(This post has been updated to reflect the interest rate increase on July 12.)
As the majority of private sector economists expected, the Bank of Canada hiked interest rates on July 12 for the first time in nearly seven years. Despite the Bank’s assertion as recently as January that another rate cut was “still on the table,” top officials had grown more bullish about the economy. Here’s a look at several key measures that show just how fast Canada’s economy has turned around over the past six or so months—and the one key measure that’s lagging
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In June the economy added roughly 45,000 net new jobs, which was the fastest pace of annual employment growth since early 2013. It wasn’t all good news—the tighter job market hasn’t translated into much bigger paycheques, with average weekly wages rising at just 1.1 per cent from the year before, meaning that after inflation Canadians took a slight pay cut. Still, there’s no denying the strong rebound in job growth.
The boom in employment could keep on going, too, if the Bank of Canada’s business outlook survey is any indication. The latest quarterly survey, released on June 30, showed businesses were the more intent on hiring new employees than they’ve been in more than a decade. (The Bank’s gauge of hiring intentions shows the balance of businesses expecting to add new employees minus those that think their employment levels will be lower.)
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Business expectations for future sales
Another key measure from the Bank of Canada’s outlook survey is the optimism businesses suddenly have about future sales of their goods and services. The Bank’s indicator of future sales gauge hasn’t been at this level since 2012.
One factor driving business optimism is the increase in demand abroad for Canadian-made goods. Canada’s weak export picture had been a constant source of concern for Stephen Poloz in recent years (reminder: before he was the Governor, Poloz was the head of Export Development Canada). As recently as January the Bank expressed concern about “choppy” exports and Donald Trump’s protectionist tendencies. With exports now growing at their fastest pace since 2011, that likely checked off an important box for Poloz in deciding to increase interest rates.
Retailers are also enjoying the best run they’ve had in years, despite the high-profile woes of big chains like Sears (which is in bankruptcy protection) and HBC, which is slashing jobs to cut costs. Flush with cash withdrawn from the equity in their homes and other borrowed money, Canadian consumers have gone on a spending spree with gains spread across a wide variety of retail sectors, including vehicles, building materials, home furnishings, clothing and food.
Gross Domestic Product
All of this is feeding into the strongest economic growth Canada has seen since the collapse of oil prices in 2014.
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One key ingredient is missing from Canada’s economic turnaround, and it’s the most important piece of the puzzle as far as the Bank of Canada’s mandate is concerned: inflation. Inflation has tumbled below the Bank’s two per cent target, and this doesn’t include the full effect of the latest decline in oil. Going forward, this will be a big factor in determining if and when Poloz next raises rates.
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