Shift Happens

Wallace Immen Globe and Mail

Today's Internet user now spends nearly two of the five workdays a week on the Web, almost double the time users spent online in 2000, according to a new Harris poll.

The big jump in average Internet use happened in the past two years. Usage didn't hit eight hours until 2003 and held steady at between eight and nine hours until it spiked to 11 hours in 2007. The average hit 14 hours in 2008 and slipped to just over 13 per cent this year, the latest survey of 2,029 Americans found.

The researchers attribute the online surge to the financial crisis, with more people looking for advice and examples of companies and business practices that could lead to a recovery.

The age groups that spent the most time online are those ages 30 to 39, at an average of 18 hours; while those 25 to 29 and 40 to 49 surfed an average of 17 hours. And 14 per cent of all users said they are online for 24 or more hours a week.

The survey also found that 50 per cent of Internet users said they bought something online while in the office last year.

Home prices see first annual rise in 10 months

Financial Post

OTTAWA -- Resale prices for Canadian homes rose for a sixth consecutive month in October -- and were up on an annual basis for the first time in nearly a year -- as the country's real estate market continued to recover from recessionary lows, according to a report released Wednesday.

The Teranet-National Bank resale house price index of major markets increased 1.27% during the month from September. Year-over-year, prices were up 0.57% -- marking the first rise in 10 months.

"Prices have now risen 1% or more for five months in a row," said Marc Pinsonneault, senior economist at National Bank Financial. "In October, however, the monthly rise varied significantly among the six metropolitan markets surveyed."

The biggest monthly price gains were recorded in Toronto (1.6%), Vancouver (1.8%) and Calgary (0.8%), the index showed.

More modest increases were noted in Halifax (0.4%), Ottawa (0.3%) and Montreal (0.3%). "In each of these three cities, the monthly appreciation was the smallest since market bottom -- except for one monthly decline each in Montreal and Halifax," said Mr. Pinsonneault.

Vancouver prices, however, remain 4.1% below their peak of June 2008, while Calgary is still down 11.3% from the high reached in August 2007.

Millan Mulraine, economics strategist at TD Securities, said that "while the pickup in this indicator is not entirely surprising, the slow turnaround in the indicator appears to be at odds with the other Canadian home price measures (which show a more profound uptick in Canadian home prices) and the recent sharp upswing in housing market activity."

The Teranet-National Bank price index is based on homes that have sold at least twice. The survey does not provide specific sales figures.

What the economists say about the coming year

Timothy R. Homan and Bob Willis, Bloomberg

The U.S. economy next year will turn in its best performance since 2004 as spending perks up and companies increase investment and hiring, says Dean Maki, the most-accurate forecaster in a Bloomberg News survey.

The world's largest economy will expand 3.5% in 2010, according to Mr. Maki, the chief U.S. economist at Barclays Capital Inc. in New York. The rebound in stocks and rising incomes will prompt Americans to do what they do best --consume, said Mr. Maki, a former economist at the Federal Reserve. Faced with dwindling inventories and growing demand, companies will soon become confident the expansion will be sustained, he said.

Household spending "will pick up steam as we move into the second half of 2010," said Mr. Maki who topped all 60 forecasters in the Bloomberg News ranking of gross domestic product projections for the first three quarters of 2009. "The overall picture for 2010 will be an economy growing rapidly enough to bring down the unemployment rate" to an average of 9.6%.

Mr. Maki, who specialized in researching household finances at the Fed from 1995 to 2000, said the economic recovery this time will be similar to past rebounds. Consumer purchases improved after last year's 61% plunge in gasoline prices and will keep growing in 2010, reflecting the surge in stocks. Faster growth will push Treasury yields higher and help the dollar strengthen as the Fed raises interest rates, he predicts.

Mr. Maki holds a doctorate in economics from Stanford University near Palo Alto, Calif. His dissertation addressed Americans' response to the phasing out of tax deductions for interest on consumer loans. He received a bachelor's degree in economics from St. Olaf College in Northfield, Minnesota, and joined the investment banking unit of London-based Barclays in 2005.

