Canadian Economy and Unemployment Rate

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After an unexpected half-point contraction in the second quarter, the Canadian economy expanded better than expected by 3.5 percent in the third quarter. The U. S. economy expanded by 2 percent in the same period. Increased demand for exports was behind this unexpected growth. Although the economy is expected to grow in a positive pace in the last quarter of 2011, it may not be as robust as the 3rd quarter.

Consumer spending on goods and services rose in the 3rd quarter by 0.3 percent, lower than 0.5 percent of the 2nd quarter. Government spending on goods and services rose in the 3rd quarter by 0.2 percent. Growth was seen in the goods producing industries and service industries by 1.4 and .6 percent. Energy, manufacturing, construction, transportation, and wholesale trade are where growth occurred most.

Canada’s unemployment rate rose to 7.4 percent in November, making it the fifth consecutive month since June in which there was no new job creation. In the U. S. 120,000 jobs were created for the same month. However, the overall pace of job creation in Canada is still higher than the U. S. since the recession. With 13.2 percent unemployment rate, Newfoundland and Labrador has the highest unemployment rate. Conversely, Alberta has the lowest unemployment rate at 5.0 percent.

Bank of Canada states that economic activity will be sluggish in the last quarter of 2011 and the early months of 2012 with a possibility of conditions getting worse if the European debt crisis continues to drag down the global financial situation. However, the Canadian government will remain flexible with its economic policies and will intervene with new stimulus packages if necessary.

Data Source: Statistics Canada

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I have been contemplating writing about Canada’s being the best country on earth for a while. However, due to the volume of the good things about Canada to mention, I have been putting it off because I would have to write a book if I wanted to cover everything. Finally, instead of writing by myself, I took a short cut and gathered some of the rankings done by well-known and reputable organizations. Here is how it stands:

According to OECD’s Better Life Index, Canada ranks high in all measures of well being and Life in Canada Is Better Than Most Other Industrialized Countries.

According to The Economist Intelligent Unit’s Global Liveability Report, 3-4 Canadian cities are always in the top ten and Vancouver is usually always the world’s most liveable city.

According to Mercer 2010 Quality of Living Survey, several Canadian cities are always on the top and top five North American cities are Canadian – no cities from the U.S. can be found in the top 25.

According to the UN Human Development Index, which measures quality of life in countries around the world, Canada is one of the world’s best places to live and is always in the top ten.

According to The Heritage Foundations’ 2011 Index of Economic Freedom, Canada is the 6^th freest country in the world.

According to the Vision of Humanity’s 2011 Global Peace Index, Canada is the 8^th most peaceful country in the world.

According to The World Economic Forum’s Global Competitiveness Report 2010-2011, Canada is in the top ten.

According to Transparency International’s Corruption Perceptions Index 2010, Canada is one of the least corrupt nations on earth.

These are only a few to mention. Any way you look at Canada, using any reports or indexes, it is in the top ten consistently year after year. A point worth mentioning is that you will not find our big brother in the south in the top in most of these rankings. Canada is a multi-racial, multi-cultural, and multi-linguistic country. Canada’s diversified backgrounds and cultures make it more unique than any other country on earth. Canada is the first country in the world to declare itself a multicultural country and in 1982 Canada added multiculturalism to its constitution. Canada recognizes, values, and protects its citizens’ diversity and human rights and treats each individual with respect, equality, and dignity. Canada is like nowhere else on earth and this is because Canada is the best country in the world.

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Statistics Canada reports that inflation in Canada reached three year high of 3.3 percent in April, a full one per cent up from the month before. This increase exceeds the Bank of Canada’s target range of 1 to 3 per cent. The main elements that contributed to this inflation are energy, gasoline prices and food costs. Energy rose 17.1 per cent, gas price rose 26.4 per cent (6 per cent over the month), and food rose 3.3 per cent in the year. As the inflation news seems to remain in the spotlight, many consumers wondering whether they should be worried these inflation numbers.

