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Volume 14, Issue 45, November 26, 2014

Inside This Issue:

• Join Us in Montreal at the Industry Cocktail – December 9th
• Home Depot Facing a Number of Lawsuits in Canada,U.S.Over Data Breach
• Lowe’s Canada Introduces  In-Store ‘Holoroom’
• Hudson's Bay Unveils Plan to Cut Debt on Saks Deal
• Rumours of Sears Canada's Demise Greatly Exaggerated, Company Says
• Retail Sales in Canada Rise for First Time in 3 Months Led by Big-Ticket Items
• Canada’s Housing Market ‘Modestly’ Overvalued, CMHC Says
• Condos Make Up More than Half of Housing Starts in Canada’s Biggest Cities: CMHC
• Housing Bubble Begone. Turns Out We Just Might Need All Those New Condos and Houses
• Inflation in Canada Jumps to a 4-Month High
• Latest U.S. Economic News 

Follow us on Twitter @theCHHMA

Association News

Join Us in Montreal at the Industry Cocktail – December 9th   

A number of personnel from BMR and RONA among other retailers will be attending this year’s Industry Cocktail on Tuesday, December 9, from 5:30 p.m. to 8:30 p.m., at the Bar Dame de Coeur at the Casino de Montreal.

So join your industry colleagues and customers for the annual industry year-end celebration.

The location offers a fun and relaxing atmosphere where you can enjoy some wonderful food, drinks and conversation with friends from the industry while enjoying the festive season together.  

We look forward to seeing you there.
Click here for further details and registration.

Industry News
Home Depot Facing a Number of Lawsuits in Canada, U.S.Over Data Breach

Home Depot faces at least 44 lawsuits in the United States and Canada from the massive data breach earlier this year that affected 56 million debit and credit cards.

The home improvement retailer said Tuesday in a regulatory filing that several state and federal agencies also are looking into the data breach and it may face more litigation from customers, banks, shareholders and others.

Home Depot said the litigation and the investigations may distract management and affect how it runs its business. It also could lead to additional costs and fines. But those expenses aren’t clear yet because the cases are in early stages, the company said in a quarterly filing with the Securities and Exchange Commission.

The company said earlier this month after announcing third-quarter earnings that it anticipates a fourth-quarter breach-related expense of about $27-million, but only about $6-million after insurance.

Home Depot has a $100-million insurance policy for breach-related expenses. That comes with a $7.5-million deductible.

The retailer disclosed the months-long breach of data in September. It has said that the hackers initially accessed its network in April with a third-party vendor’s username and password. Hackers then deployed malware on Home Depot’s self-checkout systems to gain access to the card information of customers who shopped at its U.S. and Canadian stores between April and September.

Home Depot’s breach surpassed Target Corp.’s pre-Christmas 2013 data theft, which compromised 40 million credit and debit cards and hurt sales and profits. Since late last year, Michaels, SuperValu and Neiman Marcus have been among a string of retailers that have also reported breaches, though they were smaller.

Home Depot has since said that hackers also stole 53 million e-mail addresses.

The company said in its filing on Tuesday that it has since completed a major security improvement. Its new security scrambles raw card information to make it unreadable to unauthorized users.

The security project has been completed in U.S. stores, and Home Depot expects to do the same for its Canadian locations early next year.

The breach has yet to discourage investors. Home Depot shares rose 34 cents to $98.74 in premarket trading Tuesday. Its shares have risen nearly 20% so far this year.  Meanwhile, the Standard & Poor’s 500 index has climbed about 12%.

Source: The Associated Press  

Lowe’s Canada Introduces In-Store ‘Holoroom’     

Lowe's Canada unveiled the first installations of the Lowe’s Holoroom, a home improvement simulator that applies 3-D and augmented reality technologies to provide consumers with an intuitive, immersive experience when planning a bathroom renovation.

“We are very excited to introduce this groundbreaking technology to the Canadian market first,” said Sylvain Prud’homme, president of Lowe’s Canada. “The Holoroom inspires customers to explore, create and experience a home project before they ever begin, which in turn builds confidence in their decisions to initiate work.”

The Lowe’s Holoroom is available at two Greater Toronto Area Lowe’s Canada stores in North Etobicoke (48 Lowe’s Place) and Burlington (3270 Harrison Crescent). Customers may walk-in for appointments or schedule appointments in advance with the Lowe’s Holoroom Concierge. Customers planning a bathroom remodel can then choose paint colors, wall and floor tile and select products from a Lowe’s 3-D catalogue to design their room.

In the works for the past two years, the project was designed by Lowe’s Innovation Labs who were working with Sci Futures, a consulting firm. The North Etobicoke and the Burlington-based Lowe’s are the first two locations for the new technology.

