Tag Archives: RBC

Update on Consumer Confidence

Posted on October 14, 2010 | Leave a comment

The RBC Canadian Consumer Outlook Index dropped 14 points in September from 108 to 94, after staying around the same level since December. RBC also conducted surveys on consumer confidence throughout the quarter.

According to the polls, 60 per cent of Canadians believe that the current economic outlook is good, but job anxiety has increased to 22 per cent. However, job anxiety has fallen from its all time high of 27 per cent in November of 2009.

Debt management is a priority for many Canadians currently, with 51 per cent trying to reduce their debt over the next year, and 39 per cent intending to spend less. However, 17 per cent of Canadians say they’re just keeping their heads above water and only 41 per cent of Canadians are confident in their debt management.

“It’s good to see people focused on debt management and reduction”, said senior vice president of Personal Financing Products for RBC Andrea Bolger in a press release. “It’s important that Canadians feel confident and understand that managing debt is crucial to their financial success.” She also added that, “Regularly reviewing your borrowing needs and credit situation while building your assets with the help of an RBC advisor is key to staying on top of your finances and ensuring your goals are being met.”

The senior vice president and chief economist for RBC, Craig Wright said in the same press release that, “The uncertain and uneven global economic outlook has not gone unnoticed by consumers, translating to heightened anxiety and weaker confidence,” he said, “the continued uncertainty and uneven recovery was one of the factors contributing to us downgrading our 2010 forecast, expecting GDP growth of 3.3 per cent, down from 3.6 per cent projected last quarter.”

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RBC: Canadian household net worth climbs to $6.0 trillion in the first quarter

Posted on June 22, 2010 | Leave a comment

Canadian household net worth increased by 1.3% ($74 billion) in the first quarter of 2010 to $6.0 trillion, which marks the fourth consecutive quarterly improvement in household net worth and reflects a 96% recovery off of the net worth lost during the recent economic downturn.

Increases in both financial and non-financial assets drove the improvement in household balance sheets. Canadian stock markets continued the positive trend that started in the second quarter of 2009 with the S&P/TSX composite index up a modest 2.5% in the first quarter of 2010, pushing the value of household financial assets (which include equities, mutual funds and pension assets) up by 1.8% ($71.3 billion). The Canadian housing market continued to show strength in the first quarter of 2010, pushing the value of non-financial assets (of which real estate holdings make up 85.5%) up 0.8% ($24.9 billion) compared to the previous quarter.

Household liabilities grew 1.5% ($21.7 billion) in first quarter to $1.4 trillion, led by a $16.4 billion increase in mortgage debt reflecting the continued strength in the real estate market. Consumer credit growth eased to $3.9 billion (from $8.3 billion in the previous quarter) reflecting a slowdown in demand for durable goods. The growth in liabilities matched the growth in net worth, keeping the household debt-to-net worth ratio at 24.4% for the third consecutive quarter, slightly below the all-time high of 24.9% seen in the first quarter of 2009. The household debt-to-personal disposable income ratio edged up to a new record of 148.9% from 147.0% in the final quarter of 2009. (Credit market debt, which includes only consumer credit and mortgages, edged up to 22.2% of household net worth from 22.1% in the previous quarter and up to 135.7% of personal disposable income from 133.7%.)

The increase of household net worth continues to help repair the cumulative $552 billion decline that resulted from the economic downturn, and balances now stand at 96% of their pre-recession levels. Low interest rates have encouraged the expansion of household borrowings that has led to strengthening in demand and asset prices, particularly in housing. The strength of the recovery during the first quarter of 2010, along with firmer than expected core inflation, led the Bank of Canada to begin its gradual removal of its stimulative monetary policy and raise the overnight rate 25 basis points to 0.50% earlier this month. Because economic activity is expected to continue to improve, the Bank will likely continue to withdraw monetary stimulus, although we expect the pace of tightening to remain moderate with the policy rate expected to finish 2010 at a still stimulative 1.50%.

