April 2011 Canadian Economic Fundamentals

[Ally]

Canada's building permits leap higher




OTTAWA ` The value of building permits jumped more than expected in February, as a strong non-residential sector offset a big drop in residential activity, Statistics Canada said Thursday.




Permits rose 9.9% during the month to $5.8-billion, the federal agency said, following a 6.9% drop the month before, which was revised from the previous estimate of 5.1%.




Economists had expected building permits to rise between one per cent and 1.4% in February.





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[Ally]

Canada weaning itself off U.S. trade




OTTAWA ` Canada relied less on the United States last year as the main buyer of its exports and sharply boosted its trade with China, Statistics Canada data revealed Thursday.




The agency`s annual review of merchandise trade suggested the country`s exporters are diversifying their markets, something policy makers have been urging them to take advantage of fast-growing emerging economies where demand is stronger than in the United States.




The United States still accounted for 74.9% of Canada`s exports in 2010, but that was down from 87% in 2001.





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[Ally]

Real estate: A 'secret' tax shelter




TFSAs have been a welcome addition to the tax shelter landscape in Canada, but they leave something to be desired for those with substantial assets and maxed out RRSP and TFSA room.




Film limited partnerships have disappeared, charitable donation tax shelters were flawed from the start and the investment tax credit for flow-through shares may or may not be extended in the next budget.




Real estate is often overlooked in the quest for tax reduction and deferral, let alone income generation and inflation protection. If real estate is all of these things, why doesn`t everyone own a rental property? The answer is simple ` money.




It`s not that investors don`t have the money to get into the rental property market, because this can be easily accomplished with leverage and minimal monthly carrying costs. The problem is there is simply no money to be made by financial professionals when it comes to rental real estate. The result is that rental real estate is a secret tax shelter that few people ever consider.





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[Ally]

Young Canadians turning to home ownership





CALGARY ` Once Joseph Silot and Amy Cruz were pre-approved for a mortgage, it took them about a month or so to find a home to purchase.




The young Calgary couple viewed about 30 houses and condos before making their decision to buy a condo in the northwest neighbourhood of Sunnyside.




`Numerous factors contributed to our choice to purchase a home,` said the 27-year-old Silot. `From a general standpoint, the combination of the current market and interest rates allowed us to really consider the idea. Alongside the fact that both of us have steady jobs and can handle a mortgage for a place we want in terms of location, size, lifestyle and access to amenities, it proved to be very tempting.






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[Ally]

Coal demand trumps renewable efforts





All the growth in clean energy technology has done little to quell the world`s insatiable demand for dirty old fossil fuels.




On Tuesday, the Paris-based International Energy Agency (IEA) released its first report highlighting the progress that clean energy deployment is making globally. And while it pointed to a number of success stories, it made no secret of the fact that coal is still the fastest-growing energy source, meeting 47% of new electricity demand over the past decade. Overall, renewable energy generation has increased an average of 2.7% per year since 1990, less than the 3% growth for total electricity production, the report said.




`It isn`t a great surprise,` said Allen Wright, president of the Coal Association of Canada.





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[Ally]

Billions needed to maintain Canada's power grid: Report




OTTAWA ` Canada's power grid needs an annual investment of $15 billion over the next 20 years to meet growing demand and to refurbish or replace aging infrastructure, according to a study released Thursday.







The research, which was conducted by the Conference Board of Canada and funded by a consortium of utility companies, says that about $294 billion would be needed between 2010 and 2030 to cope with the strain placed on out-of-date infrastructure by increasing demand.







"With half of the generation assets built before 1980, the industry faces a pressing need to accelerate investment in infrastructure at all levels," said Len Coad, the director of energy, environment and technology policy with the Conference Board of Canada, in a statement.





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[Ally]

Job market stronger than it looks





OTTAWA ` The Canadian economy unexpectedly shed 1,500 jobs in March, data indicted Friday, as a big drop in part-time work and weakness in public sector payrolls offset a staggering 91,000 gain in full-time jobs.




The unemployment rate dipped to 7.7% in the month, as the number of people dropping out of the workforce surpassed March`s job loss.




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[Ally]

Canada's economy grew 3.3% in last quarter







Canada's economy surged at the end of 2010, with growth of 3.3 percent in the fourth quarter from a year earlier led by higher exports, a government agency said on Monday.