"One area that we put more weight on perhaps than others is the stock market," he said in an interview. The 67% gain in the Standard & Poor's 500 Index since a 12-year low on March 9 has helped shore up family balance sheets, putting Americans in a better position to spend.

The prospects for a stronger rebound are consistent with recoveries from past recessions, he said.

"We don't believe this time is different from all other business cycles," said Mr. Maki. "The consensus view that growth will stay subdued all through next year -- there's no parallel to that in modern U.S. history."

Mr. Maki's forecast for 2010 is among the highest of the 58 economists in a Bloomberg News survey this month. He is more optimistic than Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York, who was No. 1 among forecasters of GDP during the 12 months through June 2009. Mr. Hatzius estimates the economy will expand 2.4% in 2010, and his 2.5% first-quarter growth forecast is half the pace Mr. Maki anticipates.

Ed McKelvey, who works with Mr. Hatzius, said the Goldman team forecasts "subpar growth" next year because "employers will be reluctant to hire" and households will exhibit "a bias toward higher saving." Budget difficulties at state and local governments and credit constraints will also restrain the economy, he said.

Mr. Maki's projected 5% rate of expansion in the first quarter, the fastest since the same three months in 2006, will reflect the need for companies to replenish inventories cut at a record pace in the first nine months of this year.

Ramped-up production to increase stockpiles and investment in equipment will propel the expansion early in the year, leading to employment gains that will bolster spending in the second half, he said.

"Businesses overreacted to the downside during the recession," said Mr. Maki, who says he tries to keep fit by playing tennis and jogging with his dogs. "As firms turn to expansion mode rather than survival mode, they start raising both employment and investment spending in a similar way."

A rebound in corporate spending may be one reason investors have been eager to snap up shares of industrial equipment makers. The Standard & Poor's 500 Industrial Machinery Index, which includes Cleveland-based Eaton Corp., a producer of circuit breakers and fuel pumps, and Craftsman brand tool-maker Danaher Corp., based in Washington, has outperformed the broader measure, rising 35% so far this year, compared with a 25% increase for the S&P 500.

Economic growth will push the yield on the 10-year Treasury note up to 4.5% by year-end, Mr. Maki said, compared with a yield of 3.8% at the end of last week.

Maki says central bankers will lift the U.S. overnight bank lending rate target to 0.5% in the third quarter, from zero to 0.25 % currently, and to 1% by year-end. His colleague at Barclays, David Woo, global head of foreign- exchange strategy, predicts the dollar will end 2010 around US$1.40 per euro.

Mr. Maki's top position in the Bloomberg ranking is based on estimates submitted in January for GDP. He forecast that month a 2% expansion for the third quarter. The U.S. economy expanded at a 2.2% annual pace, according to a Dec. 22 Commerce Department report.

He also predicted a 4.5% contraction for the first quarter of 2009, followed by a 1% decline in the period from April through June. The Commerce Department later reported contractions of 6.4% and 0.7%.

Neal Soss, chief economist at Credit Suisse in New York, was the second most-accurate forecaster of GDP over the first three quarters of 2009. He projects the economy will grow 3.3% next year. John Lonski, chief economist at Moody's Capital Markets Group in New York, was No. 3. He sees a 2.7% expansion.

Robert MacIntosh, chief economist at Boston-based Eaton Vance Management, was the most pessimistic forecaster on employment this year -- and the most accurate. He expected unemployment to reach 10% in the fourth quarter and average 9% this year.

The rate fell to 10% in November from a 26-year high of 10.2% the previous month, according to the Labor Department.

Mr. MacIntosh agrees with Mr. Maki that the economy will rebound in 2010, forecasting growth of 3.5%, and that the jobless rate will average 9.5%.

"The combination of exports, investment and consumption will be enough to give us, on paper at least, a decent-looking economy," said Mr. MacIntosh, a graduate of Harvard University in Cambridge, Mass., with an MBA from Dartmouth College in Hanover, New Hampshire. He manages US$4-billion in municipal bonds for Eaton Vance.

He sees an "upward trend" in payrolls, with the first positive reading coming as early as January. The gains in hiring will lower unemployment "modestly," he said.