Not so fast. Although the inflation is at 3.3 per cent, core inflation remained tame at 1.6 per cent. Core inflation excludes eight volatile items such as fuel, vegetables, mortgage cost, and so on. To make things brighter, core inflation actually fell to 1.6 per cent from 1.7 per cent; and also, 3.3 per cent inflation rate was lower than 3.4 per cent forecast by analysts.

Bank of Canada predicts that the energy costs would keep the inflation above 3 per cent in the short term. However, it should return to central bank’s 2 per cent target range by mid 2012. Paris-based OECD (Organization for Economic Co-operation and Development) recently recommended that Canada should increase its interest rate by 25 basis points within the next quarter. It is expected that

Bank of Canada will start raising interest rate starting July 2011.

So, coming back to our question, should you be worried about Canada’s inflation? Consider the following facts:

• Unemployment rate is at 7.6 per cent
• 58,000 new jobs were created
• Upgraded growth forecast for 2011 from 2.4 per cent to 2.9 per cent
• Federal government is on track to balance its budget by 2014/2015

The way things are now, there is no need to worry.

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The New Mortgage Rules

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In mid-January, Finance Minister Jim Flaherty announced new mortgage rules that would be put in place to help stop rising debt levels among Canadians, and to keep another mortgage meltdown from occurring.

These rules, three of them in total, are another measure the government has put in place to tighten the rules for people getting mortgages. In 2010, stronger rules were put in place, and this adds to that.

The first new rule was that the maximum amortization period would be reduced from 35 years to 30 years for all government-backed insured mortgages with loan-to-value ratios of more than 80 per cent.

This is important because many citizens get mortgages for longer periods of time to save on monthly payments but in doing so they end up paying more in interest. For example, if a home is sold for $200,000 on a 35 year mortgage with five percent down, the average monthly payment is going to be $950. However, shorten the mortgage to 30 years and those payments go up to $1100. Yes, it is more money per month, but with five less years being paid on the mortgage, the interest savings would be in the thousands.

The second new rule is that the maximum amount that a Canadian resident can borrow to refinance their mortgage will go down from 90 per cent to 85 per cent of the value of their homes. This means that if your home is worth $750,000, you can borrow $637,500 now, when you could have borrowed $675,000 in the past.

This is being done because the number of home-equity lines of credit have surged in Canada, going at twice the pace of mortgages over the past 10 years. Currently, these lines of credit account for 12 per cent of overall household debt within Canada.

The third new rule is that the government will withdraw government insurance backing on lines of credit that are secured by homes.

Currently, Canada has a mortgage default rate of roughly one per cent which is quite low, but the government wants to make sure that the number does not rise to the extremely high levels that are being seen in Europe and in the United States.

For those that want to get in on a 35 year mortgage though, you still have time. The changes will not take effect in the real estate industry for 60 days, which gives enough time to make the policy changes needed by mortgage companies and banks.

In the next federal budget, there may also be steps taken to tighten mortgage credit further to ensure that Canadians do not fall deeper into debt. Currently, debt levels are at their highest levels in history with many Canadians owing more than what they make each year.

So, if you want to get a mortgage before the new rules come into place, now would be the time to get it done. You only have until the middle of April to get mortgages for 35 years, or a new line of credit on your home refinancing.

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The Recession and The Great Canadian West

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Go west young man was often heard at the turn of the century for people wanting to find their fortune in the young country of Canada. Well, during the greatest recession since The Great Depression, the West is the place to be. According to a new Provincial Trends Report from Scotia Economics, the west is going to be the leader in Canada for the economic strength of the country in 2011, and that is also going to continue for many years.

The reason for this is simple. The west comprises British Columbia, Alberta, Saskatchewan and Manitoba, while the east is Ontario, Quebec and the Maritimes. The east sits over the eastern coast of the United States and the biggest economic centre of the USA. Therefore, the east is more interconnected with the United States economy, especially with manufacturing. With the implementation of Buy American in the United States, as well as the intense recession in the country, the east is suffering because the United States is suffering.

However, the west is doing much better. British Columbia is benefiting from trade with China, Alberta and Saskatchewan have oil and energy, while Manitoba has natural resources that are in high demand.

