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Volume 15, Issue 19, June 3, 2015

Inside This Issue:

• Sunny Day for CHHMA Ontario Golf Tournament
• Great Time Had at CHHMA Quebec Golf Classic
• Astro Marketing Warehouse Sale Back by Popular Demand
• New Canadian Tire ‘Showcase’ Store Opens in Edmonton
• Competition Bureau Reviewing Documents from Loblaw Over Pricing Practices
• Lowe’s Just Getting Started with its Growth in Canada
• HBC Makes Bid for German Kaufhof Department Store Chain
• Atlas Graham & Furgale Industries Announce Merger
• Spectrum Brands Holdings Completes Acquisition of Armored AutoGroup
• Canadian Economy Shrinks in Q1 as Oil Shock Sinks In
• Bank of Canada Holds Key Rate, Sees Exports Lifting Growth
• Housing Starts Will Moderate this Year and Next, CMHC Says
• Most Toronto, Vancouver Condo Owners In It for the Long Haul
• Canadian Retail Sales Rise in March Led by Cars and Food
• Low Energy Prices Keep Canada’s Inflation at 0.8%
• Latest U.S. Economic News

Association News

Sunny Day for CHHMA Ontario Golf Tournament    

The 46th Annual CHHMA Ontario Golf Tournament was held last Tuesday, May 26th at the Angus Glen Golf Club in Markham.  Attendees were treated to a warm, sunny day as CHHMA members, invited customers and guests enjoyed a fun round on the North course followed by an excellent lunch.

Prizes were presented to some skillful and/or lucky players and everyone purchasing an event passport walked away with a Nike golf jacket. We would like to thank everyone for participating in the event passport competition as well as the silent auction held during the luncheon which along with hole sponsorships all raised money for the CHHMA Scholarship Program.

We would like to especially thank all the companies who sponsored the event and provided items for the golf competitions and silent auction.

To see a full recap and pictures, click here.  

Great Time Had at CHHMA Quebec Golf Classic

The 40th Annual CHHMA Quebec Golf Classic took place last Thursday, May 28, at Le Club de golf Le Fontainebleau in Blainville, Quebec.

The weather worked out and there was nice playing conditions for the many who turned out from the industry to partake in this enjoyable event.  An excellent breakfast and dinner were included and some lucky participants walked off with some quality prizes as well.

We would like to thank all the companies that sponsored holes as well as the CHHMA Quebec Committee for their hard work in organizing this successful event. The committee includes: Christine Papineau, Robert Begin, Alain Bourdages, Marc Gagliardi, Richard Guindon, Richard Lepine, Richard Paradis and Pierre Vachon.

Click here to see a full report and pictures from the day.  

Astro Marketing Warehouse Sale Back by Popular Demand

Th CHHMA has worked with Astro Marketing for many years, building a relationship and purchasing our incentive gifts for golf tournaments and speaker events. Our members have benefited by our volume and relationship when ordering items for their corporations.

From June 18th to the 20th, Astro Marketing is holding a special warehouse sale – see below details.You can also get further information by contacting Brian Gravenor, Account Manager, at 416-665-7580 ext. 215 or


Industry News

New Canadian Tire ‘Showcase’ Store Opens in Edmonton

Last Friday, Canadian Tire opened the doors to a first of its kind 'Showcase' store in Edmonton, Alberta. At 140,000 square feet (double or triple the size of its previous stores) spread across two floors, the new store provides customers with dynamic digital technology experiences, a truly Canadian shopping experience and an unparalleled product assortment.

To take a video tour of the store, click here.  

"Canadian Tire's new store in Edmonton is built around celebrating life in Canada and our investments in high impact digital technology create a modern, inspirational and fun environment to shop," said Allan MacDonald, Chief Operating Officer of Canadian Tire.  "The speed of change and innovation in our industry means that we need to be nimble and try new things. I am proud to say that our Showcase store is the best of the best in retail around the globe."

A modern and sleek new version of Canadian Tire, more than 240 store associates will use advanced interactive technology to provide personalized customer service to Edmonton shoppers. With over 100 digital screens, the Showcase store features a large exterior high resolution LED screen, digital flyer access and a plethora of helpful product selectors in the Living, Playing, Fixing, Seasonal and Automotive departments. The store's world-class Automotive department also features Canadian retail's first ever use of a car simulator, providing customers with the opportunity to test drive tires in different weather conditions before purchasing and installing them on their vehicle.

Additionally, when visiting the store's Seasonal department customers can create and interact with a 3D image of their dream backyard using the 'Canada's Dream Backyard and Patio Builder.' This app technology raises the bar for customers and their ability to engage with large interactive screens.It was built internally at Canadian Tire's "NEWcleus" digital lab in Winnipeg and utilizes state-of-the-art virtual reality technology from Oculus.

Customers can click and drag virtual products such as barbecues and gazebos on to a giant virtual deck to plan their patios. They can even don Oculus Rift 3-D goggles to virtually walk through a backyard space.

“It’s really cool,” shopper Kelsey Latham said.

“You can set something up and if you want to look at it with all the pieces together, it would be handy. We’re going to be getting a house eventually and it would be nice to have that to help design it.”

Design and development of the digital experiences throughout the store are delivered by Canadian Tire's team of in-house digital experts in Toronto, Waterloo and Winnipeg working in close partnership with some of the best interactive design experts from around the world.

With over 73,000 individual products housed in a space the size of eight Edmonton Oiler-sized hockey rinks, the Showcase store has the most extensive product assortment of any Canadian Tire store in Canada.  Products throughout the store have been tailored to the Edmonton market, with key assortment extensions in truck and trailer, tools and outdoor living departments as well as an extensive Hunting and Fishing Pro Shop.