“Home improvement can be complex, and we know customers are looking for solutions that help simplify the process and allow them to experience the end result during their decision-making process,” said Kyle Nel, executive director of Lowe’s Innovation Labs. “We look forward to working closely with customers and employees to gather their feedback and better understand how the Holoroom technology can make Lowe’s the preferred choice for home improvement.”

The actual Holoroom is little more than a metal frame and walls featuring designs of hammers and other tool patterns. Upon arrival a customer is greeted by a store employee who takes them through an iPad app, which starts with their room’s approximate dimensions, and then they can go through thousands of products, including paint swatches, fixtures and more, to custom design the bathroom of their dreams.

Once completed, they walk into the Holoroom, and with the iPad serving as a lens, they can see and walk around and see the room and get an experience of its dimensions and how it works in a 3D space. As well, they can change things on the fly, like changing the paint colour or a different mirror. The other really neat thing is that there is dollar total of the cost of the products, so in real time, the user can tweak items to try and see how it affects the price.

“There a lot of expectations with new technology that people will be able to solve some of the issues that they have had forever. The basic issue is you don’t have the capacity for abstract visualization of the project,” says Mr. Prud’homme. “So if we can crack that, and figure out a way of providing that customer a helpful experience prior to a buying decision, that’s huge.”

One thing that people should know is that despite the name, there are no holograms involved. It is an augmented reality experience, but it is cool way to help solve a problem that many people have, visualizing the changes they want to make in a 3D space.

“I think it’s really important to lay out that this is not the final version of where we are going with this.  I wouldn’t even call this version 1.0 it’s .5 of where we want to take this.  Even the Holodeck had a first step and everything has to start somewhere,” says Mr. Nel.

Nel says thing coming to down the line including more flexibility in the product, a Lowes MyHoloroom iOS app coming in early 2015, which people can use at home to design their room, and then come into the store to see. That home app will also let people as save their designed project. Currently, users will just get a printout of the products selected while trying it out. As well, it will eventually expand beyond bathrooms to other kinds of projects.

As to why the project is starting off in Canada, Prud’homme says that the company’s smaller size helps them try new things.

“Why Canada? Because we’re still quite a small organization here. We have 37 stores here, and we have the ability to be quite flexible and nimble, and we work in tandem,” he says.

Lowe’s Innovation Labs’ charter is to look across the Lowe’s enterprise and identify opportunities to rapidly test technology prototypes that have the potential to positively impact customers and employees. In addition to this partnership with Lowe’s Canada, the Labs recently collaborated with Orchard Supply Hardware store to introduce the OSHbot, an autonomous retail service robot.

Source: Lowe’s Canada, The Toronto Star

Hudson's Bay Unveils Plan to Cut Debt on Saks Deal 
The Hudson’s Bay Company outlined a $1.25-billion refinancing plan on Monday, in a move to reduce debt taken on when it acquired U.S. rival Saks last year.

The retailer said it would take out a 20-year mortgage on the ground portion of its flagship Saks Fifth Avenue store in New York City after an appraiser valued the property at $4.1-billion.

The mortgage transaction would allow it to capitalize on the value of its flagship asset now, and give it structural flexibility to capture additional value in the future.

HBC acquired Saks for $2.4-billion in cash last year, and assumed about $500-million of Saks debt as part of the deal. At the time, it said it was mulling creating a real estate investment trust, or REIT, to monetize its real estate holdings and help it pay down debt.

Early in 2015, HBC will begin a $250-million renovation at its flagship Saks Fifth Avenue store to boost productivity and the value of the asset.

Refinancing proceeds will be used to repay about $1.2-billion of loans.

“Critically, the transaction allows us to retain tremendous flexibility and control over our most important flagship property,” said HBC Chief Executive Richard Baker, in a statement.

Baker said HBC could still sell the property into a REIT, or secure additional leverage on the leasehold interest.

Mr. Baker today puts the value of the retailer’s total real estate portfolio at about $7.27-billion, including Hudson’s Bay, Lord & Taylor and Saks properties.

“We had a very strong understanding that the real estate was worth a lot of money when we bought the company,” Mr. Baker, said in an interview on Monday.

Mr. Baker added that from all the information his team has gathered from consultants “we believe the Saks Fifth Avenue building is the most valuable retail building in the world.

“That has to do with the low interest rate world that we’re in, the values in Manhattan and the rents up and down Fifth Avenue.”

He said rents among buildings on Fifth Avenue close to the Saks flagship store run around $3,000 per square foot.

The move to refinance using the value in HBC’s real estate holdings is the latest by Baker, who with his father Robert is part of a group that owns National Realty & Development Corp, a private developer of U.S. retail and shopping centres.