Mr. Hatzius and the economists at Goldman Sachs project the unemployment rate will average 10.3% next year, compared with a median estimate of 10% for 58 responses in this month's survey.

Bart van Ark, chief economist at the Conference Board, a New York-based research firm, forecasts a 10.4% average unemployment rate next year that he said will restrain household purchases.

Mr. Van Ark, the best forecaster of consumer spending for the period from January through September, said he sees household purchases rising 1% in 2010 after falling 0.6% this year. Mr. Maki forecasts a 2.1% gain in 2010.

"Even though we do see a pickup in recent quarters, it's not a signal that the consumer is going to lead us out of the recession into solid growth territory," said Mr. van Ark. "The consumer cannot play that role" any longer.

Five things that should keep you awake at night about the unfolding economy

Julian Beltrame, THE CANADIAN PRESS

OTTAWA - Looking into the economic crystal ball, the vast majority of private sector and institution forecasts agree that the scary global recession of last year is past and that normal times are just around the corner.

It could still go horribly wrong.

Forecasters caution that the degree of uncertainty and doubt about their baseline forecasts - or most likely scenarios - has seldom been higher.

In fact, many, including the world's central bankers, say substantial risks lurk around that beckoning corner and some are serious enough to send the whole edifice of economic stability crumbling.

Bank of Canada governor Mark Carney refers to the economic landscape as filled with "significant fragilities" which encompass everything from steady growth going forward to a second recession.

"It's a pretty dangerous economy out there," agrees TD Bank's chief economist Don Drummond.

"This should be the easiest of times to do a forecast because you are at the bottom, so you know which direction you are going to go. But I do think there's almost an unparalleled degree of uncertainty out there."

First the baseline. No matter which source is consulted, from the Bank of Canada to the U.S. Federal Reserve, the International Monetary Fund or any number of private-sector forecasters, 2010 is the year Canadians, Americans and the world get their economic mojo back.

The recession ended some time in the second half of 2009, the logic goes, and with trillions of government money still being poured into global economies, growth in 2010 appears as certain as the sun rising in the east.

Growth rates vary from country to country, but the important thing is that they are all positive. In Canada, forecasts fall in the 2.5-per-cent to three-per-cent range - not a big rebound given that last year's slump knocked $30 billion off the economy's bottom line.

But those are baseline, most-likely forecasts. Things could also turn ugly again, economists caution.

"I'd say there's an about one in five chance of a double dip recession, or a hard W as we call it," said Nariman Behravesh, chief economist with one of the world largest forecasting firm, IHS Global Insight of Lexington, Mass.

What could go wrong? From interviews with a half-dozen economists from Canada and the U.S., here are the five most dangerous pitfalls:

-Inflation: It seems absurd to worry about inflation right now. Canada's is at one per cent and the Bank of Canada says it isn't worried about it reaching its target of two per cent for another year or two.

But the world's printing presses have been busy flooding financial markets with money, and governments have been spending like drunken sailors in an effort to keep the Great Recession from becoming the second Great Depression. It worked, with a cost.

"I don't see how we can increase the money supply the way we are increasing it and avoid inflation," says James Gillies, professor emeritus at York University's Schulich School of Business.

"I can see it happening everywhere around the world, and with heavy, heavy inflation, we'll see rapidly rising interest rates," he adds. Gillies believes that will bring the recovery to a grinding halt, possibly as early as the end of 2010.

Other economists also worry about inflation, but say it will take longer to exert itself. The end result is the same, however.

High inflation triggers a policy response from central banks in the form of high interest rates, which causes businesses to stop borrowing and consumers to stop buying. That's how the recessions of the early 1980s and 1990s started.

-Policy-makers get it wrong: The flip side to real inflation is that the fear of inflation will cause governments and central banks to stop stimulating the economy too soon.

The growth that currently exists in many economies, particularly those of the U.S. and Europe, is due to unprecedented levels of government spending, bank and industry bailouts, super-low interest rates and money market liquidity infusions.

Nobody knows for sure when the private sector economy will be ready to stand on its own two feet and how it will react when the public sector crutches are removed, as G20 leaders are already discussing.