The store has also moved away from the cluttered warehouse look and feel of traditional Canadian Tires. Aisles are wider, the store is brighter and shoppers are greeted with an open two-storey foyer topped with a giant maple leaf made from more than 800 hockey sticks painted red. In the hockey department, sweaters spin overhead in a moving display rack and a Hockey Canada mini-museum currently showcases the Team Canada jerseys of Wayne Gretzky and Paul Coffey, but will see memorabilia from the Hockey Hall of Fame changed every few months.  Also home to a rapid shot simulator, customers can test their new hockey stick and their slap shot on-site.

In addition to bringing an unprecedented focus on products and services for life in Canada, the Showcase store features unique shopping experiences that customers just won't find anywhere else. With a focus on ecommerce and creating a seamless shopping experience for customers, the store has been purposefully designed with over 50,000 square feet of warehouse space to house inventory intended to fulfill online orders. A dedicated drive-thru area along the side of the building makes it convenient for customers to easily pick-up their ecommerce purchases. This area also allows sales associates to assist customers with pick-up and loading of large items and bulk purchases.

The store also boasts 19 full-service, drive-in auto bays and six drive-in reception bays and later in the year customers can visit the locations' standalone Pit Stop Express Lube and Gas+ stations onsite.

“This is not your grandfather’s Canadian Tire store,” dealer associate Darren Gunn said.

“We think shopping has just gone from being a needs-driven thing to almost like an event, so what we’re going to try and create here is that it’s a fun place to go with your family. Your kids can come here and be up in Legoland. The husband can be out in the driving simulator.  There’s something for everybody in this store.”

The company declined to discuss the cost of the store.

While customers can now visit the store, official Grand Opening promotions and celebrations will take place from Thursday, June 11 until Sunday, June 14. The Showcase store is located at 2110-101 Street N.W. in South Edmonton Common.

The store opening comes a little more than a year after FGL Sports, owned by Canadian Tire, opened a Sport Chek and Atmosphere flagship store at West Edmonton Mall that also engaged shoppers with interactive technology and digital installations.

“We had great success with the opening of our flagship store for FGL at West Edmonton Mall,” said Mr. MacDonald.

“It caused us to contemplate what the implications of that would be for Canadian Tire.”

The company also wanted to rethink how it “showrooms” big products such as bikes, barbecues and patio furniture, along with their array of accessories, he said.

“We’re going to look at this with a very watchful eye to how our customers respond.”

Source: Canadian Tire Corporation, Limited, The Edmonton Journal

Competition Bureau Reviewing Documents from Loblaw Over Pricing Practices

Loblaw Cos. Ltd. collected more than “tens of millions of dollars” from its suppliers last year for practices which, according to the Competition Bureau, could be anti-competitive and ultimately lead to higher prices.

The revelation is contained in an affidavit sworn in Federal Court that is part of the bureau’s investigation into Loblaw’s potential anti-competitive behaviour with its suppliers, forcing them to make up the difference to match retail rivals’ lower prices.

“The terms, which appear to be used to protect Loblaw’s retail margins, may raise its rivals’ costs and increase the prices Canadian consumers pay for grocery products in Canada or have other non-price related effects on competition,” David Warford, a senior competition law officer at the bureau, said in a sworn statement on March 26.

The affidavit, which was made to obtain a court order forcing Loblaw to provide the bureau with a wide array of internal documents, provides a rare glimpse into a web of practices that many retailers use to put pressure on their suppliers. In an increasingly consolidating market, big retailers are squeezing suppliers to get an edge as they take on even bigger global players.

The court granted the bureau the order in April as the federal agency determines whether the country’s largest grocer pushed its suppliers into giving it attractive deals in ways that could be anti-competitive.

Loblaw spokesman Kevin Groh said the grocer “continues to fund the vast majority of improved prices. The fees paid by suppliers help us provide better value. In effect, the fees don’t end up in our pockets, but in the pockets of Canadian consumers.”

Mr. Groh said Loblaw remains “a proactive partner with the Competition Bureau in this review and, in consultation with them, have identified the documents and relationships that are relevant to the review.”

The bureau’s concerns were sparked during its probe into Loblaw’s $12.4-billion takeover of Shoppers Drug Mart Corp., which the bureau approved in March, 2014. But at the same time, it imposed restrictions on Loblaw’s dealings with some suppliers and said it would continue to probe the grocer because of concerns about its pricing and other practices with its vendors.

Loblaw has already spent about $5-million producing information and documents for the bureau’s takeover review, according to the affidavit.

Loblaw convinced the bureau to limit the scope of both the documents the bureau was demanding and the employees whose material it wanted to include in the probe, the document shows.

Among the practices it is probing are:

• Its “active ad match policy,” in which Loblaw adjusts the price of a product in response to another retailer’s flyer and requires the supplier to compensate the grocer in “a margin-protection agreement.” The policy has been in place since the 1980s and applies to its Real Canadian Superstore and some Extra Foods stores in Western Canada.
• Its “cost increase policy,” in which Loblaw pays a wholesale price increase from a supplier but finds the market price generally unchanged, and bills or debits the supplier for an amount equal to the price increase on the assumption the supplier had not imposed its price increase on other retailers.
• Loblaw told the bureau that such compensation requests are “infrequent and affect a small number of suppliers,” the document says.
• Its “ad collision policy” in which Loblaw requests compensation from a supplier when the grocer has identified a product in another retailer’s flyer that is promoted at a lower price than the one in Loblaw’s flyer in the same period. It has been in place in some form since 2010.The policy is applied infrequently and “the payments from suppliers to Loblaw are ‘so immaterial’ to Loblaw, that Loblaw does not track aggregate statistics of the policy,” the document says.
• Demands that suppliers pay fines for failing to deliver merchandise on time, or correctly;
• Requiring “listing fees” for suppliers to get their products on store shelves; Loblaw collected “tens of millions of dollars” in such fees in 2013, the document says. Loblaw may reduce listing fees, which are a common feature of the retail industry, or exempt some suppliers from paying them, it told the bureau.
• “Profitability protection demands” for compensation from Loblaw’s 100 top branded suppliers if, during a specified period, Loblaw’s profit from the suppliers’ products falls below a specified threshold or projection;
• A “price freeze” in which Loblaw refused to accept cost increases from suppliers (except government-initiated or commodity cost increases) between October, 2012, and December, 2013.

