Skip to main content

High probability that the Bank of Canada will raise interest rates in July

Canada’s economy is about 1/10 of that its neighbor at the south ($1.5 trillion Vs $15 trillion), so today’s blowout announcement that June employment rose by 93,200 is as if the U.S. had announced the creation of 930,000 jobs (instead they lost another 125,000).  Since Jan 1, 2010 the Canadian economy has created more than 300,000 jobs, which is truly astonishing.  


As a major exporter Canada is excessively exposed to the world at large, probably the last country one would expect to “decouple” from the G8 crisis.  In fact, Canada finds itself in the interesting position to have reached a level of employment almost equal (still 14,000 jobs missing) to the pre crisis level.


Wages are still decelerating (despite the strong employment growth), and this new gives the Bank of Canada an opportunity to increase interest rates – allowing Canada’s central bank to create a buffer for future recession.  According to David Rosenberg, this is not the very first time that Canada economy has diverged from the US in the past 90 years; it’s the third time (including the great depression).

Looking closely at the labor numbers two sector did poorly:  manufacturing and transport, these are the two most “American” sectors of the Canadian economy – for those who don’t know the Automobile manufacturing sector in North America is completely integrated, and as demand for vehicles drop so does production (annualized sales of 11 million vehicles in North America is on par with the number of cars sold in 1990 – bad).  On the transport side, the vast majority of Canada’s trade is North South, not East West, Quebec trade towards to US dwarfs the trade between Quebec and Ontario or Quebec and the Eastern provinces.  Both manufacturing and transport saw labor shrinkage.  In fact, it appears that Canada is looking East for hits trade business (China, Japan, Korea) instead of the god old US of A.  

Again the issue is what will the BoC do to short term interest rates. 

  1. Employment picture is pointing to a general economic recovery
  2. Wages and salaries are stable (if not falling in the face of positive inflation)
  3. Number of hours worked fell marginally (equal to 43,000 jobs lost)
  4. Expectations (95%) are for a July rise in the s/t interest rate by 25bps to 50 bps
  5. Global economic situation seems to have stabilized (for now?)
  6. Housing prices are still rising, although sales seems to have rolled over.
The jury is still out on a increase in interest rates, but assuming that things remain "even" and that there are no major external shocks, its probably safe to say that the Bank of Canada will be sorely tempted to increase interest rates, the decision is probably more in the size of the increase, as opposed to the decision to raise rates at all.

Maybe this time my prediction will be better, than it was at the end of May

Comments

Post a Comment

Popular posts from this blog

what people get wrong about tariffs

 The issue is simple. What percentage of the economy is dependent on tariff goods? The truth, is that the US economy is far more closed than people understand. People genuinely believe that all manufacturing has ceased to exist in the United States all given to China on the altar of woke policy the truth can be further from That statement. Only about 15% of US GDP is related to foreign trade. Of that amount, slightly more than half is from Canada in Mexico. And half of that is energy. What that means, is that about 7% of US GDP is tariff dependent. The proof in the pudding, is how little money tariff generates. People think that 30 or 50 billion is a lot it’s not in an economy that has $3 trillion. The impact on the US economy will be less visible but not absent. Inflation hasn’t occurred yet first because tests have hardly started to bite, but more importantly it’s such a small percent of the economy. Now certain things are critical. The rare earth metals from China were critical....
Post a Comment
Read more

The end of Tesla?

 it takes a special kind of idiot, to think that he can antagonize his entire customer base, and think that it will not impact his business. When Elon Musk went to work for Donald Trump, and created the doge department, he antagonized every liberal, and these people represent 90% of his client base.That’s not a brilliant move. Now Elon Musk is worth hundreds of billions of dollar, so he shouldn’t care a great deal, however, he needs to care because of several other issues. The cyber truck has been a disaster, most have had to be recalled because of defective glue, it’s not a truck, it’s not a car, it’s noisy, relatively uncomfortable, but great as a development platform. What Tesla has learned in making car manufacturing more seamless is truly amazing. The problem was that Elon Musk was so pissed with the Democrats, and with Joe Biden, in particular because of some slight, which were just plain stupid too. By the way, that he decided to support with hundreds of millions of dollar, ...
Post a Comment
Read more

Demographics

 I am preparing a kind of family tree for our children so that they know where they came from.  In my family I am the only survivor, although my brother and sister died recently they were both in their seventies (a story I told already).    It was a fun process, but it provided more than that.  First, I married relatively young I was 26 when I married and nearly 30 when our first child was born.   I was looking at my ancestors.  On my mother's side, she had 6 siblings, Four died before the age of 30, two in war, and two from illnesses.  Only she and a single sister survived.   The two boys had a child each but they died in WWII, and the other sister died as an infant.   what is interesting is that every one of my mother's siblings had children in their early 20s.   I know that my mom was hardly 20 when my brother was born.    What is remarkable is that among our friends, we are the only ones to have fou...
Post a Comment
Read more