The family is one of the largest private owners of shopping centres in the U.S., with a portfolio of over 20 million square feet, consisting primarily of Wal-Mart Stores Inc., Target Corp. and Kohl’s anchored properties.

HBC said it will continue to work to extract value from the rest of its real estate portfolio, which includes the Lord & Taylor Fifth Avenue store, the Saks Beverly Hills store and 59 other owned and ground leased locations in the U.S., together with 19 locations in Canada.  It will announce details on this process in the spring of 2015.

Source: Reuters, The Globe and Mail  

 Rumours of Sears Canada's Demise Greatly Exaggerated, Company Says 
(Article by Dianne Buckner, CBC News)

Sears Canada has lost a small fortune, sold off real estate, and it's now suddenly looking for a new partner for its credit card operations.

That has industry commentators talking about a death watch, and the retailer had more bad news last week with the announcement it had a net loss of $118.7 million in the third quarter.

But the company is defiant, and assures customers that all is well.

During the recent Santa Claus Parade in Toronto, there was a float featuring a "Wish Book," the Sears Christmas catalogue that children have pored over for more than six decades.

Will the next generation?

An ad starring comedian Mike Myers, whose brother has been a Sears Canada employee for 32 years, now has 1.3 million views on YouTube. "Is Sears Canada going away?" asks a worried-looking Myers. Brother Pete replies, "You of all people should know not to believe everything you read in the paper. We're not going anywhere."

The company’s vice-president of communications, Vincent Power, also had some bold words when asked about the future of Sears.

"Our financial health is quite fine actually, and would be the envy of many retailers," he told CBC News in a phone interview last week. "We have a lot of new initiatives at Sears Canada. We’re very much active and going strong."

That certainly wasn’t what people were talking about less than three weeks ago, when the company's American owner, Ed Lampert, announced that he’d be selling off hundreds of stores in the U.S. to launch a real estate investment trust. The chain will lease many of them back.

"It's one more sign in the inevitable demise of Sears," retail consultant Mark Satov said in an interview about Sears Canada that aired on CBC News Network.  "They're [not] going to become a retailer that we visit — they're going to be a retailer we remember."

Brynn Winegard of Winegard & Company also used life-and-death language to express her view of what she deems to be mismanagement by Lampert. "He's put Sears in the coffin before the heart stops beating," says the Toronto-based consultant, who works with Canadian and American retail chains.

"He wouldn't do that if he understood how to make money from a legacy brand, from a company that is a household name. Those are not the brands you want to kill off."

The widespread view inside the industry is that as a hedge fund whiz and not an actual retailer, Lampert is simply squeezing as much cash out of the company as he can, both in the U.S. and Canada.

"The company in Canada has been treated like an ATM machine by its corporate owner," former Sears Canada CEO Mark Cohen told the Toronto Star in January. Cohen ran the company from 2001 to 2004 and is now a marketing professor at Columbia Business School.

Mr. Power is quick to point out that the new American real estate investment trust will have "no impact at all" on Sears Canada. At this point, Canadian stores are not part of the plan. As for last year's sale of five leases in Canada for $400 million, Power says that was a strategy to unlock value for shareholders.

"The stores that we exited last year, that was not because we were in any kind of financial trouble," he says.

New acting CEO Ron Boire is the fourth chief executive Sears Canada has had in three years. He's talking up a new business plan that focuses on Kenmore appliances, Canada’s Best brand clothing, and Craftsman tools.

A new website will launch in the first quarter of 2015.

"Customers will have a much-improved online experience," Power says.

"That's smart," says consultant Brynn Winegard. "Sears should definitely head more into the virtual space. It requires less overhead, less working capital, and they'll be able to see more profit and maintain the brand."

But Mr. Satov isn't as optimistic.

"Sears could become Eatons. It's not going to be here," he says.

The starkly opposing views of the company's future prospects brings to mind the dark humour of Monty Python's famous “Bring Out Your Dead sketch, set during the time of London's great plague.

A man tries to convince a cart driver collecting the dead to take an old fellow who is loudly protesting that he's still alive. "He says he's not dead," says the driver. "Yes he is," claims the man, the old fellow slung over his shoulder.

"I'm not, I'm getting better," pipes up the old gent. "No you're not, you'll be stone dead in a moment."

"I feel fine! I think I'll go for a walk."

Close to 20,000 Sears Canada employees are surely hoping this story has a happier ending than the Monty Python sketch.

Source: CBC News

Economic News

Retail Sales in Canada Rise for First Time in 3 Months Led by Big-Ticket Items

Canadian retail sales rose faster than economists forecast in September led by big-ticket items such as cars, furniture and appliances.

Sales rose for the first time in three months, by 0.8% to $42.8 billion, Statistics Canada reported Tuesday.  Economists surveyed by Bloomberg News forecast a 0.5% increase, based on the median of 21 projections.

