I’m going to aggregate what I think is key macroeconomic data that is relevant to the Mortgage and Real Estate market here in Canada. I’m doing this to simplify what I see happening in our larger economy in an attempt to provide context on future interest rate movements.
Please consider this summary and my opinion in forming your own thoughts.
Jobs. Inflation. Wages.
- Canada’s economy added 79,500 (30,000 full time) net new jobs in November 2017 in addition to adding 35,000 new jobs in October. These jobs were mostly created in Ontario with BC, NB and PEI seeing some growth as well. Overall Canada has added 441,000 new jobs in 2017.
- Canada’s unemployment rate fell to 5.9% which is the lowest level since February 2008. The labour participation rate, which are people of working age, employed or unemployed, actively seeking employment, remained unchanged at 65.7%.
- Wage growth is up 4.8% year-over-year. This supports disposable income and increased consumption. I think this is positive because 58% of our Gross Domestic Product (GDP, Canada’s National economic output) is from consumer spending. BC led all provinces with a 7.3% annual percentage wage increase! AB is in at 4.5%.
- The economic sweet spot, where both maximum potential economic output and actual economic output are both increasing, allows for a period of non-inflationary growth. If wage growth and net new jobs added to our economy continue, the delicate balance of remaining in this economic sweet spot can be toppled.
- Consumers debt service to disposable income percentage increased in the second half of 2017. This data point has been relatively stable since 2010.
- One interesting data point that I’ve read in a couple different places now is aggregate total hours worked are down 0.7. This take a bit of positive steam from the wage growth and labour reports because it means we’re hiring more people who are doing less work.
Outlook:
Considering the positive economic data, and how the market reacted (Canada Bonds jumped and the Loonie’s increase relative to the US dollar) I think the Bank of Canada is not likely to knee jerk a policy rate hike just yet.
I think there is still more economic data to be analyzed before making a rate hike decision. A 50 basis point hike, in July and September 2017, was simply restoring an emergency rate cut due to the oil shock of 2014. Further rate movements are prudent and cautious. It’s possible by March 2018 the Bank of Canada could increase their overnight rate from 1.00% to 1.25%.
I think employment and wage growth data are the most influencial leading indicators for a Bank of Canada rate hike.
For context, every 25 basis point rate hike increases one’s adjustable Mortgage rate payment by about $12 per $100,000 of Mortgage.
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Thank you for reading!
Cheers,
Chad Moore
