Well, Well the New Year has brought a big surprise for the business news watchers.
Personally, have had a great start to the year and hope the same for you.
The unpredictability of the economy and what the big guys do has never been more evident than with the most recent Bank of Canada (BoC) announcement. The 1/4 point drop in rate means they are worried about the effects of the low price of oil on the Canadian economy. Granted we were reassured that the other parts of the economy e.g. manufacturing etc. are growing, and with the stronger US economy and a lower Canadian dollar it certainly opens opportunity for export growth, but this announcement means they do not expect the one aspect of the economy to pick up enough slack to offset the oil patch slow down any time soon.
The focus was on opening the lending gates to business to help them grow, and while the BoC hedged around it, the media sources jumped on the fact that people might take this opportunity to borrow and dig themselves deeper into debt. So the banks have held off on dropping personal lending rates and even those of us with variable rate debt had hoped it would mean our payments would be making a bigger dent in the principal. The banks though have taken the "general concern" and turned it into a window to boost profits as their margins improve while they save us from ourselves. Maybe a good time to up the bank stock holdings? Anyway, the rate drop does mean that while we had it pretty easy after the 2008 collapse we are going to have to pay some price for our focus on oil.
Look at the federal government, in an election year they are postponing the next budget and starting an aggressive pre-election media and phone campaign and trying to figure what they can put on the table to give to voters because the money they thought they had has evaporated. This means that even they are worried about the effects on all Canadians. So this is no small announcement.
I also listened to the Obama state of the union and while I must admit I like the guy as a orator, I also think I like the way he reached across party lines and tried to find a way to help all Americans benefit from the current growth in the US. I did not see a lot of happy Republican faces, but where before Obama was learning the job and the games and then had to be re-elected, maybe he meant it that he would use the 2 years he has left to do more of what people elected him to do the first time? If that happens it may have a spin off effect in Canada.
Why you might ask? Well if he can get people paid sick days, fair wages and maternity leave, maybe some parts of the US will have improved economies and this would further boost consumption of both US and Canadian goods, and if wages go up we may be more competitive in our labour costs. We do need to work on our productivity though.
The experts say they were caught off guard by the rate drop, and the Bank of Canada said they dropped hints and that the experts understood the effect the big drop in oil prices would have so they should not have been surprised. The BoC said this move was for insurance purposes and reminded us that the effects of a drop are never immediate ( 6 - 8 quarters to influence inflation) and that it could take a year to get back on track. They have room to go up, or down, if they still need to and with their models predicated on $60 it is going to be interesting. The recent death of the Saudi King may also lead to changes, overall it is a dramatic start to the year.
Will this help return "output to its full potential" or help "close the labour market gap?" Hard to say. I am going to agree with Michael Hlinka on this and I think there is far too much under employment and people who are in the wings with better educations and skills than the economy is putting to use. I do not think the Canadian economy is crashing and burning, but I also am not yet convinced that this one cut will give us the growth we need if governments and business do not start investing in infrastructure, growth and people. And I am not sure I see enough of that across the country to say that me might not see another rate drop.
The benefit to the consumer is delayed by banks who will not match the rate drop, and it may take time to work its way into mortgage rates, but I guess the one thing we can be sure of is that mortgage rates will not be going up soon. So if your personal economics and job prospects are good it is still a great time to buy, and a great time for those happy with where they are to pay the debts down even faster and free up that cash flow for a much freer life down the road.
The dollar remains low and this too will affect how Canadians spend their money. Higher food prices ahead.
Personally, have had a great start to the year and hope the same for you.
The unpredictability of the economy and what the big guys do has never been more evident than with the most recent Bank of Canada (BoC) announcement. The 1/4 point drop in rate means they are worried about the effects of the low price of oil on the Canadian economy. Granted we were reassured that the other parts of the economy e.g. manufacturing etc. are growing, and with the stronger US economy and a lower Canadian dollar it certainly opens opportunity for export growth, but this announcement means they do not expect the one aspect of the economy to pick up enough slack to offset the oil patch slow down any time soon.
The focus was on opening the lending gates to business to help them grow, and while the BoC hedged around it, the media sources jumped on the fact that people might take this opportunity to borrow and dig themselves deeper into debt. So the banks have held off on dropping personal lending rates and even those of us with variable rate debt had hoped it would mean our payments would be making a bigger dent in the principal. The banks though have taken the "general concern" and turned it into a window to boost profits as their margins improve while they save us from ourselves. Maybe a good time to up the bank stock holdings? Anyway, the rate drop does mean that while we had it pretty easy after the 2008 collapse we are going to have to pay some price for our focus on oil.
Look at the federal government, in an election year they are postponing the next budget and starting an aggressive pre-election media and phone campaign and trying to figure what they can put on the table to give to voters because the money they thought they had has evaporated. This means that even they are worried about the effects on all Canadians. So this is no small announcement.
I also listened to the Obama state of the union and while I must admit I like the guy as a orator, I also think I like the way he reached across party lines and tried to find a way to help all Americans benefit from the current growth in the US. I did not see a lot of happy Republican faces, but where before Obama was learning the job and the games and then had to be re-elected, maybe he meant it that he would use the 2 years he has left to do more of what people elected him to do the first time? If that happens it may have a spin off effect in Canada.
Why you might ask? Well if he can get people paid sick days, fair wages and maternity leave, maybe some parts of the US will have improved economies and this would further boost consumption of both US and Canadian goods, and if wages go up we may be more competitive in our labour costs. We do need to work on our productivity though.
The experts say they were caught off guard by the rate drop, and the Bank of Canada said they dropped hints and that the experts understood the effect the big drop in oil prices would have so they should not have been surprised. The BoC said this move was for insurance purposes and reminded us that the effects of a drop are never immediate ( 6 - 8 quarters to influence inflation) and that it could take a year to get back on track. They have room to go up, or down, if they still need to and with their models predicated on $60 it is going to be interesting. The recent death of the Saudi King may also lead to changes, overall it is a dramatic start to the year.
Will this help return "output to its full potential" or help "close the labour market gap?" Hard to say. I am going to agree with Michael Hlinka on this and I think there is far too much under employment and people who are in the wings with better educations and skills than the economy is putting to use. I do not think the Canadian economy is crashing and burning, but I also am not yet convinced that this one cut will give us the growth we need if governments and business do not start investing in infrastructure, growth and people. And I am not sure I see enough of that across the country to say that me might not see another rate drop.
The benefit to the consumer is delayed by banks who will not match the rate drop, and it may take time to work its way into mortgage rates, but I guess the one thing we can be sure of is that mortgage rates will not be going up soon. So if your personal economics and job prospects are good it is still a great time to buy, and a great time for those happy with where they are to pay the debts down even faster and free up that cash flow for a much freer life down the road.
The dollar remains low and this too will affect how Canadians spend their money. Higher food prices ahead.
