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These are stories Report on Business is following Monday, May 2. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

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Canadians cut debt Canadians are heeding the warnings of the Bank of Canada and cutting back on their hefty debts before the inevitable rise in interest rates.

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Growth in consumer credit, excluding mortgages, showed a "sharp slowdown" in March compared to a year earlier, coming in at just 3.4 per cent, economist Christy Chen of BMO Nesbitt Burns said today. That pace, she noted, is the slowest since 1994 and well below the last 10-year average of 9.2 per cent.

"The slowdown in consumer credit suggests that consumer spending will play a smaller role in economic growth this year and next," Ms. Chen said, adding the business sector will take up the task.

"In fact, in February, growth in business credit surpassed that in consumer credit for the first time since 2002," she added.

As for residential mortgages, Ms. Chen pointed out that while growth was still almost 7 per cent, buoyed by real estate prices, it has "retreated noticeably" from the stronger double-digit rate of 2006 to 2008.

All told, she said, the rise in overall household debt, year over year, slowed in March to 5.9 per cent, down from 8 per cent a year earlier and well below the last eight-year average of 9.6 per cent.

(To see the changes, view the accompanying infographic or click here.)

The bin Laden effect Markets today couldn't sustain their initial applause over the death of Osama bin Laden, as factors such as Europe's debt crisis brought investors back to reality, and questions remained over what the al-Qaeda leader's killing could mean going forward.

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"Osama bin Laden's death last night sent equity futures higher along with the U.S. dollar," said Karen Cordes Woods and Derek Holt of Scotia Capital.

"However, gains were not sustained throughout the day with the U.S. dollar losing ground through the morning although it has since recovered modestly. "

UBS AG strategists Katherine Klingensmith and Michael Ryan also said today, before markets opened, that market players began to focus on "prospects for a potential surge in terror attacks against western targets in retaliation for the killing," they added.

The focus, they said, will now shift to four areas:

  • How will bin Laden's death affect Al-Qaeda?
  • Will it spark more violence against targets in the West?
  • Will the fact that the U.S. launched its attack near Islamabad mean the rift between the United States and Pakistan deepens or worsens?
  • Will the this be "viewed favourably" in the Middle East and north Africa, where popular uprisings have led to marked change and violence across the region.

"While the military operation is being met with a mix of joy and relief across much of the western world, it remains to be seen exactly what impact these events will have upon markets in the weeks and months ahead," the UBS strategists said.

Adam Cole, the global chief of foreign exchange strategy at RBC, said markets seem uncertain today, and it's difficult to gauge the impact because so many exchanges, including London's are closed.

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"In reality, we suspect that this news is unlikely to be game-changing for risk premia and in particular would note that there was no strong tendency for U.S. equities to underperform the rest of the world in the wake of 9/11, suggesting limited scope for a narrowing in the relative risk premium now and little relief for [the U.S. dollar]" Mr. Cole said.

On Layton and rates Jack Layton's comments on interest rates and the Bank of Canada hardly make for a scandal. (The other one's not much of a scandal either, though it's certainly more fun.)

The NDP leader raised some eyebrows last week when he said in an interview with Reuters that the Bank of Canada should not yet raise interest rates again given the country's high level of unemployment.

He later clarified - if that's the right word, considering that the initial comment was hardly shameful - that Bank of Canada Governor Mark Carney is the one who makes decisions on interest rates. Mr. Layton was simply asked his opinion, he said, and so he gave it.

"We have a long-standing approach here in Canada, which has the Bank of Canada handling the monetary issues and the fiscal issues are dealt with by the government and that's the way it should be," he said Friday as his opponents attacked him.

In the heat of an election campaign - and a surprising one at that for the NDP - some would have voters believe that Mr. Layton would somehow wade into waters where politicians dare not go if he gains more influence in Ottawa.

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Independence of a central bank from its government is sacrosanct, and rightly so. But to really meddle, you've got to be the government, and you've got to try to influence Bank of Canada decisions. At this point, Mr. Layton isn't, and he wasn't.

This is not to endorse or reject any of the political parties or their platforms, only to put Mr. Layton's comments into perspective.

There's some history here, and a formal system in place in Canada after what was known as the Coyne affair in the early 1960s, though the concept has evolved among central banks and their governments around the globe.

Canada was gripped by a bitter and high-profile dispute between the government of John Diefenbaker and the governor of the Bank of Canada, James Coyne. Mr. Coyne left the job and Louis Rasminsky took over.