Gains were reported in 5 of 11 subsectors, representing 59% of retail trade. Excluding motor vehicle and parts dealers, sales were essentially unchanged from August.

After removing the effects of price changes, retail sales in volume terms increased 1.0%.

Statistics Canada also revised retail sales figures for the prior two months. The August sales decline was pared to 0.2% from 0.3%, and July sales were altered to show they were little changed after an earlier report they fell by 0.1%.

Sales in September were 4.5% higher than a year earlier, Statistics Canada said.

Consumer spending on houses and cars has helped sustain economic growth this year, as low interest rates fuel demand. The Bank of Canada has said high consumer debts and home prices are the main risk to the domestic economy, and business spending needs to take over to restore full output over the next two years.

The 3.4% increase at motor vehicle and parts dealers was the largest sales gain among all subsectors.  Sales were up 3.3% at new car dealers, on the strength of higher volumes of sales of light trucks. Other motor vehicle dealers, which include retailers of recreational vehicles, motorcycles and boats, continued their recovery from a downturn in early 2014 with a 6.8% increase. Following three consecutive monthly decreases, sales at used car dealers increased 4.4% in September.

Higher sales were also reported at automotive parts, accessories and tire stores (+1.1%).  Higher sales were reported at food and beverage stores (+0.7%) for the first time in three months in September.  This gain mainly reflected higher sales at supermarkets and other grocery stores (+0.7%) and, to a lesser extent, beer, wine and liquor stores (+1.3%).  Specialty food stores (+0.4%) posted their first increase in five months.  Convenience store sales edged down 0.2%.

Receipts at furniture and home furnishings stores (+1.3%) rose for the second time in three months, in large part because of higher sales at home furnishings stores (+5.1%).

Sales at electronics and appliance stores (+1.2%) advanced for the fourth consecutive month, marking the second time since mid-2010 that sales in this subsector have posted four consecutive gains.

Receipts at general merchandise stores (-0.6%) and clothing and clothing accessories stores (-0.9%) declined in September. Decreases in these store types traditionally associated with back-to-school did not offset the gains in August.

Sales at gasoline stations declined 0.2% in September, mainly reflecting lower prices at the pump.  September's decline was the third consecutive monthly decrease.

Lower sales were reported for the second consecutive month at building material and garden equipment and supplies dealers (-0.5%). This followed four months of growth.

Retail sales were up in eight provinces in September. Higher sales in Ontario (+1.0%), Alberta (+1.0%) and Quebec (+0.7%) accounted for most of the increase. Gains in these provinces reflected higher sales at new car dealers.

Retailers in British Columbia reported a 0.5% gain in September, the third increase in four months.

Retail sales advanced for the fifth time in six months in Manitoba (+1.2%), with widespread gains across most store types.

Sales in New Brunswick (+0.6%) rose for the sixth consecutive month.

After peaking in June, sales in Prince Edward Island (-1.1%) declined for the third month in a row.

Source: Statistics Canada, Bloomberg News 

Canada’s Housing Market ‘Modestly’ Overvalued, CMHC Says

Canada’s housing market is “modestly” overvalued, but there is no serious problem at the moment, the Canada Mortgage and Housing Corporation (CMHC) said in a new report released on Monday.

The risk of overvaluation is most evident in Montreal and Quebec City, the report said, although the trends are improving, even in those cities. There is also a modest risk of homes becoming overvalued in Toronto, Calgary and Halifax, the study said.

The data comes from CMHC’s latest House Price Analysis and Assessment (HPAA), a regular internal study that has not been made public in the past. CMHC released some of the details of its HPAA as part of a move to issue more data about the state of the country’s housing market. Some economists have complained that there are big gaps in housing data, which is a problem because the housing market is crucial to the Canadian economy.

The HPAA study looks at risk factors such as overheating (where demand runs ahead of supply), price acceleration, overvaluation and overbuilding.

Aside from the modest overvaluation, the report says the only other area of worry in the housing market is overbuilding in Montreal and Toronto. In those cities, the number of units under construction is “elevated” relative to the population, the report says. This could develop into overbuilding if the units are completed but not sold, CMHC said.

“There is however a cautionary note with respect to overbuilding in Toronto and Montreal,” said Bob Dugan, the chief economist of CMHC. “The number of units under construction is elevated in these centres. This could develop into overbuilding if these units are completed but not sold. To mitigate this risk, builders will need to hit the appropriate balance in channeling new demand between units that are currently under construction but not sold and units that are in the planning stage.”

Overall, the federal Crown Corporation said there is only moderate risk in three of the eight markets it looked at.

