Employment and labour force participation rates stayed steady at their record high levels to close out 2023, the Organization for Economic Cooperation and Development (OECD) reports.
The Paris-based group said the overall employment rate across the OECD was 70.1% in the fourth quarter of last year, and the labour force participation rate came in at 73.8% — which marked the highest levels on record for both metrics.
The employment rate exceeded 70% in almost two-thirds of the OECD countries — including Canada, the U.S., Germany, Japan, and the U.K. — in the fourth quarter.
And the OECD said that the gender gap narrowed, as the employment rate improved by one percentage point for women, outpacing a 0.3 percentage point increase for men.
In the wake of these record employment and labour force participation rates at the end of 2023, the OECD said the jobless rate remained stable in early 2024 at just 4.9% for the OECD overall, and sat at record lows in Europe.
More recently, signs of slack in certain labour markets have started to appear however.
For instance, in March, the unemployment rate increased slightly to 5.4% in Canada, the OECD said.
Finance Minister Chrystia Freeland delivered a federal budget Tuesday that keeps the deficit capped at $40 billion, thanks to higher-than-expected government revenues and new taxes that largely offset billions in new spending.
Freeland presented the federal budget in the House of Commons in the afternoon, which pledges $53 billion in new spending that she says is focused on economic justice for younger generations.
“We are moving with purpose to help build more homes, faster. We are making life cost less. We are driving the kind of economic growth that will ensure every generation of Canadians can reach their full potential,” said Freeland in her opening remarks in the House of Commons.
The Liberal government plans to pay for most of its new spending initiatives with higher taxes on the wealthiest Canadians and businesses, and from stronger-than-expected government revenues.
The government is also proposing the Canadian Entrepreneurs’ Incentive, which will reduce the inclusion rate to a third on a lifetime maximum of $2 million in eligible capital gains.
“But the capital gains inclusion rate increase to 66.7% will create many net losers, including owners of medium-sized businesses,” Kelly said in a statement.
James Orlando, TD’s director of economics, said federal spending is speeding up but remains below the government’s self-imposed “speed limit.”
“We’re looking at a deficit profile that is going to be wider than what we saw just a few months ago. And so that means that you’re going to have greater spending, greater debt burden,” Orlando said in an interview.
“But due to the fact that common growth has improved, you still have the government flying under their fiscal anchors.”
In the lead-up to the budget, Freeland promised that the government would abide by the fiscal guardrails it promised in the fall, including keeping the deficit from rising above $40.1 billion.
The fall economic statement also set the goal of keeping deficits below 1% of GDP beginning in 2026-27 and lowering the debt-to-GDP ratio in 2024-25 relative to the projection.
While the deficit for the 2023-24 fiscal year remained flat at $40 billion, it came in higher than previously forecast for the rest of the projection horizon.
Still, the deficit, deficit-to-GDP ratio and debt-to GDP ratio are all projected to fall every year until 2028-29.
Federal finances are also benefiting from a stronger economy and higher-than-expected income tax revenues, which also helped the government pay for new measures without blowing through their promised fiscal guardrails.
The spending plan from Ottawa coincided with the latest consumer price index report.
Canada’s annual inflation rate ticked up to 2.9% in March, while measures of core inflation cooled, reinforcing the possibility of a June rate for the Bank of Canada.
Governor Tiff Macklem applauded the federal government’s new fiscal anchors unveiled in the fall and has called for fiscal policy to row in the same direction as monetary policy.
But Orlando said increasing deficits don’t make the central bank’s job of fighting inflation easier.
“I would argue that … having greater deficits is inflationary for Canada. And so it’s not helping the Bank of Canada in any way with respect to bringing down inflation,” he said.
The federal deficit is projected to be $39.8 billion for the 2024-25 fiscal year, which is above the fall’s projection of $38.4 billion.
Federal Reserve Chair Jerome Powell cautioned Tuesday that persistently elevated inflation will likely delay any Fed rate cuts until later this year, opening the door to a period of higher-for-longer interest rates.
“Recent data have clearly not given us greater confidence” that inflation is coming under control” and instead indicate that it’s likely to take longer than expected to achieve that confidence,” Powell said during a panel discussion at the Wilson Center.
“If higher inflation does persist,” he said, “we can maintain the current level of (interest rates) for as long as needed.”
The Fed chair’s comments suggested that without further evidence that inflation is falling, the central bank will likely carry out fewer than the three quarter-point reductions its officials had forecast during their most recent meeting in March.