"They can make a mistake on both sides. They can withdraw the stimulus too early and we get something like a double-dip... as soon as late next year," said Douglas Porter, deputy chief economist with the Bank of Montreal.

"The other side is they leave the stimulus too long and we end up with an inflation."

Drummond says deciding when to exit from stimulus will require almost "surgical precision."

The trouble is, governments and central banks have never attempted the surgery before, which is cold comfort to the patient.

-The United States economy suffers a repeat pratfall: America is going great guns now, but again that's based on temporary government largesse and the need to refill empty warehouses.

That doesn't mean anyone will buy the products once the inventories are replenished.

Scotiabank vice-president of economics Derek Holt says he believes the U.S. economy will slow to about two per cent growth in the latter half of next year, and if the inventory restock is too aggressive, a double-dip is not out of the question.

"What could happen is we go through a temporary growth spurt and then it's the Emperor has no clothes all over again and the consumer is exposed," Holt explained.

Behravesh also calls the U.S. consumer the biggest wild card for the next year or two. Households may come to the realization that the wealth hit they took when their home values collapsed is permanent, and continuing high unemployment may spook them into hibernation.

For Canada, a second collapse in U.S. consumption will devastate the export sector, the auto industry in particular, and derail the recovery, Holt said.

-Global imbalances: Buyer economies like the U.S. are transferring unsustainable amounts of wealth to seller economies like China, which become the world's pre-eminent creditors, until a reckoning comes and the indebted nations can no longer borrow.

The recession was supposed to help resolve the problem, and to some extent it has. U.S. exports have risen and imports have fallen, which is one reason Canada fell into a slump.

But the U.S. still imports way more than it exports, and Drummond says Washington's response to the recession has added a second front to the imbalance.

"Those global imbalances are worse now than they were before," he said. "The U.S. consumer did fall back, but the U.S. government more than filled the vacuum. U.S. debt is even higher than it was two years ago."

Many industrialized countries have mortgaged their futures. Japan's debt to gross domestic product now stands at 227 per cent; Italy at 120 per cent, the U.S. and the United Kingdom are at 94 per cent, Germany and France at 83 per cent.

-Financial market shock: The collapse of Wall Street investment house Lehman Brothers is credited, or blamed, for being the final straw that broke the global economy's back last September.

Nothing of that magnitude has occurred since, although Dubai World's surprise request for a standstill on payments of about US$50 billion briefly sent shivers through overseas stock markets in late November.

Dubai proved a false alarm. But Peter Morici, the former chief economist at the U.S. International Trade Commission, says there are enough ghosts in the closets of the U.S. financial sector to keep policy-makers awake at night.

"The banks are back to their old tricks, at any point in time the banks here can be counted on to cook up some kind of scheme that will collapse on them," he said.

One danger signal starting to emerge revolves around the troubled U.S. commercial real estate market, which could spark another round of losses for banks in 2010. Most economists, however, say it won't be as serious as the 2007 subprime mortgage meltdown in residential real estate, but financial institutions are also less able to withstand shocks now.

Most of the risks identified by economists would emerge, if they do, from beyond Canada's borders, particularly in the U.S., economists say. But that is also how the 2008-2009 recession happened, they point out.

"Canada's exposure to the U.S. economy has diminished a little bit from what it was in the past, but you guys will still get clobbered if we go down the tubes," noted Behravesh.

Stimulus and housing give economy one-two punch

GDP growth hangs on

Eric Lam, Financial Post Published: Wednesday, December 23, 2009

The Canadian economy strung together back-to-back months of growth for the first time in almost two years, but economists warn that consumers and government stimulus have been "carrying the ball" by fuelling a booming real-estate market that is ultimately unsustainable.

Canada's economy grew a modest 0.2% in October, the latest figures from Statistics Canada show. That followed a 0.4% increase in September.

Stewart Hall, economist with HSBC Securities Canada, said the country's real-estate market has been a major factor, fuelling spending in everything from renovations to new furnishings and even new cars to go in new garages.

"Financial, insurance and real estate have continued to be that pillar of strength, consistently showing growth through much of this economic recession," he said. "And we know that is the housing market, a reflection of the remarkable strength in the existing-home sales market."