“Overall, housing markets in Canada remain broadly consistent with underlying demographic and economic factors such as employment and interest rates. Nevertheless, a modest amount of overvaluation is observed, meaning that house prices are slightly higher than what the underlying factors would suggest,” said the agency, in a release.

Evan Siddall, president and chief Executive of CMHC, said the purpose of the HPAA is to create a “stronger finance system” for the country. “The HPAA adds to CMHC’s efforts to identify, and where appropriate, fill significant data and information gaps,” said Mr. Siddall, in a release.

The HPAA looked at housing market conditions by taking into consideration the economic, financial and demographic drivers of housing markets.

“At the national level, other than a modest amount of overvaluation, we do not detect the presence of other risk factors such as overheating, price acceleration, and overbuilding,” said Mr. Dugan. “Risk of overvaluation is most evident in Montreal and Quebec, but the trend is improving. A modest risk of overvaluation is also present in Toronto, Calgary and Halifax.”

Source: CMHC, The Financial Post

Condos Make Up More than Half of Housing Starts in Canada’s Biggest Cities: CMHC

Condominiums accounted for more than one-third of all Canadian housing starts last year, and more than half of the total in several of the country’s biggest cities, the Canada Mortgage and Housing Corporation (CMHC) says.  

The federal agency says condominium apartment starts represented less than one in five Canadian housing starts in the early 1990s, but that proportion had grown to more than one in three in 2013.

Vancouver, the country’s most expensive real estate market, saw condos make up 62.6% of its housing starts last year. In Montreal, condos accounted for 56.3% of the starts and in Toronto they accounted for 53.9% of new housing construction, CMHC said in an annual market review released last Thursday.

“This long-term trend toward a higher share of condominium starts, especially in higher-priced urban centres, is likely due to the relatively lower price of condominium apartment units compared to freehold single-detached dwellings,” CMHC said in its 2014 Canadian Housing Observer.

“In addition, in most large urban centres, the secondary rental condominium market has become an increasingly important complement to purpose-built rental housing.”

CMHC said the share of purpose-built rental starts was about 20% of total starts in the early 1990s, but fell to 14% in 2013.

Vancouver saw rental starts make up 16.8% of total, while 15% of the starts in Montreal last year were purpose-built rental properties. However in Toronto, just 2.1% of the housing starts were purpose-built rental starts.

The report also noted that after taking into account differences due to exchange rates, inflation and other factors that affect the purchasing power of home buyers, Canadian home prices remain higher than those in the United States.

“This Canadian ’premium’ could be a cause for concern, because it may indicate that house prices in Canada are overvalued,” the report said.

“CMHC is analyzing these differences, in order to understand the reasons for the price differential, be they structural, temporary or reflective of relative overvaluation in Canada.”

The strength of the Canadian housing market and concerns about a possible housing crash have garnered much attention.

Last month, the Bank of Canada raised concerns about the “renewed vigour” it detected in the housing market and consumer spending since the summer.

However, both Bank of Canada governor Stephen Poloz and Finance Minister Joe Oliver have downplayed the susceptibility of the Canadian housing market.

Oliver and most analysts have predicted a soft landing for the real-estate market.

Some other key highlights from the report:

• Seniors, immigrants and Aboriginal people continue to be important influences on housing demand. Household growth between 2006 and 2011 was strongest among the 60-64 age group, the leading edge of the baby boom;
• Although the majority of immigrants arriving between 2006 and 2011 continued to settle in Canada’s largest metropolitan areas (33% in Toronto, 16% in Montreal, and 13% in Vancouver), increasing percentages are settling in smaller cities and communities. While most newcomers initially rent their homes, homeownership rates among immigrant households rise quickly in the years following their arrival.
• Housing starts moderated 12.5% in 2013, allowing the ratio of completed and unabsorbed units relative to population, a simple gauge of overbuilding, to trend down over the year;
• Canadians’ ability to service their mortgage debts improved.  The ratio of annual mortgage debt-service costs to annual personal disposable income stood at 3.66%, a slight decline from 3.70% in 2012, and below the average of 4.1% since 2000;
• The incidence of core housing need in Canada fell to 12.5% in 2011, down from 13.7% in 2001.Housing affordability remains the principal challenge, accounting on its own for just under three-quarters (73%) of all households in core housing need in 2011;

Click here for a full copy of the report.

Source: CMHC, The Canadian Press

Housing Bubble Begone. Turns Out We Just Might Need All Those New Condos and Houses
(Article by Garry Marr, The Financial Post)

Are we really overbuilding, constructing too many condominiums and creating too much sprawl?  A new report maintains we need that housing more than ever.

Benjamin Tal, deputy chief economist with CIBC, says we might be substantially underestimating household formation because we are not factoring in up to 100,000 immigrants.