Powell’s comments followed a speech earlier Tuesday by Fed Vice Chair Philip Jefferson, who also appeared to raise the prospect that the Fed would not carry out three cuts this year in its benchmark rate, which stands at a multi-decade high after 11 rate hikes beginning two years ago.
Jefferson said he expects inflation to continue to slow this year with the Fed’s key rate “held steady at its current level.” But he omitted a reference to the likelihood of future rate cuts that he had included in a previous speech in February.
Last month, Jefferson had said that should inflation keep slowing, “it will likely be appropriate” for the Fed to cut rates “at some point this year” — language that Powell has also used. Yet that line was excluded from Jefferson’s remarks Tuesday.
And if elevated inflation proves more persistent than he expects, Jefferson added, “it will be appropriate” to keep rates at their current level “for longer” to help slow inflation to the Fed’s 2% target level. U.S. consumer inflation, measured year over year, was most recently reported at 3.5%.
Fed officials have responded to recent reports that the economy remains strong and inflation is undesirably high by underscoring that they see little urgency to reduce their benchmark rate anytime soon. Wall Street traders had long expected the central bank to cut its key rate at its June meeting but now don’t expect the first reduction before September.
On Monday, the government reported that retail sales jumped last month, the latest sign that robust job growth and higher stock prices and home values are fuelling solid household spending. Vigorous consumer spending can keep inflation elevated because it can lead some businesses to charge more, knowing that many people are able to pay higher prices.
Canada Mortgage and Housing Corp. says the annual pace of housing starts in March declined 7% compared with February.
The national housing agency says the seasonally adjusted annual rate of housing starts amounted to 242,195 units in March compared with 260,047 in February.
When looking at year-over-year figures, actual housing starts in large urban centres were up 16% to 17,052 units last month compared with 14,756 units in March 2023. The year-over-year increase was driven by higher multi-unit starts, up 19%, and higher single-detached starts, up 2%.
Actual housing starts were 10% higher in Toronto and 15% higher in Vancouver year-over-year because of an increase in multi-unit starts. Montreal’s actual starts dipped 1%, dragged down by lower multi-unit starts.
The annual rate of rural starts was estimated at 21,452 units.
TD economist Rishi Sondhi said housing starts continue to trend “at a solid pace,” even with the month-over-month decline in March, supported by elevated prices and firm pre-construction sales in the past.
But he cautioned that further decreases to the number of starts are likely in the months to come.
“While governments are actively looking for ways to enhance supply, we think that housing starts are likely to decline further this year, on the back of more recent weakness in pre-sales activity,” he said in a note.
“What’s more, industry analysis suggests that financing for purpose-built rental units currently under construction was obtained when borrowing conditions were more favourable. As they’ve turned tougher, this segment of the market could be impacted.”
Month-to-month starts can fluctuate significantly since the launch of larger multi-unit developments can skew numbers. Adjusted starts in March were up 27% in Vancouver, driven by an increase in multi-unit starts, while Toronto and Montreal declined 26% and 5%, respectively, due to decreases in multi-unit starts.
To smooth out those swings and give a clearer picture of the upcoming housing supply trend, CMHC also reports a six-month moving average of the adjusted rate.
In March, the indicator showed starts at 243,957, down 1.6% from 247,971 in February.
“The slight decline in multi-unit housing starts in March likely just reflects the volatile nature from one month to the next of these large projects,” Desjardins economist Kari Norman said in a note.
“Looking forward, the gradual unwinding of interest rate hikes expected to begin this June will bring cautious optimism to housing starts. However, this optimism is tempered by challenges such as construction labour shortages, inflation in building materials costs and weaker homebuilder sentiment.”
She said those factors could potentially slow the momentum seen in early 2024, despite a favourable shift in monetary policy.
The International Monetary Fund has upgraded its outlook for the global economy this year, saying the world appears headed for a “soft landing” — reining in inflation without much economic pain and producing steady if modest growth.
The IMF now envisions 3.2% worldwide expansion this year, up a tick from the 3.1% it had predicted in January and matching 2023’s pace. And it foresees a third straight year of 3.2% growth in 2025.
In its latest outlook, the IMF, a 190-country lending organization, notes that the global expansion is being powered by unexpectedly strong growth in the United States, the world’s largest economy. The IMF expects the U.S. economy to grow 2.7% this year, an upgrade from the 2.1% it had predicted in January and faster than a solid 2.5% expansion in 2023.