October figures from Statistics Canada show a 7.2% rise in existing-home sales activity from real-estate agents and brokers. However, construction activity was up only 0.1%.

Meanwhile, after posting a 1% rise in September, the key manufacturing category fell flat in October.

One area that outperformed was utilities, which grew 2.4% during the month as temperatures returned to seasonal levels after a mild September.

"The housing market has been the big surprise for 2009," Mr. Hall said. He warned that consumers are taking on more and more debt due to record-low interest rates, and banks are happy to lend that money out.

"You hear [Bank of Canada governor Mark] Carney say both borrowers and lenders need to act prudently. Well, of course they do. But the history of the past few years shows telling people to behave themselves just doesn't work," he said.

Supporting domestic demand will continue to be an area of concern in 2010 as the downturn itself was caused by a collapse in external demand, namely from the United States.

"We lost a lot of external demand and it's unreasonable to think we can recover that from domestic sources for an extended period of time," Mr. Hall said.

Douglas Porter, deputy chief economist with BMO Capital Markets, said economists were disappointed in the overall numbers because results from manufacturing, retail and wholesale trade all came in short of preliminary reports. The difference was likely due in part to businesses burning off their existing inventories.

"It's unusual for all three to be moving in the opposite direction," he said. "But we shouldn't be too down on the number. It's gratifying to see two months in a row of growth for the first time since late 2007."

While there was growth month over month, the economy was still 3.2% smaller than it was in October 2008. The latest figures marked the 12th straight month that economy was weaker than it was in the year-earlier period.

Economists will now watch to see if the economy closed out the year as expected, bouncing back from the fairly shaking base built in September and October and accelerating into a full-fledged recovery in 2010.

Alex Koustas of Scotia Economics released a provincial outlook for 2010, highlighting an expected rebound in Ontario, a slowdown in Quebec and commodities producers in Western Canada benefiting the most from strengthening global markets.

"That Canada escaped from the global slump fairly quickly is reflective of our relatively healthy household balance sheets and stable financial system," he said in a report. "However, the modest pace of the recovery highlights the ongoing trade and competitive hurdles that need to be overcome in order to return to stronger growth."

Scotia expects British Columbia to lead the way with GDP growth of 3% in 2010, on the back of the Vancouver Winter Olympics and improving coal prices.

The Atlantic provinces will see the least growth, with Prince Edward Island bringing up the rear at +1.9%.

Quebec will underperform, growing only 2.2% on uncertainty in forestry and aerospace while Ontario's manufacturing will lead a comeback to 2.7% GDP gains.

Financial Post

erlam@nationalpost.com

Canadian housing market sound, fears of consumer debt exaggerated: economists

December 18, 2009

JULIAN BELTRAME, THE CANADIAN PRESS
THE CANADIAN PRESS, 2009

OTTAWA - Canada's hot housing market received a clean bill of health from a major Canadian bank Friday, dismissing concerns voiced by the Bank of Canada that consumers may be taking on too much debt.

In a report on house and stock market rallies, economists with CIBC World Markets argue that the central bank's concerns are exaggerated, even though the bank was justified in raising them.

"Canada is not doomed to see a U.S.-style housing and mortgage blow-up," wrote CIBC's chief economist, Avery Shenfeld.

"The lessons for the U.S. were not that an extended period of low rates caused a mortgage and housing blow-up. It was a massive failure to supervise the worst excess of the American mortgage market that caused the trouble."

Last week, the Bank of Canada called record household debt the top risk facing the country's financial system, a warning repeated in Toronto earlier this week by the central bank's governor, Mark Carney.

The central bank did note that the risk to Canada's banking system was small, but worried that when interest rates rise to normal levels, up to 10 per cent of households could face difficulties in meeting monthly payment requirements.

Fresh data released Friday showed that spending by Canadian households averaged $71,360 last year, two per cent more than in 2007, with shelter representing about 20 per cent of the load.

Others have also expressed concern about consumer debt levels. In a note Friday, Bank of Montreal economist Sal Guatieri said at current rates the debt burdens being piled on by Canadians could reach American and British levels "just before they keeled over."

