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business briefing

Haves and have-nots

Alberta is deep into hard economic times, while British Columbia enjoys boom times, a new study says.

But the Conference Board of Canada’s new forecasts for unemployment and income are the ones that really bring the story home for much of the country.

Where economic growth is concerned, Alberta is projected to lag the country in the wake of the oil shock, with a contraction of 0.7 per cent this year but a modest bounce of 1.1 per cent in 2016, the group said in its report on the provinces today.

Saskatchewan is suffering, too, it noted.

British Columbia will lead Canada this year as the only province whose economic growth will top 3 per cent, though Manitoba will take the crown next year.

But for some pockets, much of the country will continue to feel the sting of elevated unemployment and weak income growth, the Conference Board report said.

Indeed, Canada’s jobless rate will hold above 6.5 per cent this year and next, while the increase in per-capita household disposable income falls to 1.5 per cent this year from 2.3 per cent in 2014, before perking up next year to 2.4 per cent.

The Conference Board warned of “soft employment growth, weak wage gains, the high level of household debt, easing real estate markets, and the threat of job losses in oil-rich provinces,” which will eat into consumer spending this year.

“In addition, the economy is unlikely to get much of a boost from government spending,” it added.

“Even before the decline in oil prices, the federal and provincial governments were planning to maintain a significant degree of spending restraint. Now, with oil prices taking a bite out of revenue growth, an even greater level of restraint is expected.”

The forecast called for “another poor performance” on the labour front, with just 172,000 jobs created this year, though 218,000 in 2016.

Canada’s jobless rate will peak at 6.8 per cent by the end of this year, easing slightly to 6.5 per cent by the end of 2016.

Unemployment this year will range from a low of 4.6 per cent in Saskatchewan to a high of 12.5 per cent in Newfoundland and Labrador, according to the projections.

But note that the forecast for Saskatchewan marks hefty jump from 2014’s 3.8 per cent.

Alberta, too, which has already seen a spike in unemployment, will see its jobless rate at 5.6 per cent this year and 5.8 per cent in 2016, compared to just 4.7 per cent last year.

Only British Columbia will see household disposable income growth top 2 per cent this year on a per-capita basis.

The numbers for Alberta really tell the story, with a projected gain of just 0.6 per cent this year and 1 per cent next, compared to 3.4 per cent in 2014.

Total inflation, meanwhile, may be low now, but some of that’s going to change when the impact of the oil shock on consumer prices fades.

So-called core inflation, which strips out volatile items, is above 2 per cent and is expected to remain there. The Bank of Canada said just yesterday that the “underlying trend” of inflation is 1.6 per cent to 1.8 per cent.

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Teck cuts

Teck Resources Ltd. is shutting down its six Canadian steelmaking coal operations for three-week periods, staggering the closings over the course of the summer.

That will cut production in the third quarter by about 1.5 million tonnes, or 22 per cent, though sales are expected to be up to 6.5 million tonnes.

Teck said in a statement today that it could take further action this year depending on the market.

“Rather than push incremental tonnes into an oversupplied market, we are taking a disciplined approach to managing our mine production in line with market conditions,” chief executive officer Don Lindsay said in a statement.

“We will continue to focus on reducing costs and improving efficiency to ensure our mines are cash positive throughout the cycle and well positioned when markets improve.”

Bank results flood in

Canadian Imperial Bank of Commerce is following the lead of some of its rivals with a dividend hike.

But not Royal Bank of Canada or Toronto-Dominion Bank.

$2.5-billion
RBC profit

CIBC hiked its dividend by 2.8 per cent to $1.09 as it posted a big jump in second-quarter profit, to $911-million, or $2.25 a share.

As The Globe and Mail’s David Berman reports, RBC also posted a nice jump in profit, to $2.5-billion or $1.68, though it held steady on its payout.

TD, on the other hand, reported a 7-per-cent dip in profit to $1.68-billion or 97 cents.

All three banks beat the estimates of analysts.

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Where are stocks headed?

Federal Reserve chair Janet Yellen suggests certain stock values are inflated. But observers see the markets going higher still.

National Bank Financial’s new targets are for Toronto’s S&P/TSX composite to hit 16,200 in the fourth quarter of the year, and for the S&P 500 to reach 2,220.

“Global equities rose to an all-time high in May, with the MSCI AC index brushing off comments for Federal Reserve chair Janet Yellen that stock market valuations may be on the high side if interest rates continue to rise,” National Bank’s Stéfane Marion and Matthieu Arseneau say in a new report.

“Though the prospect of higher interest rates may eventually make equities less attractive, rates are still, in our view, far from levels that would crimp economic growth and profits.”

Deficit swells

The oil rout is taking its toll on Canada’s current account balance, helping to drive the deficit to a swollen $17.5-billion in the first quarter of the year.

That marked a shift after three narrower deficits in a row, Statistics Canada said today.

The goods trade deficit fattened up by $5.2-billion to a record $7.2-billion as exports slumped.

Even though volumes of energy exports rose 3.9 per cent, the value dropped by $5.9-billion as oil prices plunged.

On the financial account side of the ledger, foreign investors boosted their holdings of Canadian securities by $37.6-billion, led by foreigners gobbling up bonds at a record pace.

“Oil’s fall has brought Canada’s current account with it,” said Nick Exarhos of CIBC World Markets.

“Today’s figures largely give a rear-view mirror perspective on why weaker energy prices have also weighed significantly on the loonie,” he added.

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Comfort levels

The Bank of Canada is giving off vibes that it’s anxious about the now-muted rise of the loonie.

“The Canadian dollar has strengthened in recent weeks in the context of higher oil prices and a softer U.S. dollar,” the central bank said yesterday as it also held its benchmark overnight rate steady.

“If these developments are sustained, their net effect will need to be assessed as more data become available in the months ahead.”

The loonie had been down around the 78-cent level, but then began rising as oil prices rallied and the U.S. dollar weakened. Over the past couple of weeks, however, it softened up again, slipping to the 80-cent level.

“In other words, expect some dovish talk if USDCAD approaches 1.20 again,” said National Bank senior economist Krishen Rangasamy, meaning a Canadian dollar at above the 83-cent mark.

“Given how overall growth will be dependent on trade, the central bank will do what it can to keep the Canadian dollar grounded,” he said in a research note.

Governor Stephen Poloz and his Bank of Canada colleagues have been counting on a bounce in exports as a weaker dollar and a stronger U.S. economy filter through to trade markets.

They said yesterday they now expect a “return to solid growth” in the U.S. in the second quarter, which “will help advance the rotation of demand in Canada toward more exports and business investment.”

The central bankers are probably fine with the loonie’s current value.

“Given that the currency has promptly sagged 3.5 cents in the past two weeks alone, I doubt they are uncomfortable at all,” said chief economist Douglas Porter of BMO Nesbitt Burns.

“It may be a different story if the Canadian dollar was still above 83 cents (with oil prices sagging back below $60),” he added.

“Overall, they take a big-picture view of the currency, and the big picture is that it is down almost 13 per cent in the past year (i.e. 12 cents), and they are likely okay with that.”

Observers at Bank of America Merrill Lynch agreed, though they wondered what the future may hold.

“Although they note Canadian dollar strength, they place it in the context of the oil rally and U.S. dollar weakness, so it’s tolerable for now,” the Wall Street bank said in a report.

“Thus, the [Bank of Canada] is sticking to its upbeat outlook, but keeping an eye on risks. We continue to see the risks skewed to more dovishness later this year, and even an ease if growth disappoints, as we are forecasting.”

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