Canadian consumer spending poised to rebound

Your top financial and economic news for Nov. 25


Top of the morning

FT Alphaville’s Matthew Klein discusses research concerning whether some people who’ve been out of work for an extended period of time shouldn’t be considered part of the available supply of unutilized labour, which economists commonly refer to as slack:

One provocative theory, articulated by, among others, Alan Krueger as well as researchers at the Federal Reserve Bank of New York, is that the long-term unemployed (six months or more without a job) shouldn’t be counted as “slack”.

According to this line of thinking, employers think of people who have been out of a job for too long differently than they do other potential employees. That means the long-term unemployed won’t compete with other workers. Less competition means labour has more bargaining power to get bigger wage increases than would be predicted by the unemployment rate. The conclusion is that central bankers should focus more on the short-term unemployment rate in their models rather than the total unemployment rate…

On the homefront

The TSX slumped on Monday, snapping a six-session winning streak. Natural resource stocks, which had fared well the previous week, sold off the most. The price of WTI crude oil sagged in the afternoon, weighing on the Energy sector, as market participants expect that OPEC will not move to curtail production by any dramatic amount following the cartel’s meeting on Thursday. TSX 60 futures are moving modestly higher ahead of the open.


After sinking yesterday, the Canadian dollar has recovered to 0.887 against the greenback this morning.


Convenience store chain to release earnings. Alimentation Couche-Tard (ATD.B) is set to release its earnings report this morning, its first without Alain Bouchard at the helm. The longtime leader was succeeded as CEO in late September by Brian Hannasch, who previously served as COO. Strong margins in its fuel business, thanks to the drop-off in crude, are expected to continue to support the firm’s bottom line. The stock is up double-digits since the market troughed on October 15, though it has sold off heavily over the past few sessions ahead of this release.


Retail sales on deck. Statistics Canada will publish retail sales figures for the month of September at 8:30am (EST). After back-to-back declines, including an unanticipated dip in August, retail sales are expected to show a solid improvement. “Autos will make a comeback in September’s retailing report,” writes CIBC economist Nick Exarhos. “Lower gasoline prices will mean that the ex-autos reading won’t be as strong, but consumer aren’t likely to pocket the entirety of those fuel savings.” Spending less at the pump frees consumers to use these funds on more discretionary purchases. But while this is the last major data point we’ll get before Q3 GDP on Friday, don’t expect it to move the needle too much on the overall outlook – certainly not for the quarter, and not too much for the month, either. “Since [retail sales] only represent about 5-6 percent of monthly GDP they won’t swing the broad results that much,” writes Scotiabank chief economist Derek Holt.

UPDATE: Retail sales rose by 0.8 percent month-over-month, three tenths of a percentage point higher than anticipated. However, the increase was driven wholly by sales of autos. Excluding this segment, retail sales were flat on a monthly basis; economists were calling for so-called ‘core’ retail sales to rise by 0.3 percent.


OECD recommends that Bank of Canada rate hikes begin in May. Once again, the OECD is striking a more hawkish note than Canadian monetary policymakers. The organization thinks the Bank of Canada will begin raising rates in May, while market participants expect a rate hike in the fourth quarter of 2015, writes The Globe and Mail’s David Parkinson. If any monetary policy-related statement might upset the unemployed youths of Canada, this call for a withdrawal of stimulus ahead of significant progress in eliminating the labour market gap certainly should.


The best mortgage Hudson’s Bay Company ever took out. Shares of Hudson’s Bay Company (HBC) surged by 8 percent on Monday after management announced that the firm received a $1.25-billion (U.S.) mortgage for its Saks Fifth Avenue store. The location was appraised for much more than what Hudson’s Bay paid for Saks when it acquired the company last year, suggesting it managed to purchase the firm at a very favourable price. The proceeds will be used to pay down debt. CEO Richard Baker also indicated that the firm would unveil a plan for its real estate holdings in the fourth quarter, which might include the possibility of creating a REIT.

Daily dispatches

China’s rate cut may have inspired a short-term rally, but market participants seem to be having second thoughts. “The risk-on trade seen yesterday is hardly evident today with investors unconvinced the easing measures taken by China will be adequate in the near term. Some analysts have gone as far as saying China is no longer ‘credit efficient’ primarily due to asset overvaluation and high debt levels,” writes IG market strategist Stan Shamu. “This could easily be a long road to recovery for China but it seems officials are more concerned about preventing a hard landing next year, as opposed to instant gratification.”


Germany’s marginal growth of 0.1 percent in the third quarter was confirmed by the revised figures released while North America slept. Government and personal spending, as well as net trade, managed to make a positive contribution to growth; investment spending was a large drag on the economy.


Deadline for nuclear deal with Iran extended. World powers and Iran were still far from reaching an agreement on the nation’s nuclear program, and extended the deadline for such an accord until July 2015. The terms of this extension have not resulted in the removal of any sanctions, according to the Washington Post. The absence of a deal provides, in theory, some support for crude oil, as Iran continues to face restrictions on its ability to export black gold.


The second reading of U.S. Q3 GDP is slated to be released at 8:30am (EST). The consensus estimate is for growth to come in at an annualized 3.3 percent, modestly lower than the 3.5-percent expansion suggested by the advance reading.


Retail sales in Italy fell by 0.1 percent month-over-month in September. “That’s five consecutive monthly declines and the seventh this year,” writes Bank of Montreal senior economist Benjamin Reitzes. “Italy needs big reforms…badly.”


Twitter CFO has massive #fail. Anthony Noto, CFO of the micro-blogging platform Twitter, accidentally published a public message that he meant to keep private. The remark appears to have been intended for another executive at the firm, and alludes to a possible takeover target. “I still think we should buy them,” he tweeted. “He is on your schedule for Dec 15 or 16 — we will need to sell him. I have a plan.”