for as long as possible.
Among the data points she said she found most encouraging was a 4% gain in real wage growth – defined as gains in household income excluding transfers from governments. The last time there was growth in this category was prior to the recession.
"This signals that risk taking and organic growth is coming back in Canada," she said.
Of course, not all analysts believe the data will push Bank of Canada governor Mark Carney to veer off course. Douglas Porter, deputy chief economist at BMO Capital Markets, said the data surely raises the odds of a July rate rise but anything earlier than that remained remote. Analysts at TD Securities also shared a similar view.
Also, the data contained one key blemish – a 9.2% drop in machinery and equipment investment by Canadian companies, which does not bode well for efforts to boost abysmal productivity levels.
The GDP data attracted investors, as the Canadian dollar gained a full US1¢, to US96.01¢, on the possibility of an early rate hike.
Canadian growth should remain robust as the global recovery takes hold. Business surveys released Monday indicated manufacturers continue to lead the recovery, with factory activity expanding last month across Asia, the United States and Europe.
Read more: http://www.financialpost.com/news-sectors/economy/story.html?id=2628952#ixzz0gySOg5Bz
Monday, March 1, 2010
U.S. economy bolts ahead at 5.9 per cent pace in fourth quarter
U.S. economy bolts ahead at 5.9 per cent pace in fourth quarter
By Jeannine Aversa WASHINGTON — The U.S. economy rocketed ahead at a 5.9 per cent pace in the final quarter of 2009, stronger than initially estimated. But the growth spurt isn’t expected to carry over into this year.
The fresh reading on the nation’s economic standing, released by the Commerce Department on Friday, was better than the government’s initial estimate a month ago of 5.7 per cent growth. It would mark the strongest showing in six years.
Even so, it didn’t change the expectation of much slower economic activity in the current January-to-March quarter. Roughly two-thirds of last quarter’s growth came from a burst of manufacturing — but not because consumer demand was especially strong. In fact, consumer spending weakened at the end of the year, even more than the government first thought.
Instead, factories were churning out goods for businesses that had let their stockpiles dwindle to save cash. If consumer spending remains lacklustre as expected, that burst of manufacturing — and its contribution to economic activity — will fade. The signs aren’t hopeful. Consumer confidence took an unexpected dive in February. Unemployment stands at 9.7 per cent. Home foreclosures are at record highs. And many Americans are still having trouble getting loans.
Forecasters at the National Association for Business Economics predict the economy will expand at only a three per cent pace in the first quarter of this year. The next two quarters should log similar growth, they predict.
Unlike past rebounds driven by the spending of shoppers, this one is hinging more on spending by businesses and foreigners. Stronger spending by businesses and foreigners contributed to the bump-up in economic growth in the fourth quarter. So did the fact that companies stopped slashing their stockpiles of goods. During the worst of the recession, companies cut inventories at record rates.
Businesses boosted spending on equipment and software at a sizzling 18.2 per cent pace, the fastest in nine years. Foreigners snapped up U.S.-made goods and services, which propelled exports to grow at 22.4 pace, the most in 13 years.
And the slower drawdown in businesses’ stockpiles accounted for nearly four percentage points of the fourth-quarter’s overall growth, even more than the government first estimated.
Consumers, however, lost energy. They increased their spending at a pace of just 1.7 per cent. That was weaker than first thought and down from a 2.8 per cent growth rate in the third quarter.
Looking ahead, consumer spending is expected to aid the recovery — not lead it. That’s one reason why the recovery is expected to move forward at only a moderate pace of around three per cent in coming quarters.
In normal times, such growth would be considered respectable. But the nation is emerging from the worst recession since the 1930s. Sizzling growth in the five per cent range would be needed for an entire year to drive down the unemployment rate, now 9.7 per cent, by just one percentage point.
For all of this year, the economy is expected to grow 3.1 per cent, according to the NABE forecasters. Though modest, that pace would mark a big improvement from 2009, when the economy contracted by 2.4 per cent — the worst showing since 1946.
As government stimulus wanes and Federal Reserve economic-support programs end, the economy — especially the fragile housing market — could suffer. Economists say the odds of the economy sliding back into a recession this year are low, but they won’t rule it out.
