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Bank of Canada looks at census debate The heated debate over the long-form census is hardly consensus-building. A diverse array of groups - from businesses to the opposition to the United Church - have slammed Ottawa's plans to change the long-form census survey from a mandatory one to a voluntary one. The main fear is that the collection and reliability of data will suffer, having far-reaching consequences because so many decisions are based on the information. Yesterday, chief statistician Munir Sheikh went so far as to quit.
Bank of Canada Governor Mark Carney said today that the central bank is an "intensive user" of StatsCan data, Globe and Mail Ottawa correspondent Jeremy Torobin reports. Responding to questions from reporters, Mr. Carney said the Bank of Canada doesn't use raw data from the long-form census by they are inputs into what StatsCan reports.
"We don't use the raw data that comes out of that," he said. "There could be weightings that are used, for example, that feed into the labour force survey or other series that we use. Some of the income data, some of the productivity measures or labour force measures that are therefore influenced, potentially, but these are second-order or derivative impacts from that raw data that are taken from the building block, much of which comes from the long-form survey.''
He said the central bank will evaluate the impact of the proposed changes, work closely with StatsCan and "continue to search out alternative sources as appropriate.''
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Bank of Canada v. Fed The Bank of Canada has a "solid case" for jumping well ahead of the Federal Reserve in raising interest rates, more than many observers expect, Scotia Capital says. "One doesn't forecast the future path of the two central banks by extrapolating past relationships between their target rates that rarely departed from one another - and when they did, like early last decade, only to see the BoC backpeddle - without considering what may be different about the current and future context," economists Derek Holt and Gorica Djeric said in a research note today.
On Tuesday, the Bank of Canada raised its benchmark overnight rate by one-quarter of a percentage point, to 0.75 per cent, its second hike in a row. The Fed, on the other hand, is expected to hold its key Federal funds rate at its historic low near zero for some time yet.
Mr. Holt and Ms. Djeric cite two reasons for Canada's central bank moving ahead of its U.S. counterpart:
- "As the U.S. deleverages, Canada continues to leverage higher. We are on a fundamentally different debt cycle in this country. As U.S. households pay down debt, Canadian households are racking it up ... Borrowing behaviour in Canada is being distorted by low rates with a pronounced shift toward interest-only revolving debt via secured and unsecured personal lines of credit that have cannibalized fixed and variable rate installment loans. This reflects monetary policy working all too well, and on that, Canada remains far apart from conditions in the U.S."
- "Concerns over global growth fail to consider that Canada has outperformed despite the fact that net trade has been a drag on the economy. It has been for the better part of the past 10 years, and remains as such for each of the past four quarters. Yet Canada chalked up annualized [first-quarter]growth at a pace double that of the U.S. Why? Concerns about risks may be placing too much weight on global downsides, and not enough weight on domestic upsides. Yes housing is flattening out as a driver of GDP growth, but let's not discount the already evident expansion in business investment that the BoC surprisingly discounted. Further, we think the Canadian consumer can remain on a positive upward trend in making solid contributions to overall GDP growth."
Added economist Diana Petramala of Toronto-Dominion Bank in a separate research note today: "The Bank of Canada has already moved with two interest rate hikes, while we now believe the U.S. Federal Reserve will remain on hold until mid-2011 .. We still believe the Bank of Canada has plenty of room to continue hiking interest rates."
How Europe's crisis will affect Canada Europe's debt crisis is having a modest impact on Canada, the Bank of Canada says, but that could intensify and play out in different ways. In its Monetary Policy Report today, the central bank cut its forecast for Canada's economic growth from levels it had projected in the last report in April, given the tepid recovery in the United States and the austerity measures meant to fight the debt crisis in Europe.
It now expects growth of 2.8 per cent, annualized, in the current quarter and 3.2 per cent in the final three months of the year. In the first quarter of next year, it now projects growth of 3 per cent. The European crisis is projected to shave 0.1 of a percentage point from Canada's growth this year, 0.3 of a point in 2011 and 0.2 of a point a year later, the Bank of Canada said. Here's what the central bank said:
"Accelerated fiscal consolidation and tighter credit conditions in the euro area will reduce domestic demand in that region, thus decreasing European demand for imported goods and services.The recent depreciation of the euro, if maintained, will further reduce European demand for imports. Since exports to the euro area account for only a small percentage of Canada's total exports, this effect is expected to be relatively modest. However, developments in Europe are also transmitted to Canada indirectly, through a softening of U.S. demand for Canadian exports and reduced demand for commodities, putting downward pressure on Canada's terms of trade and the Canadian dollar.