Though sharp price increases remain an obstacle across the world, the IMF foresees global inflation tumbling from 6.8% last year to 5.9% in 2024 and 4.5% next year. In the world’s advanced economies alone, the organization envisions inflation falling from 4.6% in 2023 to 2.6% this year and 2% in 2025, brought down by the effects of higher interest rates.
The Federal Reserve, the Bank of Japan, the European Central Bank and the Bank of England have all sharply raised rates with the aim of slowing inflation to around 2%. In the United States, year-over-year inflation has plummeted from a peak of 9.1% in the summer of 2022 to 3.5%. Still, U.S. inflation remains persistently above the Fed’s target level, which will likely delay any rate cuts by the U.S. central bank.
Globally, higher borrowing rates had been widely expected to cause severe economic pain — even a recession — including in the United States. But it hasn’t happened. Growth and hiring have endured even as inflation has decelerated.
“Despite many gloomy predictions, the global economy has held steady, and inflation has been returning to target,” Pierre-Olivier Gourinchas, the IMF’s chief economist, told reporters ahead the release of the fund’s latest World Economic Outlook.
Though the world economy is showing unexpected resilience, it isn’t exactly strong. From 2000 through 2019, global economic growth had averaged 3.8% — much higher than the 3.2% IMF forecasts for this year and next. Keeping a lid on the world’s growth prospects are the continued high interest rates, along with sluggish gains in productivity in much of the world and the withdrawal of government economic aid that was rolled out during the pandemic.
The IMF warns that the economic expansion could be thrown off by the continuing adverse effects of higher rates and by geopolitical tensions, including the war in Gaza, that risk disrupting trade and raising energy and other prices.
China, the world’s No. 2 economy, has been struggling with the collapse of its real estate market, depressed consumer and business confidence and rising trade tensions with other major nations. The IMF expects the Chinese economy, which once regularly generated double-digit annual growth, to slow from 5.2% in 2023 to 4.6% in 2024 to 4.1% next year.
But on Tuesday, Beijing reported that China’s economy expanded at a faster-than-expected pace in the first three months of the year, fuelled by policies that are intended to stimulate growth and stronger demand. The Chinese economy expanded at a 5.3% annual pace in January-March, surpassing analysts’ forecasts of about 4.8%, official data show. Compared with the previous quarter, the economy grew 1.6%.
Japan’s economy, the world’s fourth-largest, having lost the No. 3 spot to Germany last year, is expected to slow from 1.9% last year to 0.9% in 2024.
Among the 20 countries that use the euro currency, the IMF expects growth of just 0.8% this year — weak but double the eurozone’s 2023 expansion. The United Kingdom is expected to make slow economic progress, with growth rising from 0.1% last year to 0.5% in 2024 and 1.5% next year.
In the developing world, India is expected to continue outgrowing China, though the expansion in the world’s fifth-largest economy will slow, from 7.8% last year to 6.8% this year and 6.5% in 2025.
The IMF foresees a steady but slow acceleration of growth in sub-Saharan Africa — from 3.4% last year to 3.8% in 2024 to 4.1% next year.
In Latin America, the economies of Brazil and Mexico are expected to decelerate through 2025. Brazil is likely to be hobbled by interest high rates and Mexico by government budget cuts.
Higher gasoline prices helped the annual inflation rate tick higher in March, but core inflation continued to cool for the month, raising the chances of an interest rate cut by the Bank of Canada in June.
Statistics Canada said Tuesday its consumer price index for March was up 2.9% compared with a year ago, up from a 2.8% year-over-year increase in February.
The increase came as gasoline prices rose 4.5% compared with a year earlier, helped higher by an increase in global oil prices.
Excluding gasoline, Statistics Canada said the overall annual inflation rate for March was 2.8%, down from 2.9% in February. The Bank of Canada’s three core measures for inflation for March also all moved lower compared with February.
Leslie Preston, a managing director and senior economist at TD Bank, said she continues to expect the Bank of Canada to cut interest rates in July, but added that the latest data does raise the chances it might move in June.
“We are seeing a very encouraging cooling in core inflation pressures,” Preston said.
“So we’ve seen three good months now, but you know the governor will likely want to see a bit more, whether that’s one or two months is a tough call.”
Preston said the April inflation figures will be important, but she will also be watching to see what the federal budget holds, as well as the next jobs report.
The Bank of Canada has said that it is looking for evidence that the recent easing in underlying inflation will be sustained.