The province that will lead the country is of no surprise, it is Alberta, with a growth of 3.5 per cent, while Saskatchewan will follow behind at 3.3 per cent. This is not what Ontario and Quebec can expect to see. Both will have less than two per cent growth in 2011 and beyond, a big turnaround from when those two provinces were the economic engines of the country.

The oil sands are helping Alberta stay strong, even with the backlash against them. Oil is also one reason why a historic have-not province is now playing with the big boys out west. While the east is not expected to do well, Newfoundland and Labrador is expected to do extremely well, with a growth of 3.1 percent. The reason for this is the oil and gas off the coast of the province, as well as its very rich deposits of iron and nickel.

Canada as a whole will benefit from the west and Newfoundland because they will help keep the Canadian economy moving along and offset the issues being experienced in the east and central Canada, including the over-priced loonie and less trade with the United States.

Ontario and Quebec will be below two per cent in growth, as was stated, but the Maritimes should see about two per cent growth in 2011, with the Maritimes being hit less than the rest of the country. Other growth projections for provinces not already mentioned dare 2.5 per cent for Manitoba and 2.8 per cent for British Columbia.

All in all, thanks to the strong economy of the west, Canada will do okay in the next few years, even as the United States continues to struggle through a difficult economic time called The Great Recession.

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Understanding the New Credit Card Laws

In an effort to make it easier for customers to pay back their credit cards and not fall behind to the point where they are swimming in debt. These rules actually came in effect on Sept. 1, but many residents of Canada do not know about them. To help educate people on the new rules, here is a brief rundown of what you need to know.

1. There is a minimum grace period now of 21 days that are interest free on all new credit card purchases when a customer pays the outstanding balance completely.
2. When a customer pays the minimum payment in excess, meaning they pay more than the minimum payment, the credit card company must allocate the excess so that it is put on the balance with the higher interest rate first, and then distributed proportionally to all other types of balance such as cash advances.
3. Credit card issuers must inform consumers of their monthly statement and how long it will take to fully repay the balance if only the minimum payment is paid. This gives you a better understanding of how much time it is going to take for you to pay it off if you make no purchases on it.
4. Another rule is that there must be a complete disclosure of interest-rate increases prior to those rates taking effect at all.

The biggest problem with these rules is that the Canadian public has not been educated on them, so many do not even know that they exist. The main reason is the government has not worked hard enough to publicize the rules, which means that many credit card companies can break the rules illegally, and consumers will not even know that their rights are being stepped on. It is very important that consumers learn these rules and pay attention to their credit cards so they can know whether or not they are being cheated out of the regulations put in effect to help them.

There was a voluntary code in place that would help to stop merchants from paying higher and higher costs from credit card companies but the problem was that credit card companies chose not to comply with it. As a result, those temporary rules became permanent and credit card companies are now forced to follow them, including allow merchants to cancel contracts without a penalty.

Credit card debt can literally sink a household and make it impossible for the house to pay their bills and survive day to day on what they have left. As a result, Canada is making it much easier for consumers to pay their credit card bills by ensuring that there are rules in place to protect the consumer. However, it is up to you as the consumer to know the rules and to make sure that the credit card companies are following them when they are dealing with you. It is your right as a Canadian citizen, so do not let credit card companies off the hook.

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In Canada, the economy has done better than elsewhere in the world and that led the Bank of Canada to raise interest rates to help kept he economy moving. However, as the economy begins to stall, there is speculation that the interest rate may not increase much more, freezing altogether.

According to Bank of Canada Governor Mark Carney, the concern about a stalling recovery may result in the lowering of the interest rate for the first time in a year. The interest rate has gone up from .25 percent to one percent over three increases in the past few months but since the economy of Canada shrank for the first time in 11 months, there may be no more increases.

The Bank of Canada was the first Group of Seven central bank to raise rates following the recession, well ahead of the United States which is now looking at having another stimulus package made up to help their economy.