Source:  David Onyett-Jeffries, Economist, RBC Economics

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RBC: Bank of Canada upgrades forecasts; opens door to June rate hike by removing conditional commitment

Posted on April 22, 2010 | Leave a comment

The Bank of Canada left the overnight rate at 0.25% Tuesday morning and opened the door to rate increase at the June meeting by removing its conditional commitment to keep the policy rate at its current level, “until the end of the second quarter of 2010.” The Bank stated that with, “recent improvements in the economic outlook, the need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus. The extent and timing will depend on the outlook for economic activity and inflation, and will be consistent with achieving the 2% inflation target.”

The change in the Bank’s statement reflected a sharp upgrade to the Bank’s economic forecast with growth in 2010 forecasted at 3.7%, up from 2.9% in its January projection. The 2011 growth forecast was revised lower to 3.1% from the 3.5% growth rate in their January outlook. The Bank added its 2012 forecast for the economy to expand by 1.9%, which we assume is its estimate of the economy’s potential. As a result of the faster pace of growth in the near term, the Bank expects that the economy will reach its productive capacity and inflation to the 2% target in the middle of 2011, sooner than was thought in January. The Bank failed to provide an overall assessment of the risks to the outlook based on macro considerations, which is unusual, but it clearly acknowledged that some reduction in the amount of policy stimulus will be required over time. The pace of which will depend on the flow of data. To our mind, the Bank will be cuing the timing of its first rate hike off of upcoming inflation reports looking at m
ovements in the core inflation data which are forecasted to “ease slightly in the second quarter of 2010.”

The upgrades to the 2010 economic forecast were based on recently strong housing market activity and global growth as well as the Bank’s assessment that policy stimulus supported, “more expenditures being brought forward in late 2009 and early 2010.”  The statement also sited uncertainty about the pace of the global recovery combined with the potentially restraining effect of the strengthening in the Canadian dollar and low productivity as downside risks for the economy going forward.

Today’s statement sets up interest rates to start to rise, with the first increase likely to be dictated by movements in the core inflation rate, assuming that the economy continues to show strong growth momentum as we (and the Bank) expect. We forecast that the core inflation (to be released on Friday) will show an easing in the Bank’s core rate to 1.8% as the jump in travel accommodation prices proves transitory and remains below 2% in April, which will ease the pressure for a June rate hike. Today’s statement, however, leaves the door open to the Bank moving rates in June. Today’s rate decision and statement reinforce our view that economic conditions are strong enough that the Bank will increase the overnight rate and there is risk that the first hike comes in June rather than July. Our forecast is that the Bank will raise the policy rate to 1.25% in 2010, and the pace of tightening will accelerate in 2011 as the economy continues to build momentum with the overnight rate finishing the year at 3.5%.

Dawn Desjardins, Assistant Chief Economist, RBC Economics

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RBC: Toronto – Full Steam Ahead

Posted on March 15, 2010 | Leave a comment

The powerful rebound in the Greater Toronto Area market carries on with a full head of steam. Very strong demand continues to dominate, lifting sales of existing homes to all-time highs in recent months, yet keen buyer interest haslargely failed to attract more sellers, resulting in a dearth of homes available for sale. The properties that are put on the market, however, move fast, frequentlybeing the object of bidding wars. This has contributed to prices in the area generally reaching record-high levels.

The flipside of steeper prices is an attendant erosion of affordability. All RBC measures rose for the second-straight time in the fourth quarter of 2009 – up 0.1 percentage point for bungalows and townhouses, 0.2 percentage points for condominiums and 0.3 percentage points for two-storey homes. Affordability levels have now moved above long-term averages in the area – significantly so in the case of two-storey homes – confirmingthat stress is starting to build in the Toronto market.

Source:  RBC Housing Trends & Affordability – March 2010

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RBC: Canadian employment rises in February as unemployment rate falls

Posted on March 12, 2010 | Leave a comment

Canadian employment rose by 20,900 jobs in February, a slightly stronger gain than forecasts for a more moderate 15,500 rise going into today’s report.  The February rise builds on the 43,000 gain reported in January.  The unemployment rate edged down to 8.2% in February as employment gains outstripped an 8,600 rise in the labour force in the month.  