“Ask any real estate developer in any of Canada’s major cities about the risk of overbuilding, and the first line of defence would be immigration and its critical role in supporting demand,” writes Mr. Tal, in a note he coauthored with Nick Exarhos. “It turns out that at least for now, this claim is more valid than widely believed.”

Mr. Tal points out that not only do new immigrants account for about 70% of our population growth about half of them are in the 25-44 age cohort, a key demographic that will lead to more household formation.

In 2013, the number of Canadians aged 20-44 grew by 1.1% which is the fastest pace in more than two decades and stronger than the average of countries in the Organization for Economic Co-operation and Development.

“Healthier demographics are benefitting trends in household formation,” the pair write. “In fact, despite some concerns of overbuilding in the current housing boom, the ratio of housing starts to household formation is not far from its long-term average of 1.03.”

The bottom line is that when the housing boom does wind down it will not be as dramatic as once feared because of those immigrants picking up the slack, argues the paper.

In spate of the stronger than anticipated household formation, markets in Alberta, British Columbia and Ontario might still be outstripping what should be built based on demographics.

Their argument that immigration is being underestimated comes largely from underestimating the number of non-permanent residents in Canada which includes students, temporary workers and humanitarian refugees. That number was 22,000 in 2013 which brought the total number of NPRs to 774,000.

“Those are big numbers. And evidently when it comes to measuring household formation in Canada and its implication for the appropriate level of home-building, we understate the number of those non-permanent residents,” say the economists.

The pair say researchers are using the 2011 census to estimate household formation in Canada and that census bases household formation on 400,000 non-permanent residents which is 200,000 below even figures reported by Citizen and Immigration Canada.

“It’s a huge gap,” they write.  “The gap is increasingly becoming more relevant for household demand since a growing portion of non-permanent residents come from workers and students with a high propensity to rent.”

The pair say there is no doubt that the pace of growth of the echo generation is slowing and foreign workers will face more barriers to entry albeit that will be offset by a decision by Ottawa to raise the annual immigration quota by 20,000 to 30,000 per year.

“But for the here and now, any claim of significant overbuilding in the Canadian market is not supported by the rise in household formation relative to starts,” says the paper, adding non-permanent residents will continue to provide the market a cushion from any downturn.

Source: The Financial Post 

Inflation in Canada Jumps to a 4-Month High

Canada’s annual rate of inflation hit a four-month high in October, led by increased shelter and food costs, after overall price pressure slowed in the previous month.

Statistics Canada reported last Friday that its Consumer Price Index (CPI) rose 2.4% in the 12 months to October, after increasing 2.0% in September.

On a seasonally adjusted monthly basis, the CPI increased 0.1% in October, following a 0.2% rise in September.

Prices increased in all major components in the 12 months to October. Higher prices for shelter and food led the rise in the CPI. At the same time, larger year-over-year price increases for transportation and for clothing and footwear contributed the most to the acceleration in the CPI.

Shelter costs rose 2.8% in the 12 months to October, led by a 20.1% gain in natural gas prices. Consumers also paid more for electricity, homeowners' home and mortgage insurance as well as rent in October compared with the same month in 2013.  Property taxes rose 2.2% on a year-over-year basis, while mortgage interest cost declined 0.2%.

Food prices were up 2.8% on a year-over-year basis in October. Prices for food purchased from stores rose 3.1%, led by meat prices, which increased 12.4% in the 12 months to October. The most recent data from the Industrial Product Price Index indicate that, as of September 2014, producer prices for meat products were up 14.5% year over year. Food purchased from restaurants cost 2.2% more in October compared with the same month a year earlier.

The transportation index increased 1.1% in the 12 months to October, after rising 0.5% in September. Despite posting four consecutive monthly decreases, gasoline prices were up 0.6% on a year-over-year basis in October, after falling 0.5% in September. Gasoline prices recorded a smaller monthly decline this October (-4.0%) compared with October 2013 (-5.1%). On a year-over-year basis, consumers also paid more for air transportation and for the purchase of passenger vehicles.

Prices for clothing and footwear advanced 3.1% year over year in October, after rising 2.0% the previous month. Fewer discounts were observed this October compared with the same month a year earlier.

Consumer prices rose in all provinces in the 12 months to October, with Alberta posting the largest gain. Conversely, British Columbia recorded the smallest year-over-year increase.

Of the eight major components, seven increased on a seasonally adjusted monthly basis in October. The seasonally adjusted index for alcoholic beverages and tobacco products (+0.5%) posted the largest monthly rise in October.

The clothing and footwear index rose 0.3% on a seasonally adjusted monthly basis.  Before seasonal adjustment, prices for clothing and footwear increased 1.4%, as October typically marks the introduction of fall and winter apparel.