Jim Flaherty, Canada’s Finance Minister, has said that a slower growth will not trigger a new round of government spending. He also said the $47 billion stimulus package will be ending, which the Bank of Canada expects will cause the economy to shrink by .2 percent by next year.

Weak consumer spending has also meant that the CIBC World Markets cut its 2011 growth forecast because of the low spending and lack of U.S. exports. Carney also said that because of the sluggishness of the economy now, the interest rate will not go up until at least March to June next year.

There have been many obstacles to the recovery of the Canadian economy lately, especially due to the jobless rate in Canada, which stands at 8.1 percent. This is two percent higher than it was during the beginning of the recession.

Another concern with the economy is the fact that the real estate market may be heading to a bubble. In the past year, the real estate market was riding high on low interest rates, but as the interest rates increased, an imbalance happened, causing the possibility of a housing bubble to become much higher. This has many concerned because the surging real estate market in places like Toronto and Vancouver helped the economy grow immensely during the last part of the recession. In addition, other parts of the economy were doing better. Since the interest rate went up though, things have changed and many are beginning to think that the raise in interest rates was actually a bad idea, causing the economy to shrink. With no more increases expected until next year, the economy will hopefully recover and continue to lead the world in its strength. Whether that will remain the case is something that will have to remain to be seen in the future. There is still a good chance that the interest rate will decrease soon though, if the economy continues to be stagnant in the coming months.

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Canada Seeing Slower Growth

Just when it seems like Canada is coming out of the recession, things begin to slow down for the country. While Canada has faired better than the United States, and most other countries for that matter, it still has seen slower than expected growth lately. This is a trend that has been seen throughout North America, with the trade shortfall for the continent falling to the biggest gap seen since October of 2008, considered to be the beginning of the global recession that brought the world’s financial markets to their knees.

The trade deficit of Canada widened to $1.13 billion, which is a huge drop from the $695 million seen the previous month. In addition, June saw a decrease of 2.5 percent in June for exports. What is unfortunate is that the fall in exports came six months after high volumes of exports from Canadian companies that were doing good business.

Sales to the United States also fell by one percent in June, which caused the trade surplus Canada has with their neighbour to fall to $3 billion. In addition, further exports to international countries fell by seven percent, including a 20 percent drop to the European Union. The biggest drop came in exports of gold and other metals, which fell by 24 percent. Imports also fell by 1.2 percent, especially in the area of energy imports, which fell by 19 percent due to lower prices.

What this shows is that many businesses are still investing their money, and consumers are still spending their money, but the demand for goods from Canada has shrunk as a result. Which in turn hurt the Canadian economy because of the massive amount of money that comes in from other countries. Canada has suffered in the past two years because of the United States trouble with the financial crisis. This is in addition to the new policy of the country to buy American, which hurts Canadian exports even more.

Many economists in Canada are worried that the United States could go back into recession very soon because the U.S. Federal Reserve is on deflation and that means a higher risk for recession in the United States.

The Bank of Canada has already stated that the European debt crisis and other problems could cause a .1 percent point off Canada’s GDP this year, a .3 percent point off in 2011 and .2 percent point off in 2012. With growth slowing in Canada from April to June by three percent, those dips in GDP are almost certain to happen.

Overall, many are hoping that Canada continues to be one of the leading countries in the recession. Canada, while it has had some economic trouble, has not seen the same level of problems that were seen in the United States, European Union, or elsewhere. Canada is the only G7 country to raise its interest rates twice, and many hope that this slowdown is just a brief bump in the road for an otherwise rebuilding economy.

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The Performance of the Canada Pension Plan

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The Canadian Pension Plan is very important to many people because it serves as a good chunk of their monthly income when they retire. To ensure that the Canada Pension Plan always has money in it, the Canada Pension Plan Investment Board oversees the plan to ensure that it keeps growing to accommodate the growing population of Canada. Under the direction of the Finance Minister at the time, Paul Martin, the CPP Investment Board was created in 1997 as an independent organization that monitors the funds in the CPP and invests them. Every three months it reports on its performance and a professional team oversees the operation of aspects of the CPP fund, while also planning out the direction of the investments.