Loblaw also has to produce an Aug. 26, 2013, e-mail entitled “Costco master document” and reports linked to its application of its 2014 “three strike policy.” It is believed to be tied to penalizing suppliers that broke Loblaw’s rules three times. And it has to report its “trade spend,” or how much it collected from suppliers for its various policies, such as prominently displaying a discounted product.

Loblaw said that one or more of its policies have applied to about 120 of its thousands of suppliers in 2014, resulting in them paying the grocer amounts “exceeding tens of millions of dollars,” the document says. The bureau countered that Loblaw’s policies appear to apply to all of its more than 2,000 suppliers.

Bureau spokesman Greg Scott said the investigation is ongoing but confidential. “There is no conclusion of wrongdoing by Loblaw at this time” and no filing of an application with the Competition Tribunal or a court “to seek remedies for any alleged anti-competitive conduct.”

Wendy Evans of retail specialist Evans & Co. Consultants said the grocery industry has become hyper-competitive and Loblaw is not the only player to become more aggressive.
Sobeys Inc., the country’s second largest grocer, which took over Safeway Canada in late 2013, touched off a storm soon after when it demanded retroactive price cuts from suppliers and a price freeze for 2014.

The bureau inquiry is “long overdue,” said Ms. Evans, who does research for independent and franchised grocers. “It’s one of these insidious things that is very difficult to prove unless you’re right inside the company.”

She said the concerns underscore some industry groups’ call on Ottawa to introduce a code of conduct to guide retailers and suppliers.

Loblaw’s efforts to get breaks from suppliers can help it reduce prices for consumers. But the practices may result in higher prices if smaller retailers are charged more by suppliers to make up for low-margin deals with Loblaw, the bureau has suggested.

Source: From Articles by Marina Strauss, The Globe and Mail

Lowe’s Just Getting Started with its Growth in Canada

Lowe's Cos. Inc. hasn’t realized all of its desires to have a bigger presence in Canada.

Robert Niblock, CEO of the home-improvement retail chain, says his goal is to have 60 stores in north of the border within the next three to four years. That’s up from the current 38 Lowe’s stores in Canada.

Lowe’s, which held its annual meeting last Friday, wants to grow in Canada because the market is a lot like the U.S., where the
company has expanded rapidly, Niblock says. He took a few questions from reporters after the unusually short, 16-minute annual meeting.

“It’s very similar to what we’ve experienced in the United States,” he said of the Canadian market. Homeownership rates and other demographics compare favourably to those in the U.S.

Earlier last month, Lowe’s announced it’s buying 13 former Target Corp. stores in Canada, along with a distribution center. Those stores should be converted to Lowe’s home-improvement centers by 2017, Niblock says.

The renewed interest in Canada follows Lowe’s attempt almost three years ago to buy RONA inc. who rebuffed the offer and Lowe’s later withdrew it.

Niblock also would like to fill in some gaps in Lowe’s U.S. territory. He sees metropolitan areas, California and south Florida as regions where the retailer can add stores.

Being in those hot do-it-yourself markets could help Lowe’s, the second-largest home-improvement retailer in North America, catch up with its chief rival, The Home Depot, analysts say.

During the annual meeting, Niblock said stores are still the focal point for serving customers, even as Lowe's boosts its online offerings.  That comment came in response to what sounded like a mild complaint from a shareholder who wanted to see the store count grow faster than the current pace of 1% per year.

“The store is still an integral part” of the company's business, Niblock said. “Today 60% of the items ordered online are picked up in the stores.”

Also during the annual meeting, Lowe’s shareholders also approved Laurie Douglas, chief information officer of Publix Super Markets Inc., as a new member of the company's board of directors.

Source: Charlotte Business Journal

HBC Makes Bid for German Kaufhof Department Store Chain

Hudson’s Bay Co. is in a bidding war over a historic chain of department stores in Germany, according to a report in WWD.

The fashion and retail industry website is reporting that HBC has put in a bid for Metro's department store chain Kaufhof that tops a recent offer made by the Austrian real estate company Signa, headed by René Benko.

The offers are believed to be close to $4 billion, according to WWD.

In addition to its real estate holdings, Signa also owns the German department store chain Karstadt.

Meanwhile, Reuters has reported that the value of HBC’s non-binding offer is similar to a separate bid made by Benko, adding talks with Germany's Metro were ongoing.

Sources had told Reuters last month that Benko had offered 2.9 billion euros ($3.18 billion) for Kaufhof.

Richard Baker, HBC governor and executive chairman, could not be reached for comment. A source close to the deal said HBC is working on an offer but has yet to submit it.

“There is a lot of posturing going on,” according to the source. “They are working on putting together an offer.  They’ve been studying this for a long time.”

Since buying the 80% of HBC he didn’t already own for more than $1.1 billion in 2008, Baker has unlocked significant value in the real estate beneath the stores that were part of the package, selling the Zeller’s store leases to Target Corp. for $1.8 billion in 2011.

HBC bought Saks Fifth Avenue in a deal valued at $2.9-billion (U.S.) in 2013, later taking out a 20-year mortgage on the ground floor of the New York City flagship for $1.25 billion (U.S.)

HBC now operates 335 stores under five banners, including Hudson’s Bay, Lord & Taylor, Saks Fifth Avenue, Off 5th and Home Outfitters.

Kaufhof is a general interest department store chain similar to HBC, with 122 stores, including 17 specialty stores for sports and hiking.

“I don’t think anyone has appreciated the shrewdness of the acquisitions that have been made by Baker,” said retail consultant Anthony Stokan, a partner at Anthony Russell Inc., pointing to the real estate value of historic buildings in prime urban locations.