“We are seeing what we need to see, but we need to see it for longer to be confident that progress toward price stability will be sustained,” Bank of Canada governor Tiff Macklem said last week.
Preston noted there was a sharp deceleration in inflation in the U.S., but now it’s been rising again.
“You know, these things don’t necessarily move in a straight line. It can be bumpy. So the question is, you know, how many downward months do you need to see before the Bank of Canada is confident to cut rates and that’s really where the uncertainty lies,” she said.
Olivia Cross, North America economist at Capital Economics, said the March reading fit with the trend of downward momentum in core inflation seen so far this year.
“The bank will probably want to see the same again in the April CPI data, which will be released before the bank’s next meeting, although a modest pick-up in the average monthly gain seems unlikely to prevent a cut in June,” Cross wrote in a report.
“There are still some risks to that view, most notably the potential for a much larger rise in oil prices amid an escalation of tensions in the Middle East. Gasoline prices were one of the strongest contributors to headline CPI in March, and oil prices have continued to rise in early April.”
Statistics Canada said shelter prices continued to contribute to overall inflation as they were up 6.5% compared with a year ago.
Mortgage interest costs in March rose 25.4% on a year-over-year basis, while rent prices increased 8.5%.
Food prices rose 3% compared with a year ago, while prices for clothing and footwear fell 2.7%. Prices for household operations, furnishings and equipment dropped 2.3%.
Homeowners looking to add a secondary suite to their properties could soon access up to $40,000 in low-interest loans as part of a proposed federal program.
Ottawa said the secondary suite loan program will help increase housing density to make the most of available space in communities across the country.
“Many Canadians, such as retirees who own their homes, or younger families who want their parents to move in to live close by, might want to add a unit to their home,” Finance Minister Chrystia Freeland said in a release Monday.
“Through our Housing Accelerator Fund, we’ve already reformed zoning to make this possible, and today, we’re announcing homeowners will soon be able to access up to $40,000 in low-cost loans to make it easier [to] add secondary suites.”
A similar program in British Columbia — set to launch this month — will provide approximately 3,000 homeowners in the province up to $40,000 in forgivable loans to create a new secondary suite or an accessory dwelling unit on their properties.
Secondary suites have increased in popularity in recent years, such as in Calgary, where 676 secondary suites were started and 842 were completed in 2023, according to figures from the Canada Mortgage and Housing Corporation (CMHC).
This growth may be linked to Calgary’s secondary suites amnesty program, CMHC said in its spring 2024 housing supply report. The municipal program waives development permit and registration fees, allowing homeowners to build legal secondary suites at a reduced cost.
The federal government is set to table its 2024 federal budget on Tuesday.
U.S. inflation is expected to retreat eventually, but the recent upside surprise in U.S. inflation data could delay monetary policy easing, says Moody’s Investors Service.
Last week, headline consumer inflation in the U.S. was reported higher at 3.5% for March, up from 3.2% in February. Core inflation remained elevated at 3.8%.
Moody’s said in a report that it expects inflation will fall amid “softer consumer demand growth … moderating wage growth, continued slowing in rental inflation, solid productivity gains and well-anchored inflation expectations.” However, the latest robust reading adds to the uncertainty surrounding the timing of U.S. rate cuts.
The rating agency said there is unlikely to be be enough evidence of declining inflation before the U.S. Federal Reserve Board’s mid-June meeting to enable it to begin reducing rates. Markets had previously targeted mid-year as the likely starting point for U.S. rate cuts.
“Disinflationary progress has slowed since the start of the year, but it is too early to conclude that it has stalled or reversed,” Moody’s said.
The report noted that factors such as rents and higher auto insurance rates are the primary sources of recent price pressures — which will likely prove temporary.
“We expect inflation to trend lower in the coming months as shelter disinflation takes hold and one-off price jumps normalize,” it said. For example, “the pace of auto insurance premium rate increases is likely to moderate this year, pushing the core CPI inflation rate lower.”
And, as the inflation picture evolves in the months ahead, “financial markets’ pricing of rate cuts will likely remain data-sensitive and volatile,” Moody’s said.
Officials at the Fed’s next meeting “will likely reiterate a meeting-by-meeting and data-dependent approach, in line with Fed chair Jerome Powell’s comments at the March press conference,” Moody’s said.
The latest Fed minutes noted that the central bank expects the disinflation process to be uneven, and that the bank will be “looking at broader economic conditions in addition to inflation prints to judge whether inflation is likely to slow,” the report said.
