These are stories Report on Business is following Thursday, April 12, 2012. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.
Moody's loves B.C. Moody's Investors Service has given British Columbia a glowing report, citing plans by Canada's westernmost province to balance its budget by 2013-2014.
B.C.'s triple-A rating, the U.S. agency said today, is supported by its "comparatively low" debt burden, estimated at 80 per cent of revenue.
The deficit most recently projected in the budget is manageable, and its plans to wipe it out are "feasible given its track record of effective fiscal managements," Jennifer Wong, the agency's lead analyst for B.C., said in a statement.
The 2011-2012 deficit climbed to an estimated $2.5-billion largely because of the hit it took from booking repayments of transitional funding to the Canadian government after deciding to kill the harmonized sales tax in the wake of a referendum.
"Between 2003-2004 and 2007-2008, the absolute stock of provincial net direct and indirect debt was reduced by $4.1-billion to $25.6 billion," Moody's said.
"With cash financing requirements expected to measure 8.5 per cent and 2 per cent of revenues in 2012-2013 and 2013-2014 respectively, the province's debt burden is expected to increase moderately and to peak at approximately 93 per cent of revenues in 2014-2015," it said of Premier Christy Clark's government.
"... The anticipated deficit is expected to measure just 2.2 per cent of revenues in 2012-2013, and the province has reiterated its plan to reach a balanced budget in 2013-14."
B.C. Finance Minister Kevin Falcon, of course, hailed the report, just as he caps four days of meetings with investors in the United States and Canada.
"These judgments by independent, international experts confirm the very positive response we are receiving in key financial markets in New York, Montreal and Toronto," he said in a statement.
"By balancing the budget, paying down debt, and reducing taxes to benefit individuals and business, we're diversifying our economy and expanding trade with the Asia-Pacific."
Ontario, of course, is in an entirely different position, and is under the watchful eye of the ratings agencies, with a much longer timeline to balance its budget. Oh yeah, and it's not killing the HST. And I just happen to live there.
Google creates new stock Google Inc. is creating a new class of non-voting shares via a dividend to stockholders on a one-for-one basis.
In a letter to shareholders from founders Larry Page and Sergey Brin, the Internet search giant described it as an effective stock split. Investors, they said, have asked for this, adding that the new shares could be used for employee compensation, but without diluting the existing governance structure.
"We recognize that some people, particularly those who opposed this structure at the start, won’t support this change - and we understand that other companies have been very successful with more traditional governance models," they said, as Google also reported hefty gains in its first-quarter results.
"But after careful consideration with our board of directors, we have decided that maintaining this founder-led approach is in the best interests of Google, our shareholders and our users," they added in the letter.
"... The proposal we announced today is consistent with the governance philosophy we articulated when we took the company public, as well as the trend for newer technology companies to adopt strong dual-class structures."
Google also reported that revenue climbed to $10.7-billion (U.S.), up 24 per cent. Excluding commissions to partners, revenue rose to $8.14-billion (U.S.) in the quarter, up from $6.54-billion. Profit surged to $2.89-billion or $8.75 a share, from $1.8-billion or $5.51.
Ontario moves on cellphones The Ontario government is promising to beef up consumer protection for wireless services by adopting new legislation that would allow cellphone users to cancel their contracts at any time, while capping penalties, The Globe and Mail's Rita Trichur reports.
In doing so, Ontario becomes the third province in recent years to step into the regulatory void left by the federal telecommunications regulator, which decided against the active regulation of cellular contracts nearly 20 years ago.
Should Carney hike rates? There's something of a vicious circle haunting Canadian consumers.
The Bank of Canada is holding its benchmark lending rate at an emergency low to juice the recovery, while consumers are binging on that low-cost debt to dig themselves in deeper and deeper, leaving them open to trouble when interest rates inevitably rise.
Bank of Canada Governor Mark Carney and other policy makers have warned frequently that borrowers are vulnerable, while some economists expect the debt burden of Canadian households to rise nonetheless.
There are policy options available. Finance Minister Jim Flaherty could again tighten the mortgage rules, among other things which he's not inclined to do at this point. Or, Mr. Carney could begin raising rates again to cool things off.
But he's not planning to do that any time soon, until well into next year, at any rate, and that's not his job anyway.
Still, one U.S. economist recommends, the Bank of Canada should take matters in hand and just do it.
"We conclude that, since interest rates are the main factor supporting the housing market, increasing interest rates seems to be the best policy option, especially since it can be implemented in a very gradual manner," said Charles St-Arnaud of Nomura in New York.
"With the level of slack in the economy currently in line with that at the start of previous rounds of monetary tightening, we believe that that the BoC will start by hiking rates once or twice, for a total increase of between 25 basis points and 50 basis points, and then pause for some time to better evaluate the impact from the hikes on the economy, leaving time for households to adjust to the change," he said in a report today.