For the year, real gross domestic product grew 3.1 percent, following a 2.5 percent decline in 2009, Statistics Canada said in a statement.




Both beat expectations.




The central bank had forecast economic growth of 2.9 percent in 2010 before slowing to 2.4 percent this year, while analysts predicted only 3.0 percent fourth-quarter growth following a dismal third quarter.





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[Ally]

Real Estate market braces for TMX-LSE merger




The potential merger of the TMX Group, operator of the Toronto Stock Exchange, and the London Stock Exchange Group has sparked hot debate throughout the Canadian business community.




The move would create the world's biggest stock exchange, with more than 6,000 companies traded. The resulting company would be worth $6-billion and be jointly based in London and Toronto.





As Ottawa decides the deal`s fate (any merger or takeover of a Canadian company worth more than $299-million can be subject to government approval under the Investment Canada Act), experts in commercial real estate are weighing in. And while some see a favourable outcome, others are warning of negative side effects.




The merger should give both Canadian and British investors greater access to each others` markets, particularly in real estate investment trusts, says Milton Lamb, senior vice-president of national investment for Colliers International in Toronto.





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[Ally]

Young adults holding off on homeownership, survey finds




As rising home prices continue to outpace income growth, many young Canadians have decided to delay home ownership for another year, according to a poll released Thursday by Royal Bank of Canada.




RBC`s annual home ownership poll found that 55 per cent of respondents aged 18 to 34 said it made sense to delay a home purchase until next year. That`s 10 percentage points more than the national average for all age groups.




Meanwhile, about half of the young people in the survey who had already delved into home ownership said their mortgage was eating up too much of their income ` suggesting their peers may have good reason to wait.





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[Ally]

What the analysts say



TORONTO ` Canada`s job market stalled in March despite signs of robust economic growth, disappointing market expectations and removing any urgency for the central bank to raise interest rates right away.




Here's what the economists say:






DOUG PORTER, DEPUTY CHIEF ECONOMIST, BMO CAPITAL MARKETS




"The headline unemployment result is a bit of a shocker but you don`t have to dig too far beneath the headline to realize there`s quite a bit more strength here than the overall number would suggest. The breakdown between part-time and full-time is staggering, with more than 90,000 full-time jobs created in the month, obviously offset one-for-one by the drop in part-time jobs. But we also saw a small dip in the unemployment rate, as was largely expected. The other favorable point was that there was an increase in private sector payrolls, they were up by 8,000, but that was offset by a decline in public sector employment."





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[Ally]

Canada warns EU of trade conflict over oilsands




The Canadian government has stepped up lobbying in Europe for its oilsands industry, repeating its threats of trade conflict, a leaked letter shows.




The letter dated March 18 to Europe's commissioners for climate, trade and energy follows Canada's denial it threatened to scrap a freetrade deal unless the European Union alters planned environmental laws.




"Given the desire for freer trade between us, it is important that our individual efforts to address climate change do not lead to the creation of unnecessary barriers," Canadian trade official Mark Richardson said in a document sent with the letter.





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[Ally]

Home is where the tax benefits are



With spring comes the official launch of house hunting season. So, what better time to ensure that you are maximizing the tax benefits associated with home ownership, especially since the 2010 tax return filing deadline is fast approaching.





If you purchased a new home in 2010, don't forget to claim the relatively new Home Buyers' Tax Credit. Introduced in 2009, this non-refundable tax credit is based on a $5,000 amount for first-time homebuyers which, at the 15% federal credit rate, is worth $750.





Interestingly, you are considered a first-time homebuyer if neither you nor your spouse or partner owned and lived in another home in the calendar year of purchase or any of the four preceding calendar years. In other words, you could have owned a home previously, but if you sold it and then perhaps rented for four years or so, you still may qualify as a first-time homebuyer for the purpose of claiming the credit if you bought a home in 2010.





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[Ally]

Canada's first 2011 rate hike now seen in July




The Bank of Canada is widely expected to make its first interest rate hike of 2011 in July, as it balances rising economic growth against tame inflation and a high-flying Canadian dollar.