Mr. Rasminsky told me in an interview many years ago the story of how the system came about, and how he wasn't about to step into that fray without an ironclad guarantee.

He suggested a system under which the Bank of Canada would be responsible for monetary policy in the day-to-day, normal course of events. The central bank and the government of the day would try to settle any differences that might arise. But if they couldn't accomplish that, the government could issue a written directive on monetary policy that would be precise in what it wanted, and for a set period.

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The spunky Mr. Rasminsky and Mr. Diefenbaker crafted the wording, and amendments to the Bank of Canada Act made it law: Any directive would be published in the Canada Gazette and put before Parliament within 15 days. A central banker who did not want to follow the directive - and I can't imagine one who would - would presumably resign. This system still exists today, although it has never been tested.

Here's what Rasminsky told me:

"The government couldn't hide behind the bank and the bank couldn't hide behind the government ... There was joint responsibility. In a democratic country you couldn't have a situation, as I see it, where a part of government was not answerable to anyone except their own conscience. On the other hand, it would be dangerous to have a system where monetary policy was a departmental concern and every shot would be called by the minister of finance or the deputy minister of finance representing the minister."

Last week, Mr. Layton's apparent faux pas brought out the likes of Finance Minister Jim Flaherty, who called the NDP leader's comments "shooting from the lip," and former Liberal finance minister Ralph Goodale, who said they were unbelievable, stupid and dangerous.

Liberal Leader Michael Ignatieff also saw an opportunity, saying that "a responsible government does not tell Mark Carney and the Bank of Canada what to do. That's Economics 101."

(Possibly the Liberals forget when, in late 2003, Liberal Finance Minister John Manley also raised some eyebrows by musing that the Bank of Canada had room to cut rates. Or when Liberal Prime Minister Jean Chrétien consulted Bank of Canada Governor David Dodge before he ousted Finance Minister Paul Martin in mid-2002, possibly creating an awkward situation.)

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Relax, folks. Mr. Layton isn't about to tell Mr. Carney what to do.

Chrysler rebounds Chrysler Group LLC is reporting its first profit since 2007, yet another sign of the rebound in the auto industry.

The auto maker said today it earned $116-million (U.S.) in the first quarter on revenue of more than $13-billion, and big jump in vehicle sales.

Greece goes after tax cheats Greece is going after tax cheats in a fight against its notorious tax regime.

The embattled government's finance minister, George Papconstantinou, said today he is launching a series of measures, including the naming of a one-time top prosecutor and an attempt to reach a deal with Switzerland.

"Tax evasion is a crime against the country," Mr. Papaconstantinou said in Athens, according to The Associated Press.

Teva tops Valeant Israel's Teva Pharmaceutical Industries Ltd. has struck a friendly deal worth almost $7-billion (U.S.) for Cephalon Inc., eclipsing a hostile bid by Valeant Pharmaceutical International Inc., which includes the old Biovail Corp.

Teva is paying $81.50 a share, well above the Valeant offer of $73 that Cephalon rejected.

Recovery self-sustaining Canada has made the jump from recovery to a "self-sustaining expansion," and was the first among the G7 countries to accomplish that feat, Moody's Analytics says.

There's still further to go, though, senior economist Mark Hopkins said in a research note, also warning of the risks of the strong Canadian dollar.

"The comparatively shallow recession and rapid recovery can be credited in large part to a healthy financial sector," Mr. Hopkins wrote, projecting Canada's economy will expand by 2.7 per cent this year.

"Nevertheless, while Canadian output and employment have surpassed their pre-crisis peaks, they have not yet caught up with potential levels," he added. "Consistent job growth has helped ease unemployment over the past year, despite rising workforce participation rates, but considerable slack remains in the labour market."

Rebound in jobs markets? Economists expect Statistics Canada to report this week that the jobs market rebounded in April, though the unemployment rate is projected to remain high at 7.6 per cent or 7.7 per cent.

