Need To Know News

Wage increases for Canadian workers will be curtailed this year as companies concentrate their efforts on cost cutting and efficiency improvements according to the Conference Board of Canada.
“Even before the financial crisis began in September, organizations were projecting lower increases for 2009,” said Prem Benimadhu, vice-president, Governance and Human Resources Management in a statement distributed by Canadian New Wire. “Although companies continue to face challenges in attracting and retaining talent, the global economic slowdown has made cost reduction a top priority.”
The conference boards’ annual survey was conducted between June and August 2008.
The original results of the survey suggested that compensation planners expected a claw back of non-union wages to an average 3.9% vs. 4.2% so far this year. The Conference Board now believes non-union increases in 2009 will fall another 0.5% from the 3.9% reported prior to the financial meltdown.
Oil and gas industry workers are expected to lead wage growth, although the increases are expected to moderate going into 2009 from the 6% recorded in 2008. Meanwhile manufacturing, communications and telecommunication are expected to take the brunt of the decline.
On a provincial level wage increases are expected to vary significantly, with the bulk of increases in the western provinces topping 4%, while Ontario, Quebec and the Atlantic provinces drop below the national average.

Potash Crop reported a record C$1.24bln in Q3 profits, 5 times last year’s haul. Net income jumped to $1.24bln from $243.1mln last year or $3.93 a share vs. 75 cents, a year earlier the Saskatchewan-based fertilizer giant said today in a statement. The company’s earnings/share excluding one-time items beat the consensus estimate of $3.52 by 41 cents coming in at $3.93. So far this year the company’s profit has exceeded its net income of $1.1 bln, and it plans to go ahead with an increase in potash capacity.
Revenue from potash, phosphates and nitrogen-based fertilizers sales more than doubled to $3.1bln, the company said in the statement.
Potash shares gained 1.35 to trade at 84.3 on the S&P/TSX.
In spite of the good news the company is downgrading its full year profits to the low end of $12 to $13 per share because of short term uncertainty created by the financial crisis and the emerging global recession.

Non-residents reduced their holdings in Canadian Secutrities by C$730mln in August from a C$5.5bln divestment prior (previously reported C$5.6bln). The decline was led by a foreigin divestment of C$4.5bln in equities, particularly energy and mining stocks, which offset the C$95mln purchase of Canadian money market instruments, and a 3.7bln investment in Canadian bonds mostly new bonds issues by private corporations.
Meanwhile Canadians sold C$1.3bln mostly in US T-Bills (70%) and the rest in US corporate papers - predictably bank and financial institutions. However Canadian investment in government paper increased by 75% and investment in foreign stocks also increased by C$1.2bln adding to the C$2.5bln prior.
In contrast with Q2, when Canadian investment was mostly in European shares, the first two months of Q3 have seen a shift to US shares according to a Stats Can analyst.

August Canadian manufacturing Inventories were up 0.3% ,for the 6th consecutive increase, mostly on raw material Inventories. Excluding petroleum Inventories were up 0.6%. Aerospace products and parts (up 4.1%) and chemical products (up 3%) led the bulk of the rise in total Inventory levels.
Meanwhile manufacturing Shipments plunged 3.7% following a 2.7% gain prior and well below the consensus estimate of a modest 0.8% decline. The weak Sales were driven by a 7.9% plunge in Primary Metal Sales (following a 10.1% surge prior) and a 7.7% drop in Petroleum and Coal products Sales. Primary metals mostly saw a volume contraction as prices were only down 2%, while Petroleum and Coal declined on both a 5.9% price plummet as well as volume due to unplanned production shutdowns. Both Transportation Equipment Sales and Auto Sales fell 4.3% each, marking the first drop in vehicle manufacturer Sales since March.
The decline in Sales and increase in Inventory led to the first Inventory to Sales ration increase since Dec. 2007. The ratio jumped to 1.29 in August from its low of 1.24 in July.

Tomorrow morning at 8:30 am EDT, Statistics Canada will release the Monthly Survey of Manufacturing for August.
Shipments are expected to contract 0.8% following a surprising 2.7% increase in July led by metals. The contraction is expected following the 1.6% drop in Exports reported last week. Both Manufacturing and Exports have been fairly volatile this year as a result of energy and commodity prices, but the August Exports report showed a significant drop in export volumes to the US suggesting that sales have slowed and the inventory to sales ratio may be up in August after recording 1.24 in July, its lowest level since January 1995.
Historically Canadian manufacturing sales track exports, the 2 moving in the same direction 10 out of 12 times in 2007 and 2006.

Canadian existing home sales were up 3% in September, as buyers rushed in ahead of the government’s new mortgage insurance rules, according to the Canadian Real Estate Association.
The average resale price, however, fell 6.2% to C$315,461 from a year earlier, the association announced in a statement today.
The new government rules pushing home sales will take effect this month. Released by the federal finance department in July the rules specify that government mortgage-insurance is only available for people making a minimum down payment of 5% of the home value and mortgages with a 35 year term or less.