On a seasonally adjusted basis, the health and personal care index was the lone major component to decline in October.

The Bank of Canada's core index rose 2.3% in the 12 months to October, after increasing 2.1% in September.

The seasonally adjusted core index increased 0.2% on a monthly basis in October, matching the gains in September and August.

Economists had expected a slight pullback in Canadian prices in October, largely driven by the falling gasoline prices. They thought the year-over-year inflation rate would be up only slightly, to 2.1% from September’s 2.0%. They had anticipated that the core rate would hold steady.

“Inflation isn’t so soft after all,” said Avery Shenfeld, chief economist at CIBC, in a research note.

While Canadian inflation rose rapidly in the first half of this year, the Bank of Canada has consistently argued that the increase has been due to a series of temporary factors, including last year’s Canadian-dollar declines, higher energy prices early in the year, and short-term spikes in meat and telecommunications prices. It believes Canada’s economy still has considerable excess capacity, which suggests the underlying conditions for sustained inflation pressures aren’t in place.

The bank’s view seemed to be borne out in recent months, as the inflation rate peaked at 2.4% in June but declined in the months that followed, slipping by September to 2.0%, the central bank’s official target rate for inflation. The resurgence in October, in spite of gasoline’s high-profile drop, may suggest that underlying inflation pressures are building beyond the transitory factors that the Bank of Canada has identified.

“Recent months [in the core rate] are tacking on 0.2% gains seasonally adjusted, which gives less comfort that core pressures are as temporary as the Bank of Canada believes,” Mr. Shenfeld said.

“Core inflation could potentially move higher still next month, since prices held flat last November, and will now likely run ahead of the Bank of Canada’s 2.1% year-over-year call for all of Q4,” said Robert Kavcic, senior economist at Bank of Montreal, in a note to clients. “While this probably won’t change their overall view that underlying price pressures are still muted, they might be watching a bit closer now.”

“Our assessment is that the broadening out of inflation pressures is likely to limit how much the core rate moves back down in 2015,” said RBC assistant chief economist Dawn Desjardins in a research note. She added that she also expects the Canadian economy will return to full capacity earlier than the Bank of Canada’s projected time frame of the second half of 2016.

“Our view remains that the persistence of core inflation holding near or above the Bank [of Canada]’s target, and a firming in economic growth, will convince the [central] bank to reduce the amount of policy stimulus by raising the overnight rate in the middle of next year,” she wrote.

Source: Statistics Canada, The Globe and Mail

Latest U.S. Economic News 

U.S. Third-Quarter GDP Growth Rate Revised Up to 3.9%
U.S. economic growth was far stronger than initially thought in the third quarter, pointing to strengthening fundamentals that should support the economy for the rest of the year. The Commerce Department on Tuesday raised its estimate of GDP to a 3.9% annual pace from the 3.5% rate reported last month, reflecting upward revisions to business and consumer spending.

Growth had increased at a 4.6% rate in the second quarter. The U.S. economy has now experienced the two strongest back-to-back quarters of growth since 2003.

Economists polled by Reuters had expected growth would be cut to a 3.3% pace.

Inventories were also revised higher, with restocking now only accounting for a mild drag to GDP growth. That also helped to offset downward revisions to export growth.

Inventories, however, could weigh on growth in the final three months of the year. Spending on residential construction was also revised higher.

It was the fourth quarter out of the past five that the U.S. economy has expanded above a 3.5% pace. Data ranging from manufacturing to employment and retail sales suggest the economy retained some of that momentum early in the fourth quarter.

The United States remains a bright spot in an increasingly gloomy global economy, with Japan back in recession and growth in the euro zone and China slowing significantly.

The U.S. GDP report also showed corporate profits after tax grew at a 3.2% rate in the third quarter, slowing from the second quarter’s robust 8.6% pace.

The brisk economic growth pace could boost expectations the Federal Reserve will start raising its short-term interest rate sometime in mid-2015. The U.S. central bank has kept its benchmark lending rate near zero since December 2008.

Underscoring the U.S. economy’s firming fundamentals, growth in domestic demand was revised up to a 3.2% pace in the third quarter instead of the previously reported 2.7% pace.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at a 2.2% pace instead of the previously reported 1.8% rate.

Growth in business investment was raised to a 7.1% pace from a 5.5% rate, with a stronger pace of spending on equipment than previously thought accounting for the bulk of the revision.

Export growth was lowered to a 4.9% rate from the previously reported 7.8% rate, while imports were revised up. That left a trade deficit that contributed 0.78 percentage point to GDP growth instead of the previously reported 1.32 percentage points.

Government spending also was cut, as outlays at state and local governments were not as strong as previously reported.