Manufacturing sales rose 0.7% to $71.6 billion in February, helped by higher sales of petroleum and coal, Statistics Canada said Monday.
The agency said manufacturing sales were up in 13 of the 21 subsectors it tracks as petroleum and coal sales rose 4.3% to $8.7 billion, helped by higher prices and to a lesser extent, volumes.
Sales of electrical equipment, appliance and component products rose 12.6% to a record $1.5 billion in February.
Meanwhile, sales of chemical products fell 5.5% to $5.3 billion in February as sales of pesticide, fertilizer and other agricultural chemical products moved lower.
Overall, manufacturing sales in constant dollars rose 0.1% in February.
In a separate report, Statistics Canada said wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, were essentially unchanged in February at $82.2 billion.
The result came as sales increased in four of the seven subsectors with the machinery, equipment and supplies subsector up 1.1% at $17.6 billion in February, while the food, beverage and tobacco subsector fell 1.3% to $14.6 billion.
Sales in the motor vehicle and motor vehicle parts and accessories subsector rose 0.8% to $14.3 billion in February.
In volume terms, wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.2% in February.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year but is excluding the data from monthly analysis until there is enough historical data.
Americans boosted spending at a hotter-than-expected pace in March, underscoring how shoppers remain resilient despite inflationary pressures and other economic challenges.
Retail sales rose 0.7% last month — almost double what economists had forecast — after rising 0.9% in February, according to Commerce Department data released Monday. The February figure was revised upward. That comes after sales fell 1.1% in January, dragged down in part by inclement weather. Excluding gas prices, which have been on the rise, retail sales still rose a solid at 0.6%.
The national average gas price Monday was $3.63 per gallon, per AAA, up 6 cents from a week ago, and up 19 cents from last month, but they’re still 3 cents below where they were at this point last year. (All figures are in U.S. dollars.)
The snapshot offers only a partial look at consumer spending and doesn’t include many services, including travel and hotel lodges. But the lone services category — restaurants — registered an uptick of 0.4%.
Government retail data isn’t adjusted for inflation, which ticked up 0.4% from February to March, according to the latest government report. So, retailers had a solid sales gain accounting for inflation.
“Retail sales aren’t increasing just because prices are going up,” said Ted Rossman, senior industry analyst at Bankrate. “Americans are actually buying more stuff. This is one of the strongest retail sales reports we’ve seen in the past couple of years.”
Futures jumped seconds after the retail report landed, while bond prices slipped given the strong economic signals that the U.S. consumer is sending.
Sales at general merchandise stores rose 1.1%, while online sales was up 2.7%. Department stores had a 1.1% decline. Furniture stores and electronics and appliance stores also posted sales declines.
A strong jobs market and rising wages have fuelled household spending, which also has become choppy in the face of rising credit costs and higher prices.
America’s employers delivered another strong report in March, adding 303,000 workers to their payrolls and fuelling hopes that the economy can plow through higher prices without succumbing to a recession despite high interest rates.
Last month’s job growth rose from a revised 270,000 in February and far exceeded the 200,000 jobs that economists had predicted. By any measure, it amounted to a major burst of hiring, and it underscored the economy’s ability to withstand the pressure of high borrowing costs resulting from the Federal Reserve’s interest rate hikes. With Americans continuing to spend, many companies have continued hiring to meet steady demand.
However, inflation has remained stubborn, lifted last month by by higher prices for gasoline, rents, auto insurance and other items, new data showed last week. That as well the strong retail sales report will likely delay a cut by the Federal Reserve to interest rates that many had anticipated at the next meeting of the U.S. Federal Reserve’s monetary policy-making arm in a couple of weeks. Andrew Hunter, deputy chief U.S. economist at Capital Economics, doesn’t think any rate cut will happen until September.
Prices outside the volatile food and energy categories rose 0.4% from February to March, the same accelerated pace as in the previous month. Measured from a year earlier, these core prices are up 3.8%, unchanged from the year-over-year rise in February. The Fed closely tracks core prices because they tend to provide a good barometer of where inflation is headed.
But some economists expect spending to moderate due to lessening optimism about economic prospects, still high costs of living and elevated borrowing costs.
“Consumers are becoming highly selective in their spending choices with many pulling back from pricier, non-discretionary products to focus on value and essentials and the lower-income cohort continues to be pressured, ” said Mickey Chadha, Moody’s Ratings vice-president of corporate finance. “Purposeful consumers are postponing their major shopping decisions. ”