CIBC's Shenfeld and Benjamin Tal say their analysis shows that there is basis for the concern, but there are also critical factors that make the Canadian situation different.

By their calculation, the current $350,000 average selling price for a home in Canada is about seven per cent too high.

But they also say that with housing starts on the rise, thereby increasing the supply, the price of housing in Canada will moderate, not collapse.

And Canadian households are not exposed as their southern neighbours were to a market collapse.

Some have substantial equity in their homes and could downsize. Others, about 40 per cent of mortgage holders, have high debt payments because they are making accelerated pay-downs on principal, which they could suspend.

They note that while mortgage interest rates average about 4.4 per cent, payments as a share of after-tax income are higher - at the level they would be if rates were effectively six per cent.

And "history suggests many will jump into fixed mortgages" once variable rates come under upward pressure.

"The Bank of Canada was justified in raising these concerns, but once you get into the details, some of those threats don't appear quite as ominous," Shenfeld explained in an interview.

The CIBC economists agree with Carney that interest rates will rise, likely starting in the second half of next year, but "we don't see that as endangering a bubble either in the mortgage market or the equity market."

In a separate analysis, Shenfeld, Peter Buchanan and Krishen Rangasamy, all of CIBC, judged that the equity markets in Toronto still have room to grow even if some analysts believe stocks are overpriced already.

And they predict the Canadian dollar will average $1.05 US next year.

Bank profits back on the fast track

Tara Perkins

Globe and Mail Update Published on Thursday, Dec. 03, 2009 7:56PM EST Last updated on Friday, Dec. 04, 2009 6:11AM EST

Canada's banks are earning a lot of money again, and are poised to earn a whole lot more.

A little more than a year ago, bankers were accusing Bank of Canada governor Mark Carney of harming their profitability by decreasing key interest rates at a time when their own borrowing costs were rising because of the financial crisis.

Since then, the crisis has dissipated and Ottawa has bought more than $60-billion in mortgages to help lower their funding costs. With fewer competitors, the major chartered banks have raised the prices on a number of loans. All of that is giving a major boost to the bottom line, as proved Thursday when two of the five biggest, Toronto-Dominion Bank (TD-T66.08-1.71-2.52%) and Canadian Imperial Bank of Commerce, (CM-T70.001.522.22%) posted stellar profits that easily beat analysts' expectations.

Adjusted for one-time and unusual items, TD's profits for the fourth quarter were $1.31-billion, compared to $665-million a year ago. CIBC's quarterly profits were $644-million, up from $436-million.

When combined with Bank of Montreal's stellar results from last week, the three big banks collectively earned $2.3-billion between August and October, and $6.1-billion for the year.

The numbers, while proving the resilience of the Canadian banking system, may also present a public-relations problem for the banks, coming so soon after Ottawa put in place extraordinary measures such as the mortgage purchase program to get them through last fall's crisis and the recession.

While Canadians want their banks to be strong, it will be harder for them to be supportive when they see their own banking costs rising, Edward Jones analyst Craig Fehr said.

“That's the delicate dance that the banks will have to play,” he said.

“There is no question as we move forward over the next several quarters there are going to be additional profits generated from the banks that come directly from the consumer.”

National Bank's profits fell shy of the relatively high expectations that analysts had for it (the bank distinguishes itself by having no significant troublesome U.S. exposure), but chief executive officer Louis Vachon said it turned in one of its finest financial performances in recent years despite the year's recession.

A number of Canadian bank CEOs, including Royal Bank of Canada's Gordon Nixon and Bank of Montreal's Bill Downe, have predicted that something akin to a golden era of banking is around the corner. Profit margins should improve coming out of the crisis, while the destruction or exit of many players, including securitization firms and foreign banks means, less competition.

TD chief Ed Clark said Thursday that TD's stellar performance has come as a surprise to him, and the bank exceeded his own expectations.

“It was a better year than we anticipated going into it,” he said.

“We've learned two lessons in the past year. First, you can have positive surprises in a challenging year. Secondly, you can always figure out other ways to outperform.”

