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Mark Carney digs in heels on consumer debt Add to ...

These are stories Report on Business is following Tuesday, Oct. 23, 2012.

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Bank of Canada warns on debt
Bank of Canada Governor Mark Carney and his colleagues softened their stance somewhat today, but with a new twist that should serve as a warning to those juggling heavy debt burdens.

As The Globe and Mail's Kevin Carmichael reports, the central bank still signalled that it expects its next rate hike will be up, but there's absolutely no rush to get there.

It did, however, flag something something new. Mr. Carney has been warning for months that Canadians must get their household finances in shape as interest rates will inevitably rise, and to protect against financial shocks. Finance Minister Jim Flaherty has also made this a crusade as the ratio of household debt to disposable income holds at record levels, and is expected to rise further.

While Mr. Carney may be in no rush to hike rates, he warned today he could do so to tame household debt. He didn't use that language, but that's what he suggested.

Over time, some modest withdrawal of monetary policy stimulus will likely be required, consistent with achieving the 2-per-cent inflation target," the Bank of Canada said as it held its benchmark overnight rate at 1 per cent.

"The timing and degree of any such withdrawal will be weighed carefully against global and domestic developments, including the evolution of imbalances in the household sector."

That last piece is the warning.

"That’s a new dimension, and hints that if household debt growth fails to slow, the bank might use rate hikes to tame it, even if the near term inflation outlook does not otherwise require such hikes," said chief economist Avery Shenfeld of CIBC World Markets.

The central bank also noted that the U.S. recovery is "progressing at a gradual pace," while Europe remains in recession, and growth has slowed in emerging markets such as China.

Global "headwinds" are holding Canada back, the central bank said, but developments inside its borders support "a moderate expansion" of the economy.

"The bank has largely stuck with its watered-down tightening bias, with a slightly different mixture but the same overall message," said deputy chief economist Douglas Porter of BMO Nesbitt Burns.

"The message is that rate cuts are simply not in their playbook, but also that rate hikes remain a distant prospect as well at this juncture," he said in a research note.

"Over all, the tone of the release is more upbeat than the market was expected, and their outlook on the economy is a tad more positive than the consensus for 2013. They also have hinted that if household debt doesn’t simmer down, they may well act pre-emptively. Simply put, this is a less dovish message than the market was anticipating. We continue to believe the next move in rates will be a hike in late 2013, roughly a year from now."

Feeling the pinch
Nearly three-quarters of Canadian households would feel a significant strain if they were to experience a modest increase in their monthly mortgage payments, a new survey by Bank of Montreal suggests.

As The Globe and Mail’s Tara Perkins reports, the BMO report indicates Canadians still have strong buying intentions when it comes to housing, with 46 per cent of homeowners saying they intend to buy a property in the next five years. But the number who would buy in the next five years drops to 36 per cent if house prices were to rise by 5 per cent, showing the sensitivity of the market to prices at a time when many economists expect them to soften.

Retail sales volumes dip
It’s not that Canadians are buying more. It’s that what they’re buying – in terms of food and gas – costs more.

Retail sales in Canada climbed 0.3 per cent in August, Statistics Canada said, but fell 0.3 per cent in volume terms when you remove the price effects.

“The largest increase in dollar terms among all subsectors was a 2.9-per-cent rise at gasoline stations, reflecting higher prices at the pump,” the federal agency said.

RBC strikes Ally deal
Royal Bank of Canada is buying Ally Financial Inc.’s Canadian auto finance and deposit business, for a net purchase price of $1.4-billion (U.S.), The Globe and Mail's Bertrand Marotte reports.

RBC said the business offers inventory financing to more than 580 car dealerships across the country. The consumer side offers retail financing to consumers through roughly 1,600 dealerships; it has about 450,000 consumer loans.

TD in credit card deal
Toronto-Dominion Bank is acquiring the existing U.S. credit card portfolio of Target Corp. in a seven-year deal that comes about five months before the giant discounter is set to open its first stores in Canada, The Globe and Mail's Marina Strauss writes.

The agreement, announced this morning, involves a credit card portfolio with a current gross outstanding balance of $5.9-billion (U.S.). TD would become the exclusive issuer of Target-branded Visa and private-label consumer credit cards to Target’s U.S. customers.

Markets troubled
Global stock markets tumbled today,  troubled by weak quarterly corporate reports and ongoing woes in Europe.

Tokyo’s Nikkei was effectively flat, but London's FTSE 100, Germany's DAX and the Paris CAC-40 fell by up to 2 per cent.

The S&P 500, Dow Jones industrial average and Toronto's S&P/TSX composite followed suit.

Canada in top ranks for small business
Canada ranks among the world’s top 20 countries for running small and medium-size businesses, a new study finds, and is No. 1 when it comes to getting through red tape to launch an operation.

The 10 annual study by the World Bank and International Finance Corp. ranks Canada at No. 17 in the overarching category of  ‘ease of doing business.’ The top five include Singapore, Hong Kong, New Zealand, New Zealand, the United States and Denmark.

“According to a recent review, evidence from several studies shows that reforms making it easier to start a formal business are associated with increases in the number of newly registered firms and sustained gains in economic performance, including improvements in employment and productivity,” the report says.

“For example, in both Canada and the United States empirical research finds that economic growth is driven by the entry of new formal businesses rather than by the growth of existing firms.”

Canada holds the No. 3 spot when it comes to the ease of starting a new business, and top spot in terms of having the fewest procedures necessary to do that.

Canada ranks No. 2 for making exporting easy, and No. 4 for investor protection.

“Each indicator set measures a different aspect of the business regulatory environment,” says the report.

“The rankings of an economy can vary, sometimes significantly, across indicator sets … These correlations suggest that economies rarely score universally well or universally badly on the indicators … Consider the example of Canada. It stands

at 17 in the aggregate ranking on the ease of doing business. Its ranking is 3 on starting a business, and 4 on both resolving insolvency and protecting investors. But its ranking is only 62 on enforcing contracts, 69 on dealing with construction permits and 152 on getting electricity.”

I’ll just point out, too, that Canada scores well in the category of ‘making it easy to pay taxes,’ at No. 8. I think we all know that goes well beyond small business.

Where the money is
Jobs in the tech sector will command the highest pay increases next year, according to a new survey of salary trends, but it won’t be too shabby for office dwellers either.

The study released today by Robert Half International projects starting salaries in the tech industry will climb by 4.5 per cent.

“Mobile applications developers will see the highest increases (an average of 9 per cent), as companies look for people to help them build business using mobile media,” the company said in a statement.

“Network engineers, business intelligence analysts, and senior IT auditors also are in demand.”

Base pay for administrative and office support staff should rise by 3.9 per cent, and among accountants and finance professionals 2.2 per cent.

“Employers are refilling some roles and creating new ones to ready themselves for future growth. Positions in demand include executive assistants and customer service representatives. Above-average salary increases also are projected for select administrative positions in the health care industry and in human resources.”

In the finance field, there’s a notable need for analysts and senior accountants, Robert Half said.

“In the health care industry, financial professionals with knowledge of health informatics and those who maintain and provide financial data, are being hired to handle initiatives related to the collection of electronic medical information. In financial services, there is demand for risk and compliance professionals who can interpret evolving regulatory requirements.”

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