In appearances on Capitol Hill on Wednesday and Thursday, Federal Reserve Chair Ben Bernanke said record-low interest rates are still needed to make sure the recovery becomes firmly rooted and to help ease high unemployment.
If gains from inventories and exports are taken out, the economy last quarter grew at just a 1.6 per cent pace.And, improvements in the housing market also tailed off at the end of last year — despite massive government support.
There’s worry inside and outside the Fed about how housing will fare once a homebuyer tax credit ends in the spring and the Fed stops a mortgage-securities buying program that has lowered mortgage rates and boosted sales. The Associated Press
By Jeannine Aversa WASHINGTON — The U.S. economy rocketed ahead at a 5.9 per cent pace in the final quarter of 2009, stronger than initially estimated. But the growth spurt isn’t expected to carry over into this year.
The fresh reading on the nation’s economic standing, released by the Commerce Department on Friday, was better than the government’s initial estimate a month ago of 5.7 per cent growth. It would mark the strongest showing in six years.
Even so, it didn’t change the expectation of much slower economic activity in the current January-to-March quarter. Roughly two-thirds of last quarter’s growth came from a burst of manufacturing — but not because consumer demand was especially strong. In fact, consumer spending weakened at the end of the year, even more than the government first thought.
Instead, factories were churning out goods for businesses that had let their stockpiles dwindle to save cash. If consumer spending remains lacklustre as expected, that burst of manufacturing — and its contribution to economic activity — will fade. The signs aren’t hopeful. Consumer confidence took an unexpected dive in February. Unemployment stands at 9.7 per cent. Home foreclosures are at record highs. And many Americans are still having trouble getting loans.
Forecasters at the National Association for Business Economics predict the economy will expand at only a three per cent pace in the first quarter of this year. The next two quarters should log similar growth, they predict.
Unlike past rebounds driven by the spending of shoppers, this one is hinging more on spending by businesses and foreigners. Stronger spending by businesses and foreigners contributed to the bump-up in economic growth in the fourth quarter. So did the fact that companies stopped slashing their stockpiles of goods. During the worst of the recession, companies cut inventories at record rates.
Businesses boosted spending on equipment and software at a sizzling 18.2 per cent pace, the fastest in nine years. Foreigners snapped up U.S.-made goods and services, which propelled exports to grow at 22.4 pace, the most in 13 years.
And the slower drawdown in businesses’ stockpiles accounted for nearly four percentage points of the fourth-quarter’s overall growth, even more than the government first estimated.
Consumers, however, lost energy. They increased their spending at a pace of just 1.7 per cent. That was weaker than first thought and down from a 2.8 per cent growth rate in the third quarter.
Looking ahead, consumer spending is expected to aid the recovery — not lead it. That’s one reason why the recovery is expected to move forward at only a moderate pace of around three per cent in coming quarters.
In normal times, such growth would be considered respectable. But the nation is emerging from the worst recession since the 1930s. Sizzling growth in the five per cent range would be needed for an entire year to drive down the unemployment rate, now 9.7 per cent, by just one percentage point.
For all of this year, the economy is expected to grow 3.1 per cent, according to the NABE forecasters. Though modest, that pace would mark a big improvement from 2009, when the economy contracted by 2.4 per cent — the worst showing since 1946.
As government stimulus wanes and Federal Reserve economic-support programs end, the economy — especially the fragile housing market — could suffer. Economists say the odds of the economy sliding back into a recession this year are low, but they won’t rule it out.
In appearances on Capitol Hill on Wednesday and Thursday, Federal Reserve Chair Ben Bernanke said record-low interest rates are still needed to make sure the recovery becomes firmly rooted and to help ease high unemployment.
If gains from inventories and exports are taken out, the economy last quarter grew at just a 1.6 per cent pace.And, improvements in the housing market also tailed off at the end of last year — despite massive government support.
There’s worry inside and outside the Fed about how housing will fare once a homebuyer tax credit ends in the spring and the Fed stops a mortgage-securities buying program that has lowered mortgage rates and boosted sales. The Associated Press
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