Canada’s continuing, ‘sub-par’ economic growth

Recent economic data tell the same story: Canada has hit what TD Bank Group economists call a "soft patch.î Indications are Canada's economic performance will remain "sub-parî for the rest of 2012.

Certainly Statistics Canada's job vacancy numbers are nothing to crow about. From June 2011 to June 2012, the number of job vacancies increased by 20,000 to 263,000 vacancies. "There were 5.3 unemployed people for every job vacancy,î reports StatsCan, "down from 5.8 in June 2011.î

There is growth, but it is sub-par. StatsCan also measures the national job vacancy rate among Canadian businesses. In June, it was 1.8%, up slightly from 1.7% a year ago. "Higher job vacancy rates are often associated with periods of economic growth,î writes StatsCan "while lower rates may be associated with periods of slower growth or economic contraction.î

Declining house sales are also putting a damper on growth. According to the Canadian Real Estate Association (CREA), house sales were down 5.8% in August from July, the fifth straight monthly decline. Actual (not seasonally adjusted) activity stood 8.9% below levels in August 2011.

Prices, too, have cooled. CREA tells us the national average home price was up a mere 0.3% on a year-over-year basis in August. As Bank of Montreal economist Robert Kavcic points out, "Canada's market has quietly built up an above-normal 6.5 months' worth [of inventory] ó far from saturated, but certainly keeping the bidding wars at bay.î

That puts a chill on Canada's economic recovery. According to TD's quarterly economic forecast, "Canadian Outlook: Caught in the middle,î Canadian households have begun the long process of reining in their borrowing. "Even with this moderation,î says the forecast, "combined growth in mortgage and consumer debt has continued to outstrip that of incomeÖ. Some cooling off in formerly-red-hot housing markets is expected to weigh on consumers' appetite for more credit and spending over the forecast period.î

The result: a sub-par pace of consumer spending.

On the plus side, the consumer price index (CPI) rose 1.2% in the 12 months to August, following a 1.3% gain in July. According to StatsCan, higher prices for the purchase of passenger vehicles, gasoline, meat and food purchased from restaurants were major factors in the year-over-year increase.

Still, that keeps inflation well within the Bank of Canada's desired 2% target range, probably keeping the spectre of higher interest rates at bay.

"With no engine firing on all cylinders,î says the TD's forecast, "economic growth is being held to a meek sub-2% rate and the jobless rate is stuck above 7%. By early 2013, we suspect that global headwinds will have dissipated enough to spur stronger Canadian exports and entice cash-flush businesses to loosen their purse strings ó pulling real GDP growth back above 2% and pushing the jobless rate down modestly.î