Statistics Canada releases its employment report Friday morning, and observers are calling for job creation of anywhere from about 15,000 to 25,000 positions, following a loss of 1,500 jobs in March. Here are the views of some:

"Job gains have slowed in the last two months, but that comes after a hot January, taking overall [first-quarter]2011 hiring to an average of 28,000 positions, outpacing the prior quarter. April could start off another decent quarter of job growth, led by gains in private-sector employment, reflecting increased intentions to hire by firms." CIBC World Markets

"While the headline figure was soft in the prior month, the details showed underlying strength, with full-time employment surging as part-time reversed. That story could flip-flop in April, as car production slowed due to parts supply disruptions from the tragic disaster in Japan. Plants weren't shuttered, but production was pared, perhaps shifting some workers to part-time from full-time." BMO Nesbitt Burns

"Looking through the monthly volatility, we expect that the three-month pace of job creation will decelerate sharply to 13,000 jobs, as the outsized 69,000 job explosion in January falls out of the calculation. This pace is broadly consistent with a labour market that has already recovered the jobs lost during the recession and is now facing the greater challenge of delivering the next wave of job growth set against a slower pace of economic growth." Toronto-Dominion Bank

"We look for a moderate 15,000 gain in employment in April following last month's 1,500 decline. This represents a new high for employment, rebounding 3 per cent from the recession low and exceeding the pre-recession peak by 0.4 per cent. We believe the unemployment rate will remain unchanged after slipping to 7.7 per cent last month due to labour force shrinkage." UBS Securities Canada

Markets eye U.S. report The U.S. government also reports jobs data Friday, and economists generally expect to see that about 180,000 jobs were created in April and that the unemployment rate remained stubbornly high at 8.8 per cent.

"Fallout from the Middle East and Japan began to hit the U.S. labour market in April, likely slowing the pace of net job creation," said Aaron Smith and Ryan Sweet of Moody's Analytics, who project fewer positions than do some other economists.

"Yet businesses do not appear to have put hiring plans on standby; consequently the trend in employment should show modest gains. After [rising]by about 200,000 in both February and March, we expect non-farm payrolls grew by an additional 145,000 during April. This would still be enough to lift the three-month trend from around 160,000 to 185,000, the strongest thus far in the recovery after netting out last year's census bump. April's gain should be driven by a 170,000 increase in private payrolls, with government shedding about 25,000 workers."

Corporate costs on rise Higher input costs are eating into corporate margins or pushing companies to boost prices, BMO Nesbitt Burns says after the latest batch of earnings reports. And the trend isn't going to change in the near-term, warns economist Robert Kavcic.

Results from the earnings parade "continue to impress," Mr. Kavcic said in a report. To date, 77 per cent of companies on the S&P 500 have topped expectations, which is a showing similar to recent quarters. Revenue results have been much stronger than seen recently.

"It's still somewhat early in the Canadian season, but both earnings and revenue surprises are tracking ahead of prior-quarter results," he said.

However, he noted "the theme of rising input costs either cutting into margins or triggering price increases - this one doesn't seem to be going away any time soon." Among his findings from last week:

  • Starbucks: "Rising commodity prices to have bigger-than-expected impact."
  • Procter & Gamble: "Lowered 2011 profit forecast due to higher raw materials costs; raising some prices."
  • Pepsico: "Increasing food and beverage prices to counter corn/packaging costs."
  • Ford: "Most profitable Q1 since 1998, but warns of rising input costs."

"After outperforming for an impressive seven straight years, Canadian stocks have suddenly lost some lustre versus their U.S. counterparts. The TSX now finds itself trailing the S&P 500 by a wide 5 percentage point margin so far in 2011, which might be surprising given the favourable backdrop of rising commodity prices, a better fiscal climate and healthier banking sector," Mr. Kavcic added.

"One reason for the somewhat sluggish performance in Canada has been what's happening at the sector level."

Technology and materials have been a factor, he said, though something else has to affecting the game as eight of 10 sectors have done better than in the United States.

"That something could be the strong Canadian dollar which, on balance, tends to negatively impact earnings through a variety of channels like lower export demand, margin compression for those producing in Canada but selling into the U.S. market, and lower C$ per-share earnings for those reporting in US$ but trading on the TSX," Mr. Kavcic wrote.

"On the flip side, large S&P 500 companies generate nearly half of their revenues overseas, and are reaping the benefits of the flagging U.S. dollar ... Overall, Canadian stocks still look favourable to their U.S. counterparts if you believe the commodities bull still has legs, as we do. But with relative valuations now more normal and the C$ apparently weighing, the competition is getting tougher."

In Personal Finance today

Nine signs your can't afford a mortgage

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Let a budget, not emotion, guide your wedding planning

Dianne Nice offers seven tips to keep you from saying 'I do' without the dough.

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