Peter Routledge, senior vice-president of financial institutions at Moody's, said that loan losses will peak soon if they haven't already, and ifinterest rates gradually rise, that will raise bank profit margins further.

“They do have sizable loan portfolios and balance sheets and when margins widen even a little, it makes a difference to the bottom line that's noticeable.” While 2010's results might not be significantly better than this years, “if the recovery's moving forward in 2011 it should be a fairly healthy year for profitability,” he said.

The Bank of Canada's benchmark overnight lending rate has fallen from 2.5 per cent to 0.25 per cent since RBC chief operating officer Barbara Stymiest told The Globe in October, 2008, that central bank rate cuts were gouging the industry's profitability. Analysts expect RBC to post profits of about $1.08 per share when it reports its results Friday, up from $1.01 a year ago.

A chunk of the profits that the banks have been bringing in stem from unusually high returns in their trading businesses as a result of the choppy markets.

Mortgages have also been a major reason behind the profit boost, as lower interest rates have pushed a number of Canadians into the housing market. Ottawa has supported the banks' mortgage businesses, the most important lending business they have, through the crisis with a program that purchases mortgages from banks to help them raise the cash for new loans.

That program has so far earned a profit for taxpayers at a cost to the banks, which used it to decrease their funding costs.

CIBC's results yesterday show that it had $29-billion of securitized and sold mortgages at the end of the latest quarter, up from $19.4-billion a year ago. TD had $40.9-billion, up from $24-billion.

At some point, interest rates will begin to rise. That will boost bank profits further just as consumers, still struggling with the fallout of the recession, find the payments on their mortgages and other debts rising.

At the same time, the banks will be sitting on a pile of cash. As CIBC chief executive Gerry McCaughey pointed out on a conference call with analysts Thursday, Canadian banks are sitting on “fairly large excess capital positions.” By UBS analyst Peter Rozenberg's estimates, the sector could be holding on to $40-billion in excess capital by the end of fiscal 2012.

These could be the ingredients for a serious round of bank bashing, and a public relations test for the banks.

“This is the double edge sword that the banks always face, they want to generate strong returns for the shareholders but they are politically sensitive entities,” said one analyst who asked not to be named.

Housing recovery to accelerate

Globe and Mail - Housing recovery to accelerate: survey

Mississauga — The Canadian Press Published on Thursday, Dec. 03, 2009 9:07AM EST Last updated on Thursday, Dec. 03, 2009 10:42AM EST

Residential real estate sales should recover in almost all major Canadian cities by the end of 2009, while average prices should post new records in an improved economic climate, according to a new housing report.

The Re/Max Housing Market Outlook survey for 2010 predicts the uptick in sales will be lead by an anticipated 45 per cent increase in Greater Vancouver, while Ottawa and Quebec City are expected to hit historic highs in the number of homes sold.

The report also says average prices are expected to improve in 65 per cent of markets as economic performance picks up.

Eighty-three per cent of markets are expecting sales to increase over 2009 levels while housing values are predicted to rise in 91 per cent of Canadian centres in 2010. The remaining markets are predicted to match 2009 levels. The average price of a home is also expected to go up in the future, rising two per cent to $325,000. The Re/Max report examined

http://www.theglobeandmail.com/report-on-business/housing-recovery-to-accelerate-survey/article1386845/

Bank of Canada to keep rates low, uphold outlook

By Louise Egan OTTAWA (Reuters) - The Bank of Canada is widely expected to keep its hands off interest rates on Tuesday, holding them at near zero and committing to do so until at least July, despite growing evidence the economy is kicking back to life.

Bond Yields Up Big

Bond yields usually rise on good economic news and today was no different. The 5-year bond yield jumped 0.14% today on strong jobs data from both sides of the border. (Canadian Jobs Report / U.S. Jobs Report)

Canada added 79,100 jobs in November. Traders had expected only 15,000.

With rebounding yields, fixed mortgage rates will probably halt their drop, at least for the time being. As of now, discounted 5-year fixed rates are just under 4%—well below the approximate 10-year average of 5.36%.

The 5-year yield, which influences fixed mortgage rates, now stands at 2.53%. It seems to be putting in a floor in the 2.35% to 2.40% range. It may be tough to penetrate that floor in the near-term without weaker economic news, or some other economic shock.