"This would still leave considerable monetary policy stimulus in Canada. In addition, the upcoming tightening cycle is likely to be very gradual and, in this context, it will likely take years before the policy rate is back to neutral."
The central bank's key rate is at 1 per cent, and has been for some time. In turn, debt-to-income readings have climbed to record levels, and some observers suggest it could yet hit 160 per cent, driven largely by mortgage debt.
Indeed, Equifax Canada today released a report showing that consumer debt rose 3.4 per cent in the first quarter of the year, compared to the same period last year. That, however, excluded mortgages, where much of the action has been.
"The Canadian housing market is in overvalued territory by many measures, especially relative to income and rent," Mr. St-Arnaud said in his report.
"However, thanks to record low interest rates, affordability remains high, fuelling demand for houses ... The growing imbalances coming from the high level of consumer indebtedness and high house prices are posing an increasing threat to the Canadian economy, something the Bank of Canada has explicitly mentioned its latest monetary policy decision and recent speeches."
The housing market is cooling, though some observers still worry about certain pockets, notably Toronto and Vancouver.
Mr. St-Arnaud estimates that a rate hike of one percentage point would drive up average mortgage payments by about 11 per cent, in turn driving the ratio of the payment to disposable income up by about 6 per cent from its long-term average.
But, he noted, the central bank is unlikely to go for a fast, hefty bump, insteading move by quarter-points, and thus the impact would be less.
"Since 'actions speak louder than words,' a small rate hike could be the catalyst for households to change their behaviour and slow the accumulation of debt and the housing sector."
Behind the condo boom One of the reasons behind Toronto's condo boom is the shortage of new detached homes up for sale, Bank of Montreal says, but that's not having the expected impact.
As The Globe and Mail's Nicolas Johnson writes today in Report on Business, construction of condominiums in the city is surging, and shows no signs of slowing down any time soon. Behind that, said senior economist Sal Guatieri of BMO Nesbitt Burns, is, quite simply, a lack of space.
"Lost amid the chatter over Toronto’s condo building boom is a dearth of available new detached homes (the lowest in at least two decades), not for lack of demand but for lack of space," said Mr. Guatieri, who tracked construction of singles versus multiple units since 1990.
"The condo construction craze is, in part, a response to the shortage of detached homes for sale and, in theory, should cool their frothy price gains," he said. "So far, however, it’s not having much success, as detached prices bubbled up 11% year-over-year to March."
Separately today, Statistics Canada reported that prices for new homes across the country climbed 0.3 per cent February, picking up from January's gain of 0.1 per cent. Toronto and Oshawa, Ont., led the rise, offset somewhat by a decline in Vancouver.
Compared to last year, new home prices are up 2.3 per cent.
Click here for Mr. Guatieri's findings or see the accompanying infographic.
Canadian trade surplus shrinks A drop of almost 4 per cent in Canadian exports in February narrowed the country's trade surplus to just $292-million, well down from January's $1.9-billion.
Imports inched up 0.2 per cent.
Canadian exports to the United States, the country's biggest trading partner, slipped 3.8 per cent, largely because of lower shipments of crude and autos.
"Going forward, exporters will continue to be faced with a challenging environment, notably an elevated Canadian dollar and weak economic growth in Europe," said economist Dina Cover of Toronto-Dominion Bank.
"That said, despite some weaker-than-expected data out of the U.S. recently, the economic recovery Stateside is expected to remain on track, suggesting that demand for Canadian-made products from our largest trading partner will improve."
In the United States, the trade deficit narrowed as Americans exported a record amount of goods. The drop in the deficit, of more than 12 per cent, was the fastest since the spring of 2009.
Loan numbers may ease fears Fresh data from China suggests a broader economic reading scheduled for tomorrow could be "reassuringly strong," which would go a long way to easing concerns among investors.
New lending in China topped 1-trillion yuan in March - about $160-billion (U.S.) - according to official numbers released today. That's the biggest increase since January of last year and above what was expected.
Economists believe that could point to a stronger showing when Beijing releases its first-quarter measure of the overall economy tomorrow.
"China’s data have given mixed signals in recent weeks, but the March lending figures released on Thursday raise the likelihood that the Q1 GDP ... figures due [Friday]will be fairly strong," said Mark Williams of Capital Economics.
"The full impact of recent lending will only be felt with a lag but it should still have helped keep GDP growth last quarter at 8 per cent year-over-year or slightly above," he added. "That is low in historical terms for China, but far from the 'hard landing' that many have feared. With monetary policy still being loosened this could well be the trough of the current cycle."