Economic analysis


A monthly scorecard on the state of the economy in North America and beyond


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Canada’s retail banking industry is normally a fairly sleepy but profitable place. Competition for consumers tends to come in the form of TV spots about branches open past 4 p.m., rather than big savings rates and cut-rate account fees. So it is unusual to see a real fight break out for customers, as is now happening in the mortgage business. Bank of Montreal has led the charge, slashing rates in a bid to steal market share from its rivals. Suddenly, the banks are in such a tizzy doling out mortgages at such low rates that they’re pleading with the federal government to regulate their business and essentially save them from themselves—a notion which strikes the finance minister as “a bit odd.”

“[Bank executives] must forget that they are actually the ones that issue the mortgages. It’s their market. It’s not my market,” said Jim Flaherty last week. The Conservative government, concerned with rising debt levels, has already stepped in three times before to tighten mortgage rules (requiring shorter amortization periods and bigger down payments). But the banks are the ones that decide the interest rates and lending terms. For any bank to characterize itself as an addict in need of intervention isn’t just odd, it’s insincere.

The real hitch is that banks don’t shoulder the risks associated with insured mortgages backed by the Canada Mortgage Housing Corp.—taxpayers are the ones on the hook. This is where the real intervention is needed. Ottawa is on the right track, having recently set a new $600-billion limit for the amount of mortgage insurance the CMHC can have at any one time. If mortgage risk starts to shift back to the banks, where it belongs, it seems likely the Big Five would have no trouble regulating their behaviour. And the economy would be better off.

By the numbers

10 per cent: The proportion of Canadians now using Netflix. Those users also watch 28 per cent more TV than average.

78 cents: Air Canada’s stock price last week after wildcat strikes by ground workers in Toronto and Montreal.

$1.6 million: The low selling price of the 14-bedroom home in Chicago made famous by the film Home Alone. Jealous, Vancouverites?

62 million: People who visited the U.S. last year, a record (21 million of them were Canadians).

$200 million: The writedown Disney will take on the film John Carter, 2012’s first blockbuster flop.

$25 billion: Profit earned by U.S. taxpayers on mortgage bonds bought by Washington during the financial crisis.

‘I am directing my administration to cut through red tape, break through bureaucratic hurdles and make this project a priority.’

—U.S. President Barack Obama on plans to build the southern leg of the controversial Keystone XL pipeline. Back in January, TransCanada was denied a key permit by the Obama administration for the entire 2,700-km project, stretching from Alberta’s oil sands to the Gulf Coast, in the face of stiff political opposition from environmental groups.

Signs of the Times: To new markets, and beyond

Nissan is planning to dust off the Datsun name after 30 years. Sadly, there will be no return of the 240z in Canada. The move is part of a bid to lure young buyers in emerging markets, like India and Russia, with entry-level cars. Nissan hopes to boost market share to eight per cent globally in the next five years, up from 5.8 per cent.

After guiding McDonald’s through years of steady growth, Jim Skinner is retiring as CEO. His timing isn’t to everyone’s taste. Incoming CEO Don Thompson lacks Skinner’s overseas experience, and outside the U.S. is where real growth opportunities lie.

The head of the Federal Aviation Administration said in a hearing last week that the space tourism industry will be worth $1 billion a year in the United States within the decade. The first liftoffs are scheduled for 2014.

China now leads the U.S. in the adoption of smartphones, according to a new report by the research firm Flurry. Its market is booming—China started 2011 in 11th place among countries. Almost a quarter of all Apple and Android smartphones in the world are now being activated in China.

The bad news

Manufacturing in China hit a four-month low, raising fears of a slowdown in the world’s second-biggest economy and pushing global stock markets down l ast week.

Two economists with the U.S. National Bureau of Economic Research say deep recessions with slow, jobless recoveries will be the new norm. Enjoy the good times while you can.

For the first time Apple is selling more smartphones in Canada than rival Research In Motion. So much for that home-field advantage.

Condo sales were down 59 per cent in Toronto in February from a year earlier. The real estate industry says it’s just a typical February lag, but 59 per cent!?!

The bad news

FedEx is scaling back operations, parking some planes in anticipation of slightly weaker economic growth of 2.1 per cent in the U.S.

Wholesale trade in Canada fell one per cent in January. It was the second drop in three months. Manufacturing sales also dropped, off 0.9 per cent. The economy sputters along.

The good news

Building permits in the United States jumped 5.1 per cent in February to 717,000. Two-thirds are for single-family homes. The once shattered housing market is back.

Jobless claims in the U.S. fell to 348,000, the lowest level in four years. The jobs recovery could be the real deal, even despite a persistently high unemployment rate.

Canadian retailer Lululemon reported fourth-quarter revenues were up 51 per cent, to $371 million. Yoga pants: not just a fad after all.

U.S. imports shipped in containers, from auto parts to furniture, jumped 4.1 per cent in January from a year earlier. America is in a buying mood again.

Amazon is spending $775 million to buy Kiva Systems, a maker of robots for shipping centres. It won’t cut human jobs. (But when machines take over, we’ll know who to blame.)

Retail sales in Canada rose 0.5 per cent in January. The largest boost was seen among new car dealers, with the healthiest monthly gain in nearly three years.