The Bank of Canada holds its last interest rate meeting of the year on Tuesday. 19 of 19 economists polled by Bloomberg predict no change to the Bank’s 0.25% overnight rate.

Nevertheless, analysts will be watching to see if the BoC surprises the bond market with any optimistic outlooks.

Canada's Unemployment Rate Falls

Canada’s unemployment rate falls to 8.5 per cent as 79,000 jobs created in November

OTTAWA — Canada’s economy swelled by 79,000 jobs last month, much better than many economists had expected, as the number of people with full-time and part-time jobs increased in November while the number of self-employed fell.

Statistics Canada reported Friday that Canada’s unemployment rate fell to 8.5 per cent in November, down one-tenth of a point from October.

The number of people with full-time jobs increased by 39,000 in November, the third straight month of increases, while part-time employment increased by 40,000, following declines in October and September.

“Simply put, this was an inexplicably strong report, and points to a very strong pick-up in Canadian labour market activity in November,” Millan Mulraine of TD Securities wrote in a note to investors.

“However, we consider this pace of job growth to be unsustainable, and believe that it is inconsistent with the current pace of economic recovery in Canada.”

While analysts generally welcomed the national job numbers, they did so with a few caveats.

“This is a generally solid report but with three flies in the ointment that cause concern,” Scotia Capital’s Derek Holt and Karen Cordes said in a note to investors.

They said their first concern is that total hours worked declined by 0.3 per cent. “More bodies are being hired, but at reduced aggregate hours worked. It’s hours worked that drive paycheques, such that the consumer cash flow implications are far less impressive than the job count.”

They were also concerned about many job gains being in the education sector.

“StatsCan has admitted that they have had difficulty with abnormal seasonal adjustments in this component over recent months,” they wrote. “We don’t trust this component and caution on future revisions and or disappointing base effects to the December jobs reading a month from now.”

Holt and Cordes were also concerned about weak productivity.

Self-employment also fell in November by 32,000 jobs. That’s potentially a good sign for the economy, since economists tend to discount self-employment gains in a weak economy as mostly involuntary, the result of enterprising Canadians starting their own businesses when they can’t find regular work.

Statistics Canada says employment is now down 321,000 jobs, or 1.9 per cent, since October 2008.

The agency also noted that hourly wages were 2.3 per cent higher than a year ago, the lowest year-over-year growth since March 2007.

Employment growth were spread across the country, with the biggest gains in Ontario, Quebec and Alberta.

Most gains were among women between the ages of 25 and 54, and men aged 55 and over.

Statistics Canada notes that between October 2008 and March 2009, employment fell in almost all industries, especially in manufacturing and construction. But since March, the manufacturing sector has slowly stemmed its hemorrhaging of jobs, while employment has picked up in construction and some service industries.

“Almost all the employment growth in November was attributable to the strength of the service sector (plus 73,000), especially educational services,” the agency said in a note.

“With November’s increase, employment in the service sector is back at its October 2008 level, while employment in the goods sector remains well below (minus 324,000) where it was at that time.”

Regionally, Ontario’s unemployment rate remained unchanged from the previous month at 9.3 per cent, even though the province’s economy grew by 27,000 jobs in November.

In Quebec, gains of 21,000 jobs pulled the province’s unemployment rate down four-tenths of a point to 8.1 per cent. The province has lost jobs more slowly than other provinces during the economic downturn.

Alberta’s employment rose by 13,000 last month, the biggest gain in more than a year. British Columbia’s economy also continues to grow.

Manitoba’s economy remained stable, as it has throughout the downturn, and Newfoundland and Labrador also saw employment increase by 2,700 jobs in November.

Benjamin Reitzes of BMO Capital Markets Economics says the November job numbers should boost the Bank of Canada’s confidence in the economy following soft economic growth in the third quarter of the year and weak October figures.

“The solid November report offsets the prior month’s disappointing drop,” he said.

“The average 18,000 gain over the past two months probably best characterizes the state of Canada’s job market, and points to an economy emerging from recession.”

The Canadian Press