“Germany has several fantastic cities, including Berlin and Frankfurt. Inevitably they will be buying a piece of history as well as a department store.”

But one German retail expert told the Toronto Star last Friday that buying the Kaufhof chain could end in disaster for HBC, similar to a failed nine-year effort by Walmart that began in 1997.

“Given the decline of the department store model, Kaufhof is a high-risk investment for any prospective buyer,” said professor Thomas Roeb, at the University of Applied Sciences, Bonn-Rhein-Sieg.

Roeb has worked in and for German retailers as a professor and consultant for 20 years.

He said the clothing market in Germany is dominated by companies that are vertically integrated and offer fast fashion at low prices, including H&M, Zara and Primark.

He said that sales at Kaufhof have been dropping since the 1970s, although it flourished briefly in the years after the fall of the Berlin Wall and after taking over a competitor.

In the past 20 years, sales have declined 40% to €3.1 billion in 2014, and 13 stores have closed since 2002, according to Roeb.

Roeb said retailers are more likely to meet with success when opening in a new market, not a mature market like Germany, where shopping habits are entrenched.

Roeb said the value of the underlying real estate is also an unknown.

“It’s extremely hard beforehand to tell what the real worth of those locations is. You can check which of the stores are profitable under the Kaufhof banner now … but the mood can very easily turns our on the consumer side and you are stuck.”

He said Walmart failed in Germany because it failed to adapt to local practices with regards to consumers and employees.

“They were so confident, they didn’t adapt their concepts to the German consumer,” said Roeb.

Source: Includes Article by Francine Kopun (The Toronto Star), Reuters

Atlas Graham & Furgale Industries Announce Merger

Last Thursday, Mr. James Graham, President and CEO of Atlas Graham Industries and Mr. James Furgale, President of Furgale Industries, both of Winnipeg, announced that the companies have signed an agreement to merge their respective operations.

Effective August 31, 2015, they will operate as one company – Atlas Graham Furgale (AGF) and will bring both operations into one facility located at 1725 Sargent Avenue, Winnipeg, Manitoba.

“We will forge a new company with enhanced experience and expertise in the cleaning industry.This merger will create a more streamlined infrastructure that will allow for greater manufacturing synergies, an expanded base of high quality products and service for our valued customers,” a press release said.

In addition, Mr. Timothy N. MacGregor has been named President and CEO of the new company with Mr. Graham and Mr. Frurgale assuming new roles on the board of directors.

Founded in 1941 as Atlas Brush Limited manufacturing a few styles of brushes to support the Canadian Second World War effort, Atlas Graham has grown into a Canadian, family-owned manufacturer of professional, manual cleaning tools including an assortment of brooms, brushes, mops, squeegees and dusters.

With over 40 years of experience, Furgale Industries Ltd. offers a complete range of superior cleaning products including floor sweeps, angle brooms, soft sweep brooms, wet and dry mops of all types and short-handled cleaning tools.

Source: Atlas Graham Furgale Ltd.

Spectrum Brands Holdings Completes Acquisition of Armored AutoGroup

Spectrum Brands Holdings, Inc. announced on May 21 that it has completed the acquisition of Armored AutoGroup Parent Inc. (Armored AutoGroup) from Avista Capital Partners for $1.4 billion in cash and assumed debt. A definitive merger agreement was announced on April 28.

Armored AutoGroup is a consumer products company consisting primarily of the world-renowned Armor All® and STP® brands, two of the most recognizable brands in the automotive aftermarket appearance products and performance chemicals/additives categories, and the market-leading A/C PRO® brand in the do-it-yourself automotive air conditioner recharge category.

“We are pleased to complete this exciting and accretive acquisition which adds market-leading, iconic brands in attractive auto care retail categories to Spectrum Brands’ diverse portfolio of strong consumer brands,” said Andreas Rouvé, Chief Executive Officer of Spectrum Brands Holdings in a press release. “This highly profitable business is expected to enhance our margins and free cash flow profile, further improve our customer mix and shelf space in complementary channels, offer substantial international growth potential by leveraging our existing global infrastructure, and enhance our overall scale and product diversification with a new, large and growing do-it-yourself auto care aftermarket category.

“We look forward to working with the employees of Armored AutoGroup to achieve a smooth integration and accelerate the growth of the Armor All®, STP® and A/C PRO® brands here and abroad,” Mr. Rouvé said.

David Maura, Chairman of the Board of Spectrum Brands, added, “Our acquisition of Armored AutoGroup is a perfect fit with our strategy to buy and build high brand equity businesses, with strong margin structures, low capital spending requirements, and significant free cash flow generation. We welcome the Armored AutoGroup employees to the Spectrum Brands family and look forward to driving this outstanding business to even greater levels of performance and delivering outstanding quality, innovation and service to our customers. We also remain committed to maintaining a strong balance sheet and fully intend to deploy our growing free cash flow stream to rapidly delever our balance sheet as we have in the past.”

Armored AutoGroup will be a separate reporting segment within Spectrum Brands, known as Global Auto Care (GAC), reporting to Chief Executive Officer Andreas Rouvé.
Spectrum Brands Holdings is a global and diversified consumer products company and a leading supplier of consumer batteries, residential locksets, residential builders’ hardware, plumbing and accessories, shaving and grooming products, personal care products, small household appliances, specialty pet supplies, lawn and garden and home pest control products, personal insect repellents, and auto care products.