The central bank is expected to raise its key rate to 1.25% on July 19 from the current 1%, according to the median forecast of a Reuters poll of economists and strategists released on Thursday. The survey was conducted between April 1 and April 7.




This marked a shift from a previous poll on Feb. 24, when the median forecast was for the first interest rate hike to come in May.




More than 80% of respondents expected a rate rise in July. Nearly two-thirds of respondents said the rate hike in July will be the first 25-basis-point rate increase this year, up from about 20% of those surveyed in February.





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[Ally]

Underwater mortages: When is it OK to just walk away?




Let`s just say you owed somebody a ton of money but there was no legal way to force you to pay it back.




Would you? What if it was one of those evil corporate banks that make for an easy target? Did the answer just get a little easier?





Not for 60% of Americans who say it is never okay to simply stop making payments on your home, according to a survey by Eagan, Minnesota-based findlaw.com, a free legal information website.





Another 34% say it`s okay to walk away from a mortgage but only if you can`t make the monthly payments. Only 3% of believe you should be able to walk away from a mortgage anytime you want, according to the survey which interviewed 1,000 American adults and had a margin of error of plus or minus three percentage points.





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[Ally]

Returns without the brick and mortar




Want to invest in real estate without the hassle of becoming a landlord?




Pretty much every advantage of buying property directly and renting it out can be achieved passively through REITS or funds invested in them.




In a popular blog this week at financialpost.com, fee-only financial planner Jason Heath wrote that real estate is a `secret` tax shelter because few advisors make money recommending its purchase. He focused on direct ownership of rental real estate and the tax deductibility of related expenses like interest.





Read the full article here.

 

[Ally]

Home building rises more than forecast




OTTAWA ` Home construction rose more than expected in March, mainly due to an upswing in rural activity, Canada Mortgage and Housing Corp. said Friday.




The seasonally adjusted annual rate of housing starts was 188,800 units last month, up from 183,700 units in February.




`Housing starts moved higher in March mostly because of increases in rural starts,` said CMHC chief economist Bob Dugan. `Urban starts saw little change as the increase in Ontario`s multiples segment was off-set by a decrease in British Columbia`s multiples and a decrease in single housing starts in the Prairies.`





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[Ally]

Job gains lag tax cuts: Study




A decade's worth of corporate tax cuts have padded the bottom lines of Canada's largest corporations, but those companies have created jobs at a somewhat slower rate than the economy as a whole, a study says.




The study, produced by the leftleaning think-tank Canadian Centre for Policy Alternatives, concluded that 198 of Canada's largest publicly traded corporations made 52 per cent more in profit in 2009 than in 2000 while paying 20 per cent less in taxes. Between 2005 and 2009, when employment in Canada grew by six per cent despite a global recession, the largest companies created five per cent more jobs.




"Despite their growing profits and massive tax savings, the number of jobs created by Canada's largest corporations was lower than the average employment growth across all sectors of the economy," said David Macdonald, the study's author and a researcher with CCPA. "In essence, the largest beneficiaries of corporate tax cuts are dragging down Canadian employment growth."





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[Ally]

Canada will lead G7 Growth: OECD




Canada is set to lead all Group of Seven countries in economic growth in the first half of 2011, the Organization for Economic Co-operation and Development said Tuesday in an interim economic outlook.




The OECD said it is now more confident that the global recovery is becoming entrenched, with data exceeding its previous expectations from just a few months ago. Business investment and exports are driving the recovery, the Paris-based group added.




"The outlook for growth today looks significantly better than it looked a few months back," said Pier Carlo Padoan, OECD chief economist.





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[Ally]

Bank of Canada interest rate announcement and Monetary Policy Report




FORECASTS: All 41 economists and strategists in a Reuters poll released on Thursday expected the Bank of Canada to keep its benchmark interest rate unchanged at 1 percent on April 12 and most predict no move on May 31 either. July 19 is now widely seen as the most likely date for the bank to resume tightening monetary policy. [CA/POLL]





This marked a shift from a previous poll on Feb. 24 when the median forecast was for the first hike to be in May.





Yields on overnight index swaps, which trade based on expectations for the central bank rate, showed investors see almost no chance of a rate move this month and have fully priced in a quarter-point increase by September. BOCWATCH



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