Outlook disappointing
The latest Conference Board of Canada report is a study of trouble on three key fronts: Jobs, pay and the loonie.
Unemployment is forecast to inch up, and growth in disposable income to slow. Where the Canadian dollar is concerned, higher import prices are expected.
In its latest outlook this week, the group warned that Canada’s jobless rate, now at 6.8 per cent, will climb to 7 per cent later this year and only inch back down by the end of 2016.
That’s similar to projections from other economists, who see unemployment sticking at just below 7 per cent for some time yet.
Note, however, that employers have been hiring, and primarily for full-time work, at that. Still, a high jobless rate is a high jobless rate.
Projecting a “modest” rise in employment of just 0.8 per cent this year, the job market will in turn “keep a lid on wage pressures,” the group said, projecting average weekly wages will rise this year by “an unimpressive” 1.9 per cent.
Real disposable income, though, will be “slightly better,” rising by 2.3 per cent, given soft inflation, the federal government’s new child care benefits scheme and income-splitting.
Next year, however, real disposable income gains are forecast to slow to 1.5 per cent as oil prices rise.
The Conference Board did not weigh in with an actual projection for the loonie, but it did note that the lower currency should help exports “manage some decent growth.”
Other currency watchers have projected further declines in the Canadian dollar, which isn’t only troublesome for travellers to the United States but for all consumers as the higher costs of imports are passed on.
Just today, Toronto-Dominion Bank projected the loonie will tumble to 73 cents (U.S.) by the second quarter of the next year.
“The Bank of Canada opted to cut interest rates again in July, and we expect this new low in the central bank overnight rate to prevail until [the second half of] 2017,” said TD economists Leslie Preston and Brian DePratto.
“A softer commodity price outlook and a larger interest-rate differential versus the U.S. also spell more bad news ahead for the loonie,” they added.
The Conference Board, though, was looking at the loonie in terms of trade, and forecast that Canada’s real trade balance will see marked gains.
“However, the same cannot be said for the nominal trade balance,” it added.
“The sharp depreciation of the Canadian dollar this year will see import prices advancing at a much faster pace than exports prices, and this will lead to a deterioration in the terms of trade.”
The group also weighed in on one of our national obsessions, real estate, projecting a rise in average home prices of 4.7 per cent this year before they “flatten out” in 2016 and score only slight increases from there.
“Price gains will then remain below 1 per cent per year in the following few years, starting with a negligible advance in 2017,” the report said.
“By 2019, our forecast calls for a national average resale price near $432,000, up 6.3 per cent from 2014.”
Those projections, just as an example, are below those of Toronto-Dominion Bank, which called for gains of 7.1 per cent this year and 1.4 per cent in 2016.
Like the Bank of Canada and several other observers, the group expects a soft landing, rather than a meltdown, in the housing market.
Oil patch woes
The oil patch is showing the strain of the collapse in crude prices as companies slash spending and jobs today.
As The Globe and Mail’s Jeff Lewis reports, Suncor Energy Inc. late yesterday cut its budget again while hiking its dividend.
Royal Dutch Shell, meanwhile, also announced spending cuts this morning, along with plans to cut 6,500 jobs this year.
Cenovus Energy Inc., in turn, unveiled a dividend cut of 40 per cent, warning it was digging in for a longer haul.
“We are planning for West Texas Intermediate oil prices to be approximately $65 per barrel through 2017,” Cenovus chief executive officer Brian Ferguson said in unveiling the results.
“But even at $50 per barrel, we believe we are well positioned to be able to internally fund our reduced dividend ... without compromising our balance sheet.”
Cenovus has already unveiled plans to cut several hundred jobs, and said today it plans further cuts next year.
“Cenovus also intends to review the company’s compensation, benefits and time-off practices to ensure they align with current and anticipated markets,” it said.
Penn West Petroleum Ltd. also cut its budget, by $50-million.
Bombardier delays
Bombardier Inc. may not be an oil player but it, too, is feeling a pinch.
As The Globe and Mail’s Nicolas Van Praet reports, the Canadian plane and train maker unveiled a cost-control program today and delayed its Global 7000 business jet by two years.
Bombardier is trying to get its C Series to market, while profit is stumbling.
Bombardier posted a second-quarter profit of $125-million, or 6 cents a share, down from $155-million or 8 cents a year earlier.
“We are taking specific action, including the launch of our Bombardier transformation plan, a disciplined approach to cash management, and the strengthening of our leadership team to reshape the company and ensure our long-term success,” said chief executive officer Alain Bellemare.
Earnings flood in
Other corporate results are also pouring in today.
Goldcorp slashes dividend
Goldcorp Inc. is reporting a hefty jump in second-quarter profit, record gold production and ... a 60-per-cent cut in its dividend to 2 cents.
Profit climbed to $392-million (U.S.), or 47 cents a share, from $181-million or 22 cents a year earlier.
“We have also taken timely actions to fortify Goldcorp’s strong financial liquidity position,” said chief executive officer Chuck Jeannes.
“The recent sale of our 26-per-cent interest in Tahoe resources, the $1-billion expansion of our credit facility and the dividend reduction ensure the company has the financial flexibility to succeed in a volatile gold market.”
U.S. economy rebounds
The American economy is perking up.
Gross domestic production not only expanded at an annual pace of 2.3 per cent in the second quarter of the year, but the government also revised its initial reading of the first quarter, to growth of 0.6 per cent from an earlier measure of a 0.2-per-cent contraction.