In order to provide more money to those who will be retiring, especially baby boomers, the Canada Pension Plan Investment Board decided to use 45 percent of its assets to invest in securities located outside of Canada, including in Western Europe and the United States. The Investment Board has also been investing heavily in emerging markets because, as the board states, Canada as one market cannot accommodate the future growth of the pension plan.

According to most estimates, to sustain the population in 2020 that will be using the Canada Pension Plan, the CPP must grow at least 4.1 percent per year. By 2010, the CPP Investment Board had grown to $147 billion. The next 40 years also see some benchmarks for the CPP Reserve Fund that the CPP Investment Board hopes to achieve to accommodate a growing population:

• 2015:  $200 billion
• 2030:  $592 billion
• 2050:  $1.55 trillion

The performance of the CPP has varied in the past few years, as has the CPP Reserve Fund, which grows based on the contributions by Canadians. In the past few years, the CPP Reserve Fund has grown and fallen over the years, seeing a rate of return that was highly fluctuating:

• March 2003 Total Value: $55.6 billion Rate of Return: -1.1 percent
• March 2004 Total Value: $70.5 billion Rate of Return: 10.3 percent
• March 2005 Total Value: $81.3 billion Rate of Return: 8.5 percent
• March 2006 Total Value: $98.0 billion Rate of Return: 15.5 percent
• March 2007 Total Value: $116.6 billion Rate of Return: 12.9 percent
• March 2008 Total Value: $122.7 billion Rate of Return: -.29 percent
• March 2009 Total Value: $105.5 billion Rate of Return: -18.6 percent

The large fall in 2009 was because of the recession that hit the world due to the credit crisis that began in the United States. However, the increase in 2010 was expected to be roughly seven percent, which would allow the CPP Reserve Fund to increase for the first time since 2008.

The Canadian Pension Plan needs to grow at a continuous rate to ensure that there is enough money available for the growing retiring population in Canada. With millions of Baby Boomers retiring and not enough of subsequent generations to prop up the Pension Plan, the Pension Plan needs to grow to ensure everyone has enough money when they retire using the Pension Plan. As long as there are no more years like 2009, it should continue to grow to meet those needs.

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Canada’s Deficit Shrinks

There was some good news from the federal government this week as the government discovered there may be less of a deficit for the economy than was original thought. In February, the government ran with a budget deficit of nearly $1 billion, which would make it the smallest monthly shortfall in the space of a year. Now, with one month left in the fiscal year for the government, it looks like the deficit is going to be less than the $53.8 billion originally estimated by the government. Thanks to the small shortfall within February, and with the surplus from one year earlier that amounted to $817 million, the total shortfall for the fiscal year in Canada is only going to be $40.5. Yes, that is quite a significant number, especially considering that last year the government had a $1.3 billion surplus last year during the same 11 months. However, it is all in how you look at it. The $40.5 billion shortfall is pretty bad, but with it being $13.8 billion less than what was originally expected, you have to consider that to be a win.

The Finance Department considers this good indication that while the economy still is pretty weak, the Action Plan of the government is helping to improve things and lessen the hit that the government and the country are taking from the extended recession that began in late-2008.

Almost half of the deficit came in February when the government began doing economic stimulus spending. During that month, $18 billion was spent to get the economy moving. The government also saw its revenues fall drastically compared with the previous fiscal year. Revenues were down to $16.9 billion, which is a 7.9 percent drop. Program spending increased to $26.4 billion, or by 14.4 percent because of the higher amount of individuals currently on employment insurance payments, as well as the bailout of the automotive industry.

The public debt charge did fall by $1.5 billion thanks to the lower interest rates, which are now increasing as the government tries to stem the incredible growth of the real estate industry to prevent another collapse. In the federal budget released in March, Finance Minister Jim Flaherty announced that there would be spending restraints. Coupled with the stimulus program of the government, this is expected to reduce the deficit of the budget to $27.6 billion by the fiscal year of 2011-12. It is expected that the budget will be balanced by 2014-15.

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