February’s gains reflected a 60,200 jump in full-time employment following January’s more moderate 1,400 gain.  Part-time employment declined by 39,300 in the month.  Gains were concentrated in the goods-producing industries that rose for the first time in three months with a 17,800 gain.  Employment in services industries rose for a second consecutive month but by a more subdued 3,100.  The rise in employment in goods producing industries was mainly concentrated in the manufacturing (16,900) and forestry, fishing and mining (10,600) sectors.  Gains in service-producing industries reflected fairly strong gains in the accommodation and food services (26,500) and the business, building and other support services (18,400) sectors with a notable offset coming from a 33,500 decline in wholesale and retail-trade services.  The gains in accommodation and food services may have been partly related to the 2010 Winter Olympics and Paralympic Games in British Columbia during the month.

For February, British Columbia, Nova Scotia and Saskatchewan led the employment gains.

The annual gain in the average hourly wage rate for permanent workers picked up to 2.5% in February, up from the 2.2% recorded in January but still well below the 3.9% annual rise a year earlier.

The increases in employment in both January and February bode well for the pace of expansion to remain firm in the first quarter of 2010 following the surprisingly strong 5.0% surge in growth in the fourth quarter of 2009.  Although the monthly employment numbers are volatile, the combined 63,900 jobs created so far in January and February suggests that the quarterly job gain in the first quarter of 2010 could exceed the total 20,700 gain recorded in the fourth quarter of 2009.  This pick-up in labour markets remains consistent with our expectation that GDP growth early in 2010 likely remained solid at a 3.8% annualized rate in the first quarter of 2010.  We expect the unemployment rate to remain elevated near term; however, we expect that sustained economic growth will eventually put downward pressure on the measure over the second half of 2010 and, as the recovery continues to pick up, the Bank will begin to look to withdraw monetary stimulus.  However we expect that moderate inflation growth will allow the
Bank of Canada to keep the pace of tightening moderate.  The overnight rate is expected to be held steady at 0.25% until the end of the second quarter. Rates will start to rise over the second half of this year yet by only 100 basis points, finishing 2010 at 1.25%.

Nathan Janzen, Economist, RBC Economics

Source: www.royalbank.com

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RBC Economics: Canadian Housing starts rise in February

Posted on March 9, 2010 | Leave a comment

Canadian housing starts rose 6.1% to an annualized 196,700 in February from a slightly revised 185,400 (was 185,600) in January.  Expectations going into the report had been for a smaller rise to 190,000 units.

The rise in total housing starts in February was almost entirely the result of increases in the multiple-starts segment.  The relatively volatile multiples component was up 19.1% in February to an annualized 89,900 units.  The more stable singles component rose as well, although by a much more modest 0.5% to 89,200 units.  Rural starts were estimated at 17,600 in February, down from the 21,100 estimate in January.

Starts were boosted by a large 28.6% surge in Ontario, although gains were also recorded in Atlantic Canada (14.3%), the Prairie region (10.8%) and British Columbia (8.0%).  Providing partial offset to these increases was a 14.1% drop in Quebec starts.

Today’s report that Canadian housing starts rose solidly in February, although largely driven by gains in the volatile multiples component, is in line with our expectation that housing activity in Canada will continue to pick up during the first half of 2010 following the surge in activity at the end of last year.  This rise is expected to reflect still low interest rates and pent up demand built up over the first half of 2009.  It is also expected to reflect a partial pick-up in housing activity leading up to the harmonization of the provincial and federal sales taxes in British Columbia and Ontario in July.

The implementation of the HST will raise the level of taxation on new housing, although primarily affecting higher-priced units.  Improvement in residential real-estate markets is expected to continue to contribute to overall growth rates being sustained at an above potential pace throughout 2010, and we expect improvements in labour markets to continue.  Be that as it may, the recent recession generated a large amount of economic slack, and January’s 8.3% unemployment rate serves as a reminder that the level of activity remains subdued.  We expect that this slack will keep inflation moderate in the near term, allowing the Bank of Canada to follow through on its conditional commitment to maintain the overnight rate at 0.25% throughout the second quarter of this year.

Nathan Janzen, Economist, RBC Economics – www.royalbank.com

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