"The debt crisis has also led to increased stress in the interbank market, higher risk spreads, and declines in asset prices. While the effect on financial markets has been relatively contained thus far, financial conditions could tighten significantly, particularly in Europe, if concerns about counterparty risk were to persist, or even escalate. As well, uncertainty about the outlook could erode business and consumer confidence and dampen spending. To date, these effects have been modest, but they could intensify. "Safe haven" portfolio shifts could increase the demand for U.S.-dollar assets, which would put downward pressure on the Canadian dollar. A lower value for the Canadian dollar would help to mitigate the adverse impact on aggregate demand in Canada from the European debt crisis."
It warned that the impact could be greater should a "more pervasive crisis" persist.
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EI claims on rise Claims for jobless benefits in Canada took a surprising jump in May, rising for the first time in eight months, driven by increases in Ontario and Quebec. Still, noted BMO Nesbitt Burns economist Sal Guatieri, the increase of 8,600 is likely a statistical quirk given that "we're coming offf the strongest job growth in 23 years" and there has been a steady decline in Employment Insurance claims recently. Canada has been churning out jobs in recent months, and the unemployment rate has dipped below 8 per cent.
The increase in EI beneficiaries was noted in most provinces by Statistics Canada, though the number fell in Alberta. In Ontario, Statistics Canada said, the number of people receiving regular benefits jumped by 8,200. That's actually the second increase in a row for the province, though the federal statistics gathering agency said that the number has dropped by 65,700 since peaking in June of 2009.
In Quebec, the number of people receiving benefits rose 4,200 in May, having dropped by 23,500 over the previous 10 months.
Small increases were noted in Nova Scotia, British Columbia and Manitoba, with little change elsewhere.
In the United States, initial jobless claims also rose more than expected, up by 37,000 last week. Continuing claim fells, partly because people are exhausting their benefits, Mr. Guatieri said.
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Convenience store war heats up Alimentation Couche-Tard Inc. today upped the ante in its hostile bid for U.S.-based Casey's General Stores Inc., increasing its offer to $36.75 (U.S.) from $36. Casey's, a Midwest convenience store chain, has repeatedly rebuffed its Laval, Que., counterpart.
"Couche-Tard believes its increased offer is even more attractive considering that stock values have fallen since Couche-Tard publicly disclosed its offer," the company said in a statement. "Since April 8, 2010, the S&P 500 Index and S&P Retail Index have declined 10 per cent and 16 per cent, respectively. Couche-Tard believes that absent its offer, Casey's stock would have traded in line with the S&P 500 Index and the S&P Retail Index and therefore its increased $36.75 per share cash offer would represent a premium of 29 per cent and 38 per cent, respectively."
Loblaw profit sinks Loblaw Cos. Ltd. profit slipped almost 7 per cent in the second quarter, though sales rose 1.2 per cent, and it warned of setbacks down the road because of its restructuring. Canada's biggest grocery chain said today it earned $180-million or 64 cents a share, compared to $193-million or 70 cents a year earlier. Revenue rose to $7.3-billion from $7.2-billion.
"We continue to make progress on our overall renewal plan," executive chairman Galen G. Weston said in a statement. "However, we are now in the critical period of heightened risk for the infrastructure and information technology components of the plan. As previously stated, we expect investments associated with this to continue to negatively impact our operating income during this period."
Ford pulls debt issue The financing arm of Ford Motor Co. has scrapped plans for a debt issue, The Wall Street Journal reports today, calling the auto maker's decision the first casualty of a bond market that is uncertain in the wake of the new U.S. financial rules. The company wouldn't comment. But the newspaper quoted sources saying that Ford could not use credit ratings in its documents, which are a legal requirement, because major ratings agencies won't allow their use in bond registration statements. The agencies fear they will be exposed to the new liability in the legislation signed into law yesterday by President Barack Obama.
The offering was backed by auto loans, The Wall Street Journal said. The uncertainty created by the legislation has shut down the market for asset-backed securities, it added. "Issuers have stopped issuing bonds," Paul Jablansky, senior ABS strategist at Royal Bank of Scotland in Stamford, Conn., told the newspaper.
In Washington today, Federal Reserve Chairman Ben Bernanke cited some concern over rating agencies retreating from asset-backed securites, or ABS. "It is an issue that needs to be looked at," he said. "As I understand it, it does inhibit somewhat the sale of the ABS."
GM in first post-bankruptcy deal General Motors Co. is acquiring a financing company, AmeriCredit, for $3.5-billion, setting up a lending unit for the first time since selling its GMAC business several years ago. It's also the first deal for the auto maker since it emerged from bankruptcy protection last year. "Adding AmeriCredit to our team will improve our competitiveness in auto financing offerings," said chief executive officer Edward Whitacre.
High-end champagne sales on rise Champagne corks are popping again, at least on high-end brands. Both Remy Cointreau and Vranken-Pommery Monopole posted higher sales today, and the outlook is good. "Because of the crisis, consumers temporarily switched to cheaper brands," Vranken-Pommery Chairman Paul-Francois Vranken said, according to Reuters. "This phenomenon is now receding. We're seeing a move back to the major brands and cuvees de prestige."
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