The company offers a broad portfolio of market-leading, well-known and widely trusted brands including Rayovac®, VARTA®, Kwikset®, Weiser®, Baldwin®, National Hardware®, Pfister™, Remington®, George Foreman®, Black + Decker®, Farberware®, Tetra®, Marineland®, Nature’s Miracle®, Dingo®, 8-in-1®, FURminator®, IAMS®, Eukanuba®, Digest-eeze™, Healthy-Hide®, Littermaid®, Spectracide®, Cutter®, Repel®, Hot Shot®, Black Flag®, Liquid Fence®, Armor All®, STP® and A/C PRO®. Spectrum Brands' products are sold by the world's top 25 retailers and are available in more than one million stores in approximately 160 countries. Based in Middleton, Wisconsin, Spectrum Brands Holdings generated net sales of approximately $4.43 billion in fiscal 2014. For more information, visit

Avista Capital Partners is a leading private equity firm with approximately $6 billion under management and offices in New York, Houston and London. Founded in 2005, Avista makes controlling or influential minority investments in growth-oriented energy, healthcare and communications & media businesses. Through its team of seasoned investment professionals and industry experts, Avista seeks to partner with exceptional management teams to invest in and add value to well-positioned businesses.

Source: Spectrum Brands Holdings, Inc. 

Economic News

Canadian Economy Shrinks in Q1 as Oil Shock Sinks In

The Canadian economy shifted into reverse over the first three months of the year as it contracted at an annual pace of 0.6% amid the global oil slump, Statistics Canada reported last Friday.

The agency said the worse-than-expected reading was first time the country’s annualized rate of growth for real GDP dipped below zero since the fourth quarter of 2011.

It was the deepest Canada’s real GDP plunged into negative territory since the second quarter of 2009 when it fell by 3.6% during the recession, Statistics Canada said.

The first-quarter 2015 result followed a downwardly revised 2.2 % increase (from an originally reported 2.4%) in the final three months of 2014.

Economic activity decreased in several categories, including business investment, exports, construction and the natural-resources sector — with mining and oil and gas extraction falling 2.7% compared to the previous quarter.

The effects of unusually harsh winter weather and U.S. port strikes during the quarter were reflected in Canada’s manufacturing sector, which contracted by 6% annualized. Exports overall in the quarter were down 1.1% annualized, their second straight quarterly contraction, reflecting both the slump in energy prices and the weather-related slowdown.

Household spending inched upwards by 0.1%, but it was the slowest growth in consumption in nearly three years.

Bank of Canada governor Stephen Poloz had warned the data for the first quarter could look “atrocious” and projected zero GDP growth — but he has remained hopeful the second quarter will churn out a 1.8% advance.

The first-quarter contraction compared with the 0.3% increase predicted by economists, according to Thomson Reuters.

The real GDP growth for March, also released Friday by Statistics Canada, fell by 0.2%. The March drop suggests a slow start to the second-quarter period.

BMO chief economist Doug Porter wrote in a note to clients that the March decrease may have been the biggest “unwelcome” surprise in the data. The consensus, he added, was expecting a 0.2% gain.

“The triple whammy of a weaker-than-expected headline figure for (the first quarter), downward revisions to last year, and a decline in March’s monthly GDP give this report a thumbs down,” Porter wrote.

As a result of the new numbers, he said BMO has chopped its 2015 GDP growth forecast to 1.5%.

“To put it in perspective, growth of 1.5% would be the slowest for Canada outside of recession in at least the past three decades,” Porter wrote.

The first-quarter reading for nominal GDP, which tracks the value of economic activity and is crucial to tax revenues, fell 0.7%.

The decline, blamed on the fallout from the big drop in energy prices on income and expenditures, means government coffers will take a hit.

Experts predict the economy to bounce back as the initial effects of the oil-price slide wear off.

The Bank of Canada has pinned its hopes for a turnaround in U.S. demand, which it still predicts will rise after the American economy slowed in recent months.

However, fresh data released last Friday showed the U.S. economy also shrank in the first three months of this year, contracting at an annual rate of 0.7%. The reading was weaker than the U.S. government’s initial estimate of 0.2% growth.

Poloz has noted that about seven months ago, the bank predicted 2.4% growth in real GDP for the first quarter of 2015. Then, in January, the bank dropped that projection to 1.5% before lowering it again last month — to zero.

April’s federal budget predicted the country would shake off the oil slump and produce an average 2015 growth in real GDP of 2%, followed by 2.2% in 2016.

Source: Statistics Canada, The Canadian Press

Bank of Canada Holds Key Rate, Sees Exports Lifting Growth

The Bank of Canada is keeping its benchmark lending rate at 0.75% — in line with the expectations of the vast majority of economists.

"The outlook for the Canadian economy also remains largely in line with the April Monetary Policy Report," the central bank, headed up by governor Stephen Poloz, said in a statement last Wednesday explaining its rate decision.

The bank says it is concerned by a U.S. economy that is showing signs of sluggishness, but remains confident that Canada's economy will rebound some time this quarter, which would remove the need for further stimulus moves such as cutting rates.

Two weeks ago, Bank of Canada governor Stephen Poloz called the weaker-than-expected U.S. economy "slightly puzzling," but he expressed optimism it would start accelerating in the second half of 2015, which would be good news for Canada by association as more than 90% of Canadian exports go to the U.S.

The central bank said it's keeping rates where they are for the moment because inflation has been in line with projections (1.6% to 1.8%) and consumption has held up relatively well — even amid the net negative effects of lower oil prices.

The bank, however, plans to keep an eye on the potential economic implications for Canada if the loonie stays higher than it has been in recent months.

Only three of 23 economists polled by Bloomberg were expecting a slight cut to 0.5%. The rest were expecting what happened — no change in the benchmark rate.

One of them, Capital Economics' David Madani, said he remains convinced the central bank will cut again at some point, and maybe more than once.

"While it doesn't [look] like the bank will cut rates anytime soon, we still think that the bank will eventually need to cut rates to support a flagging economy and prevent a more serious decline in underlying inflation," he said in a note to clients, adding that he thinks a cut could come as early as October, followed by another one in December to 0.25% by the end of the year.

Part of the central bank's optimism for the economy is pinned to a recovery in oil prices. But Madani thinks any temporary uptick in the price of a barrel of oil — which gained 13 cents to $57.64 US a barrel last Wednesday — will be short-lived anyway.

"There's no guarantee that oil prices won't drop back again, especially as OPEC shows no signs of wanting to curb production," he said.

