MNI DATA ANALYSIS:Canada Data Support Softer Consumer Spending

By Yali N'Diaye

     OTTAWA (MNI) - The Bank of Canada is expecting consumer spending and

housing to slow and make a smaller contribution going forward while exports and

business investments become stronger pillars of growth, and both soft and hard

data support the consumer side of the equation despite soaring goods imports in

March.       

     To be sure, strong consumer confidence, ongoing employment gains and wage

growth pickup should allow consumption to contribute "significantly" to growth

this year, the BOC said in its April Monetary Policy Report. In fact, the strong

6.0% imports gain in March supports this view.

     But the BOC expects consumption's contribution to real GDP growth to go

from 2.0 percentage points in 2017 to 1.5 points in 2018, 1.2 points in 2019,

and 1.0 point in 2020.

     --THE DEBT ISSUE

     According to Statistics Canada's March 15 estimate, total household credit

market debt (consumer credit, mortgage and non-mortgage loans)reached C$2.1

trillion at the end of 2017, of which C$1.4 trillion - more than 66% - was

mortgage debt.

     With the BOC increasingly confident that its overnight rate target will

need to be raised from the current 1.25% level, mortgage and debt rates in

general will only reset to the upside, not boding well for households' income,

and in turn spending.

     --HOUSING SUPPORT WANES 

     Mortgage debt represents a major source of household indebtedness and

Canadian households have benefitted from a significant wealth effect over the

years with a rapid house price appreciation in some areas - notably Toronto and

Vancouver - that have inspired more stringent macro prudential regulations in

recent years, both at the provincial and federal levels in an effort to cool

down those markets. 

     In light of new regulations, The Canadian Real Estate Association revised

down its national forecast for sales and average prices.

     National sales activity is projected to decline by 7.1% in 2018, with the

national average price down 2.3% from 2017.

     Canada's new housing prices decreased 0.2% in February, marking the first

decline since July 2010 and the largest since June 2009, according to Statistics

Canada. On a 12-month basis, prices appreciated 2.6%, the smallest increase

since July 2016.

     The more comprehensive Teranet - National Bank Composite House Price Index

rose 6.6% year-over-year in March, the smallest gain since May 2016 and a ninth

consecutive deceleration.

     CREA's data also concur to slower price gains. The Aggregate Composite MLS

Housing Price Index rose 4.6% year-over-year in March, the 11th consecutive

deceleration and the smallest such increase since December 2013.

     Earlier Thursday, the Toronto Real Estate Board reported that sales were

down 32.1% in April year-over-year, and the average selling price was down by

12.4% from April 2017 in the Greater Toronto Area closely monitored by the BOC.

     --FUTURE FINANCE UNCERTAINTY

     The debt issue has implication for consumer confidence as well.

     The Conference Board of Canada's consumer confidence index rose to 118.1 in

April from 117.1 in March.

     However, the think tank reported a 2.6% decline in the number of

respondents that are optimistic about their future finances - the largest

decline since April 2016, explaining part of it by rising interest rates and

"creeping inflation" set to put downward pressure on income.

     --DISAPPOINTING RETAIL SALES             

     So far this year, retail sales have disappointed. While they rose 0.4% in

February, core sales excluding autos and parts were flat despite the stable wage

growth over the month.

     February GDP rose 0.4% in February, including a 0.3% gain in retail trade,

following a 0.2% contraction in January. 

     --EMPLOYMENT SUPPORT REMAINS   

     That being said, the labor market continues to absorb slack with job

creation surpassing expectations.

     In the first quarter, while more than 40,300 jobs were shed, full-time

employment was up 78,000. 

     Average hourly earnings for permanent workers stabilized at 3.1% in March,

and the unemployment rate remained at a low 5.8%.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

[TOPICS: M$C$$$]