MACLEAN RYCHLO FINANCIAL GROUP
Monthly Market Recap July 2023
July was another positive month for most financial markets. Sentiment seemed to shift with the overall tone of North American markets becoming more optimistic that a recession may be avoided and a ‘soft landing’ might be achieved. Stronger than expected labour markets and a robust consumer have caused economists and financial experts to continue to push out the timeline for a possible recession by anywhere from 6 months to a year. We are potentially seeing signs of a weakening consumer as credit card debt and delinquencies increase. Unemployment, which is a lagging indicator, continues to be at or near historical lows, but new jobs and wage growth have started to slow. We have written previously that Canadians are more interest rate sensitive than Americans, because of higher household debt levels and the structure of mortgages having a term of five years or less. As mortgages are coming due, many Canadians are extending the amortization periods to help keep their monthly mortgage payments constant. This in a way, minimizes some of the impact of higher interest rates in the short term (which historically would not have been an option in past rate hiking cycles). It helps with monthly cash flow, but the sacrifice comes with it adding years to a mortgage. The Bank of Canada (BoC) and The U.S. Federal Reserve (The Fed) each raised interest rates by 0.25% in July. Language from both central banks is that they remain committed to their 2% inflation target. CANADA • The BoC increased its benchmark interest rate by 0.25% to a range of 5.00% - 5.25%. When considering the risks of under or over-tightening, they are more concerned about not doing enough now and squandering the progress made to date. The BoC projected that inflation would return to its 2% target by the middle of 2025, about six months later than its previous forecast. Their next meeting is September 6. • The Canadian unemployment rate in June moved higher to 5.4%, from May’s 5.2%. • The Consumer Price Index (CPI), a measure of inflation, decreased in June to 2.8% year-over-year, from May’s 3.4%. Core inflation, which excludes more volatile energy and food prices, decreased to 3.2%. • Retail sales rose by 0.2% in May. June estimates are for no growth. Year-over-year total sales were up 0.5%. Consumer spending accounts for over 60% of Canadian economic activity. • The Canadian economy grew by 0.3% month-over-month for May. Statistics Canada estimated GDP to decline by 0.2% in June. • National home sales increased by 1.5% month-over-month in June. New listings increased 5.9% month-overmonth. The national average sales price increased 6.7% month-over-month. Activity in the housing market has a significant ripple effect on the broader economy. • There is a new tentative deal that needs to be voted on for the B.C. port worker’s strike. This impacts more than 30 ports and approximately 7,400 workers. It is estimated that B.C. ports move $800 million of cargo every day. The longer the strike continues, the greater the impact on the Canadian economy. U.S. • • • • •
The Fed increased interest rates by 0.25% to a range of 5.25% - 5.50%. The next policy meeting is September 19 and 20. The U.S. economy grew by 2.4% annualized for the second quarter of 2023, almost a full percent stronger than the 1.5% expected. The U.S. unemployment rate fell slightly in June to 3.6%, from May’s 3.7%. This is stronger than expected. U.S. inflation (CPI) fell to 3.0% in June, annualized, from 4.0% in May. The core inflation rate decreased to 4.8%. Retail sales in the U.S. increased by 0.2% in June month-over-month. This was the third straight monthly increase. 1