LBS Economic Research and Strategy Report

1.
This document is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author is an employee
of Laurentian Bank Securities (LBS), a wholly owned subsidiary of the Laurentian Bank of Canada. The author has taken all usual and reasonable precautions to determine that the information contained in this document
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Cooling Housing Market, CPI and Retail Sales Preview: No Spring Thaw for the Canadian Economy
The CREA data released last Monday showed several signs of cooling in the GTA’s housing market. Resale
transactions fell by 6.7% m/m in April (see chart on page 2), the largest monthly decline since the maximum
amortization period was reduced to 25 years in mid-2012. The number of listings soared to a record high of 18.3K
units as homeowners and investors attempted to cash in their expensive homes for a massive profit, knowing that
new measures to cool speculative activity were about to be announced in late April by the Ontario government.
Altogether, the sales-to-listings ratio in the GTA plunged to its lowest level since late 2012 at 0.52 and the average
resale home price registered a rare drop (-1.5% m/m, to $879K).
On Friday, we expect the Canadian CPI report for the month of April and the Canadian retail sales report for the
month of March to slightly fall short of market expectations.
CPI: The LBS Economic Research and Strategy team expects a 0.3% m/m increase in the CPI for the month of April
(consensus at +0.5% m/m). Our estimate is driven by several factors: federal tax hikes on cigarettes and alcohol,
rising gasoline prices, slightly higher import food prices coming from the loonie’s depreciation registered during the
month and increasing shelter costs. Also, we expect the BoC’s three preferred measures of core inflation to stay
relatively unchanged. These averaged 1.5% in March (see chart on page 2), sufficiently below the 2% target to
believe that Governor Poloz will maintain a dovish tone at the May 24th monetary policy meeting.
Retail Sales: Nominal retail sales have been expanding at a faster pace lately (4.7% on a year-over-year basis in
February) due to improving labour market conditions and federal tax relief to middle-income families. In March,
record high motor vehicle sales are expected to be offset in most part by the snowstorm which temporarily prevented
some consumers in Central Canada, particularly in Quebec, from going to traditional retailers. Using a very
conservative negative impact of this weather-related event on total retail sales, we expect a modest 0.2% increase in
retail sales during the month of March (consensus at +0.3% m/m).
Bottom Line: The Canadian economy has been growing briskly during 2017Q1. We are tracking a 3.0% q/q saar
growth for real GDP. But this week’s likely soft round of data, the temporary economic disruption caused by the
recent floods in Quebec and the negative impact of the U.S. countervailing duties on the Canadian softwood lumber
industry are poised to bring down real GDP growth below 1% q/q saar in 2017Q2. Afterward, growth will likely
rebound sharply: we expect real GDP growth to near 3% q/q saar in 2017Q3. All in all, we forecast real GDP annual
growth at 2.2% in 2017 and 1.9% in 2018, compared to 1.4% in 2016. This improving economic growth prospect of
the Canadian economy is contingent on soon-to be-adopted expansionary U.S. fiscal policies. However, a rise in
U.S. protectionism could cloud the outlook.
Sébastien Lavoie | Chief Economist
514 350-2931 | lavoies@vmbl.ca

2. Economic Research and Strategy
161514131211
20000
17500
15000
12500
10000
7500
5000
20000
17500
15000
12500
10000
7500
5000
Residential Listings: GTA Resale Market
(units)
Residential Sales: GTA Resale Market
(units)
Source: The Canadian Real Estate Association /Haver Analytics
161514
2.4
2.0
1.6
1.2
0.8
0.4
2.4
2.0
1.6
1.2
0.8
0.4
Canadian Total CPI
Core Inflation: CPI-Common
Core Inflation: CPI-Median
Core Inflation: CPI-Trim
Source: Statistics Canada /Haver Analytics