The central bank’s forecast in April, which it said remained broadly in line with the current outlook, was for 1.8% annualized growth in the second quarter and 2.8% in the third.

TD Bank macroeconomic strategist Mazen Issa said there was a non-trivial risk that growth would disappoint and the market may have gone too far in pricing out another easing.

"We're not saying the bank is going to cut rates, but they may be way too optimistic in the growth outlook for the second half of the year," he said.

The bank’s next policy decision is scheduled to be released on July 15.

Source: CBC News, The Canadian Press, Reuters

Housing Starts Will Moderate this Year and Next, CMHC Says
According to Canada Mortgage and Housing Corporation (CMHC)’s Second Quarter 2015 Housing Market Outlook released on May 25, housing markets will remain stable with housing starts moderating slightly in 2015 and 2016. There are, however, a number of risks and vulnerabilities that can affect the market outlook for Canada and each province.

“Lower oil prices are contributing to disparities between provincial housing markets. A slowdown in housing starts and resale transactions in oil-producing provinces such as Alberta will be partly offset by increased housing market activity in other provinces, such as Ontario and British Columbia, which benefit from the positive impacts of declining energy prices, a lower Canadian dollar and continued low mortgage rates,” said Bob Dugan, CMHC’s chief economist, in a statement.

“Moreover, since the inventory of completed and unabsorbed units remains above the historical average, we expect the pace of new home construction to moderate over the next couple of years as builders focus on managing the existing inventory,” added Mr. Dugan.

On an annual basis, housing starts are expected to range between 166,540 and 188,580 units in 2015, with a point forecast of 181,618 units. For 2016, housing starts are forecast to range from 162,840 units to 190,830 units, with a point forecast of 181,800 units.

MLS sales are expected to range between 437,100 and 494,500 units in 2015, with a point forecast of 475,400 units. In 2016, MLS sales are forecast to range from 424,500 units to 491,300 units, with a point forecast of 469,000 units.

The average MLS price is forecast to be between $402,139 and $439,589 in 2015, with a point forecast of $422,129. For 2016, the average MLS price is forecast to be between $398,191 and $457,200, with a point forecast of $428,325. The gradual slowdown in the rate of price growth is explained by the expected change in the composition of MLS sales toward more moderately priced homes. Due to the recent decline in oil prices, CMHC’s assessment is that there is more downside risk than upside risk to their forecast.

Source: CMHC

Most Toronto, Vancouver Condo Owners In It for the Long Haul U.S.

Condo investors in Canada’s two biggest condo markets – Toronto and Vancouver – appear to be in it for the long haul, with plans to keep their units at least five years and rent them out, rather than flip them for a quick profit, according to a recent survey by the Canada Mortgage and Housing Corporation (CMHC).

The federal housing corporation surveyed 42,191 domestic condo owners in those two cities last August and September and found 83.8% actually live in their unit.

The other 16.2% own a primary residence and at least one condo, and about 52.3% of those units were rented out. Some 33% were occupied by family or friends and about 7.6% were sitting empty through a combination of being for sale, yet to be rented or under renovation, says the Condominium Owners Report released on May 22, an update of a survey first done in August of 2014.

About 4% of those investment condos were yet to be built or under construction, according to the survey, which only looked at a portion of domestic owners and excluded foreign owners, corporate investors and Canadians who own condos in Vancouver or Toronto but live outside those cities.

The survey found that 52.6% of investors were planning to hold their units for at least five years, down from 58.4% last year. The changes were driven largely by investors in Toronto, where 52% of investors expected to own their unit for at least five years, down from 61% from a year earlier. In Vancouver, the number of investors who said they planned to hold their units for less than two years rose from 8% to 12%.

The shift comes as more investors expect prices to rise, with nearly 55% telling CMHC they expected their unit to increase in value this year, up from 48%.

“Our results show that most COS (Condo Owners Survey) investors are in the market for the long term and expect to keep their last purchased secondary unit for more than five years,” said Robyn Adamache, CMHC Principal Market Analyst for Vancouver.  “Many have had their last unit for six years or longer”.

“The results illustrate that most COS investors own few units. In fact, nearly three-quarters of COS investors own only one secondary unit, while 10% own three or more secondary units,” said Dana Senagama, CMHC’s principal market analyst for Toronto in a statement.

CMHC found substantial differences between people who bought condos as a home and those who bought as an investment.  Investors were more likely to have bought their units presale, and more of those lived in Toronto than Vancouver. They put down higher down payments (45% of investors paid 20% or more, compared to 31% of owners), were less likely to have a mortgage, less likely to expect their unit to rise in value, and kept their condos for shorter periods of time (23% of investors said they planned to keep their condo for 10 years or more, compared to nearly half of owners who lived in their unit.)

But the report also hints at a significant slowdown in investor activity among domestic condo purchasers. Some 90% of those surveyed have no intention of buying another unit within the next year, the survey found.

The survey is yet another attempt by the federal housing agency to get a grip on exactly who owns condo units, in part to allay any fears that the condo sector could be in trouble if housing prices flatline or slip and investors – who are widely believed to own anywhere from 40 to 90% of units, especially in some downtown condo towers – start selling off units in a mad panic.

This report is likely to be greeted with far less skepticism than its last major look at the condo sector in Toronto and Vancouver, when it tried to solve the biggest mystery in the sector – how many units in those hot housing markets are owned by foreign investors.

It was widely criticized among long-time housing watchers for saying just 2.4% of units in Toronto and 2.3% in Vancouver were foreign-owned.

CMHC acknowledged that it came up with those numbers simply by asking condo corporations and property-management companies for 92,257 GTA rental units which of their owners have mailing addresses outside of Canada.

Source: CMHC, The Globe and Mail, The Toronto Star

Canadian Retail Sales Rise in March Led by Cars and Food

Canadian retail sales rose 0.7% in March to $42.5 billion, climbing for the second month in a row as consumers spent more on cars, food and alcohol, Statistics Canada reported on May 22.