The U.S. financial turmoil is keeping Canada’s projected economic growth for this year to 0.8% - just avoiding a recession according to the Conference Board of Canada’s Autumn Outlook,
“Living beside a troubled neighbour is taking its toll,” said Glen Hodgson, chief economist pointing to job losses in Manufacturing and the atrophy in job growth in other sectors.
“Massive declines in the trade sector have shredded Canada’s economic growth, and raw material prices have fallen off their peak levels. Still, the domestic economy has enough momentum to keep Canada out of a recession.”

The results of both the Q3 Senior Loan Officers’ Survey and the Autumn Business Outlook Survey  clearly suggested Canadian Businesses,  though willing to invest, are unable to access funding at a reasonable price. These results may nudge the BOC to cut its 2.5% overnight rate further.  “The results will be factored into the bank’s decision making process,” said BOC spokesperson.

The Senior Loan Officer Survey focuses on changes in business lending conditions in Q3, 2008.  The Survey found overall lending conditions had worsened.  In fact, the balance of opinion on tightening credit conditions was at its highest level in 9yrs and was an 11% jump from Q2 levels.   The tightening on pricing and non-pricing aspects of lending also showed a near record upward shift in responses, suggesting lenders have tightened the terms or standards of loans or are placing limits on fund allocations to certain businesses, regions or sectors.
Meanwhile the Business Outlook Survey indicated businesses were still positive about investment spending in Q3 but are having trouble accessing affordable financing.
The Business Outlook Survey suggested a moderating Canadian business climate.  Among the findings:

* sales growth in 2008 fell below 0 for the first time in 5 years - largely among firms exposed US markets
* Projected sales growth remained near 0, confirming low expectations over the next 12 months
* Investment spending on operations edged down but remained in positive territory, suggesting continued expansion and/or higher commodity prices
* employment outlook was also positive but expectations were somewhat lowered
* the pressure on production capacity was unchanged from Q2 due to Western Canadian labor shortages
* Input prices are expected to fall while output prices are expected to gain at the same pace as last year.
* Inflation expectations showed that 30% of respondents expected inflation to be above the BOC target range of 1 to 3%

Canada’s August Trade Balance expanded to C$5.8bln from a revised C$4.2bln prior (previously reported C$4.9bln) out pacing expectations for a further contraction to C$4.4bln. However the expansion was the result of an unexpectedly sharp drop in Imports offsetting the more-than-expected decline in Exports. Canada’s trade surplus with the US expanded to C$8.6bln from C$8.4bln prior, while the trade surplus with Japan jumped a record 26.3% to C$1.1bln, from C$8.9mln prior.
Exports declined for the first time since December 2007 by 1.6% following a revised 0.4% increase prior (previously reported 2.2% increase) falling below the consensus estimate of 0.5% dip. The August decline was the result of a volume decrease as export prices remained relatively unchanged. The main driver was the decline in exports of energy products down 9.7% on a 3.2% decrease in volume and a 6.6% decrease in price. Exports to the US, representing 75.4% of total exports fell 3.9% on lower demand for energy products. While exports to countries other than the US surged 6% from a revised 2.8% prior.
Imports also dropped 5.8% the steepest decline in 7 years and the first decline since March on lower imports of energy and automotive products. The bulk of the decline was on volume down 6.9% as prices increased 1.1%. Imports from the US fell 5.8% (coincidentally). After 2 consecutive increases imports of energy products fell 24.9% in August with the drop led by a 26.1% decline in volume while prices increased 1.6%.

Canadian September Employment defied prediction adding a shocking 106.9k jobs for the first time in 32 years following the unexpected 15.2k gain prior and far out-pacing the modest 10k increase expected. However the bulk of the increase was in part-time employment up 97k for a 9 month increase of 194k or 1.1%, in sharp contrast with the first nine months of 2007 when the 275k increase or 1.7% gain in employment was mostly full-time.
Employment was up 1.1% in the Goods Producing with a more modest 0.5% increase in Service Producing Industries. Employment gains by industry were widespread. The larges increases were seen in Health Care & Social Assistance (up 2% or 40k jobs) followed by Business, Building and Other Support Services (up 3% adding 19.8) and Manufacturing (up 1% adding 19.7k)
For the first time since 1989 there was surge (up 44.8k) in part-time employment among youth 15-24 in September traditionally the month fewer youth seek employment. Youth employment was concentrated around Manufacturing, Agriculture and Business, Building and Support Services. While 45k women aged 25-54 gained employment “out of personal preference” according to a Stats Can analyst, in Health Care & Social Assistance, Agriculture and Manufacturing.
Meanwhile a surge in the number of people joining the Labour Force offset the increase in Employment keeping the Unemployment rate unchanged at 6.1% beating expectations of a slight increase to 6.2%.