Source: Reuters

U.S. Home Price Growth Slows in September
U.S. single-family home prices showed a stronger-than-expected rise in September on a year-over-year basis, but indicated a deceleration from the prior month, a closely watched survey said on Tuesday.

The S&P/Case Shiller composite index of 20 metropolitan areas gained 4.9% in September over the prior year.  A Reuters poll of economists forecast a 4.6% increase.

On a seasonally adjusted monthly basis, prices in the 20 cities rose 0.3% for the month. A Reuters poll of economists had forecast an increase of 0.1%.

Non-seasonally adjusted prices were unchanged in the 20 cities on a monthly basis, short of expectations calling for a 0.2% rise.

“The overall trend in home price increases continues to slow down,” David Blitzer, chairman of the index committee at S&P Dow Jones Indices, said in a statement.

“With the economy looking better than a year ago, the housing outlook for 2015 is stable to slightly better.”

A broader measure of national housing market activity that S&P/Case-Shiller is now releasing on a monthly basis rose at a slower pace year over year, coming in at 4.8%.

The seasonally adjusted 10-city gauge rose 0.3% in September versus a 0.2% drop in August, while the non-adjusted 10-city index was unchanged for the month compared to a 0.2% rise in August.

Source: Reuters

U.S. Existing Home Sales Hit One-Year High in October
U.S. home resales jumped to their highest level in more than a year in October and outpaced the sales level a year ago for the first time in 2014, further evidence the housing market is on a recovery path.

The National Association of Realtors (NAR) said last Thursday that U.S. existing home sales rose 1.5% to an annual rate of 5.26 million units, the highest rate since September of last year. Sales rose 2.5% compared to a year ago, the first time since October 2013 that resales have risen above the prior-year levels.

Economists polled by Reuters had forecast sales falling to a 5.16 million-unit pace, from an upwardly revised rate of 5.18 million units in September.

“This is the first time in the year where we have seen a year over year annual gain, which means that existing home sales have made that successful U-turn,” Lawrence Yun, NAR’s chief economist, told reporters.

Housing is slowly regaining its footing after activity stalled in the second half of 2013 following a run-up in mortgage rates. While the sector continues to be hobbled by sluggish wage growth, a recent decline in mortgage rates should help support sales.

A separate report from the Mortgage Bankers Association showed applications for loans to purchase homes surged last week as low rates lured potential buyers.

Source: Reuters

U.S. Consumer Prices Unchanged, But Underlying Inflation Picking Up
U.S. consumer prices were unexpectedly flat in October, but there are signs that underlying inflation pressures are starting to push higher.

The Labor Department said last Thursday that falling gasoline prices, which offset rising shelter and medical costs, had restrained its Consumer Price Index last month.

The CPI had gained 0.1% in September and economists polled by Reuters had it slipping 0.1% last month. The CPI increased 1.7% in the 12 months through October, advanced by the same margin for a third straight month.

Stripping out food and energy prices, the so-called core CPI rose 0.2% last month after nudging up 0.1% in September.

In the 12 months through October, the core CPI rose 1.8% after rising 1.7% in September.

Declining energy and commodity prices against the backdrop of a slowing global economy, and a strengthening dollar are keeping inflation below the U.S. central bank’s target of 2%.

Minutes of the Fed’s Oct. 28-29 meeting showed most policymakers expect inflation will edge lower in the near-term and subsequently move toward its target.

But there was a bit of concern over falling market-based inflation expectations, with some officials saying they should be monitored for signs of “a possible downward shift in longer-term inflation expectations.”

The U.S. central bank has kept its short-term interest rate near zero since December 2008. Most economists expect the first interest rate increase sometime in the mid-2015.

In October, energy prices fell for a fourth straight month, with gasoline prices declining 3.0% after dropping 1.0% in September. Food prices edged up 0.1% after gaining 0.3% in September.

Within the core CPI, shelter costs increased 0.2% last month after increasing 0.3% in September.

The shelter index was up 3.0% in the 12 months through October. There were increases in airline fares and new motor vehicle prices as well as prices for prescription medication and hospital fees.

Tobacco prices also rose last month as did household furnishings, which posted their largest gain since November 2012.   

Source: Reuters


 Upcoming CHHMA Events 

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Tuesday, December 9, 2014
Casino de Montreal, Montreal, Quebec

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Held in Conjunction with the International Home+Housewares Show
Sunday, March 8, 2015
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CHHMA Spring Conference & AGM
Wednesday, April 8, 2015
International Centre (Conference Facility), Mississauga, Ontario

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Held in Conjunction with the National Hardware Show
Tuesday, May 5, 2015
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CHHMA Ontario Golf Tournament
Tuesday, May 26, 2015
Angus Glen Golf Club, Markham, Ontario

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