The figures topped economists’ expectations for a modest gain of 0.3%. February’s figures were revised down slightly to 1.5% from the initially reported 1.7%.

Year-over-year, retail sales are up 3.1% from March 2014.

Despite these increases, retail sales remained below their historical peak recorded in November 2014. Sales in March were up in 7 of 11 subsectors, representing 71% of retail trade.

Higher sales at motor vehicle and parts dealers and food and beverage stores led the gain. Excluding sales in these two subsectors, retail sales edged up 0.1%.

In volume terms, retail sales increased 0.1%.

The largest gain in dollar terms across all subsectors was a 1.5% increase at motor vehicle and parts dealers, due mostly to higher sales at new car dealers (+1.8%). Higher sales at used car dealers (+2.1%) more than offset lower sales at other motor vehicle dealers (-1.7%). Sales at used car dealers have been trending upwards since late 2014. Sales at automotive parts, accessories and tire stores were relatively unchanged from February.  Year-over-year, sales for the motor vehicle and parts dealers sector is up 7.8%.

Gains were reported at all store types within the food and beverage stores (+1.3%; 4.3% y/y) subsector. Beer, wine and liquor store sales (+4.7%) rose for the fourth time in five months. Sales at supermarkets and other grocery stores (+0.5%) advanced for the first time in 2015. Convenience store sales (+1.2%) more than offset the decline in February. Sales at specialty food stores (+0.8%) rose for the second month in a row.

Sales at clothing and clothing accessories stores (+2.4%) rose for the third consecutive month in March. Higher sales were reported at clothing stores (+1.6%), shoe stores (+6.4%) and jewellery, luggage and leather goods stores (+4.1%). This was the sixth increase in seven months at jewellery, luggage and leather goods stores.

Health and personal care stores (+1.7%) and building material and garden equipment and supplies dealers (+1.6%) reported higher sales for the fourth month in a row. Over the past 12 months, sales are up 5.0% and 11.0% respectively for these sectors.

Following a gain in February, sales at general merchandise stores decreased 2.4% in March but were 5.2% higher than in March 2014. Sales were down at both other general merchandise stores (-2.5%) and department stores (-2.3%).

Sales at furniture and home furnishings stores were up 2.0% from February and 4.3% from March 2014.

Sales at electronics and appliances stores declined 0.2% during the month but remain up 4.2% annually.

Sales at gasoline stations declined 0.5% in March, the eighth decrease in nine months, and are down 17.4% from a year ago.

Retail sales rose in six provinces in March. Ontario (+1.5%) reported the largest increase in dollar terms, largely as a result of higher sales at new car dealers.

Sales in Quebec were up 1.0%, with gains reported across most store types.

Retail sales in Alberta (+1.1%) advanced for the second consecutive month after registering declines the previous four months. Modest gains were observed across most store types.

After increasing 5.3% in February, retail sales in British Columbia fell 1.7% in March. Lower sales were reported at new car dealers and department stores.

Newfoundland and Labrador (-2.0%) posted lower sales for the fourth consecutive month.

Receipts in Nova Scotia (-0.7%) decreased for the eighth consecutive month, falling to their lowest level since July 2012.

Source: Statistics Canada, Reuters   

Low Energy Prices Keep Canada’s Inflation at 0.8%

Canada’s annual inflation rate decelerated under the weight of low energy prices to just 0.8% in April — its smallest increase since October 2013, Statistics Canada said on May 22.

The agency’s April inflation reading was much lower than the 1.2% increase in March.

Statistics Canada’s latest consumer price index found that cheaper year-over-year energy prices were among the biggest factors behind the weaker inflation rate — as prices rose in seven of the index’s eight major categories.

Gasoline prices fell 21% in April compared with the previous year, while fuel oil tumbled 20% and natural gas dropped by 14.6%, the report said. The agency found that prices in all other major categories rose to the point that excluding energy items would bring the inflation rate up to 2.2%, following a 2.3% increase the previous month.

The items with the most upward pressure on prices included meat, which rose 11.2% compared to a year earlier. Home and mortgage insurance rose 8.6% and telephone services crept up 6.3%.

Consumer prices rose last month in seven provinces — with Newfoundland and Labrador, Prince Edward Island and New Brunswick registering negative inflation. Saskatchewan had the highest inflation at 1.4%.

The core inflation rate, which is monitored closely by the Bank of Canada and excludes some volatile items such as gasoline, was 2.3% last month. It followed a reading of 2.4% in March.

In February, the central bank warned the turbulence of the global oil-price crash could briefly bump inflation into negative territory, but it also said at the time that there was no reason to worry about outright deflation.

On a seasonally-adjusted monthly basis, inflation dropped 0.1% in April, which followed an increase of 0.3% in March.

Source: Statistics Canada, The Canadian Press

Latest U.S. Economic News

U.S. Economy Contracts in First Quarter
The U.S. economy contracted in the first quarter as it buckled under the weight of unusually heavy snowfalls and a resurgent dollar, but activity has rebounded modestly.

The government last Friday slashed its GDP estimate to show it shrinking at a 0.7% annual rate instead of the 0.2% growth pace it estimated last month.

A larger trade deficit and a smaller accumulation of inventories by businesses than previously thought accounted for much of the downward revision. There was also a modest downward revision to consumer spending.

With growth estimates so far for the second quarter around 2%, the U.S. economy appears poised for its worst first-half performance since 2011.

Economists, however, caution against reading too much into the slump in output. They argue the GDP figure for the first quarter was held down by a confluence of temporary factors, including a problem with the model the government uses to smooth the data for seasonal fluctuations.

Economists, including those at the San Francisco Federal Reserve Bank, have cast doubts on the accuracy of GDP estimates for the first quarter, which have tended to show weakness over the last several years.

They argued the so-called seasonal adjustment is not fully stripping out seasonal patterns, leaving “residual” seasonality. The government said last week it was aware of the potential problem and was working to minimize it.

When measured from the income side, the U.S. economy expanded at a 1.4% rate in the first quarter.

A measure of domestic demand was revised up one-tenth of a percentage point to a 0.8% rate and business spending on equipment was much stronger than previously estimated, taking some edge off the slump in output.

Economists had expected GDP would be revised down to show it contracting at a 0.8% pace.

Apart from the statistical quirk, the U.S. economy, which expanded at a 2.2% pace in the fourth quarter, was hammered by labour disruptions at West Coast ports. Also dragging on growth was a sharp decline in investment spending in the energy sector as companies such as Schlumberger and Halliburton responded to the plunge in crude oil prices.

Spending on non-residential structures, which includes oil exploration and well drilling, was revised up to show it tumbling at a 20.8% rate instead of the previously reported 23.1%. Mining exploration, shafts and wells investment plunged at a 48.6% pace, the largest since the second quarter of 2009.

Economists estimate unusually heavy snowfalls in February chopped at least one percentage point from growth.

Trade was hit both by the strong dollar and the ports dispute, which weighed on exports through the quarter and then unleashed a flood of imports in March after it was resolved.

That resulted in a trade deficit that subtracted 1.90 percentage points from GDP instead of the 1.25 percentage points reported last month.

The GDP report also showed after-tax corporate profits declined 8.7%. That was the largest drop in a year and the second quarterly fall, as the dollar weighed on multinational corporations and oil prices hurt domestic firms.

Multinationals like Microsoft Corp., household products maker Procter & Gamble Co. and health care conglomerate Johnson & Johnson have warned the dollar will hit sales and profits this year.

While the U.S. economy has pulled out of its first-quarter stall, data on retail sales and industrial production have suggested only a modest pace of growth early in the second quarter.
But reports on housing, consumer confidence and business spending plans indicated momentum could be building.

Unlike 2014, when growth snapped back quickly after a dismal first quarter, the dollar and investment cuts by energy companies continue to hamstring activity.

But growth could accelerate as the year progresses.

The value of inventory accumulated in the first quarter was revised down to an increase of $95-billion from the lofty $110.3-billion increase reported last month. That meant inventories contributed 0.33 percentage point to GDP instead of the previously reported 0.74 percentage point, suggesting warehouses are not bulging with unwanted merchandise and that businesses have latitude to order more goods from factories.

While consumer spending, which accounts for more than two-thirds of U.S. economic activity, was revised down by one-tenth of a percentage point to a 1.8% rate, it could finally get a lift from the considerable savings households amassed because of cheaper gasoline.

Personal savings increased at a robust $726.4-billion pace.

The dollar rally has faded and the greenback is about 4% off its peak in March against the currencies of the main U.S. trading partners, easing pressure on U.S. exporters.  In addition, rig counts suggest the energy investment rout is nearing its end.

Source: Reuters

U.S. Pending Home Sales Race to Nine-Year High in April
Contracts to buy previously owned U.S. homes rose for a fourth straight month in April to a nine-year high, buoying the outlook for the housing market.

The National Association of Realtors (NAR) said last Thursday that its Pending Home Sales Index, based on contracts signed last month, increased 3.4% to 112.4, the highest level since May 2006.

These contracts become sales after a month or two, and last month's increase pointed to a pick-up in home resales after they lost momentum in April. Economists had forecast pending home sales rising 0.9% last month.

Pending home sales increased 14.0% from a year ago, the largest year-on-year increase since September 2012.

Contracts surged 10.1% in the Northeast and increased 5.0% in the Midwest. They rose 2.3% in the South and gained 0.1% in the West.

Source: Reuters

U.S. Consumer Prices Soft, Underlying Inflation Rising
U.S. consumer prices moderated in April on weak gasoline prices, but rising shelter and medical care costs boosted underlying inflation pressures, which should keep the Federal Reserve on course to raise interest rates later this year.

The Labor Department said on May 22 that its Consumer Price Index gained 0.1% in April after increasing 0.2% in March. In the 12 months through April, the CPI fell 0.2%, the largest decline since October 2009, after dipping 0.1% in March.

The so-called core CPI, which strips out food and energy costs, increased 0.3%, the largest rise since January 2013, after advancing 0.2% in March.

In the 12 months through April, the core CPI advanced 1.8% after a similar gain in March.

“This leaves the Fed with less scope to delay raising rates until it sees more evidence of a rebound in real activity,” said Paul Ashworth, chief economist at Capital Economics in Toronto.

“September is still the most likely (rate) lift-off date, but July is not out of the question, particularly not if we get another couple of robust rises in core consumer prices in May and June,” he said.

The upward thrust in core inflation will likely be welcomed by officials at the U.S. central bank as they consider their monetary policy options, against the backdrop of what appears to be sluggish economic growth in the first half of the year.

Minutes of the Fed’s April meeting released earlier in the week said “many” policy makers did not believe that by June, data “ would provide sufficient confirmation that the conditions” for raising the key short-term interest rate had been meet.

A recent batch of weak data, including April industrial production and retail sales, has left many economists even doubting that the Fed will raise rates in September.

The central bank, which has a 2% inflation target, has kept overnight interest rates near zero since December 2008. It tracks a price measure that is running well below core CPI.

In April, gasoline prices fell 1.7% after increasing 3.9% in March. Food prices were unchanged after slipping 0.2% in March.

Core inflation was lifted by a 0.3% increase in shelter costs, which followed a similar gain in March.

Shelter inflation could continue to increase in the months ahead as rising household formation boosts demand for rental accommodation. That, together with a tightening labour market, should put upward pressure on the core CPI.

The medical care index rose 0.7%, the largest rise since January 2007. There were also increases in the cost of household furnishings, which posted their largest gain since September 2008.

Prices for used cars and trucks rose 0.6%, advancing for a third straight month. Airline fares, however, declined 1.3% after falling 1.7% in March. Apparel prices fell for the first time since December.

Source: Reuters


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