The recent rate announcement by the US Federal Reserve serves as a pivotal point for economic discussions. The Fed's decision to raise its interest rate by ¼ point brings it to the highest level witnessed in 22 years, echoing similar rate increases in Canada.
Moreover, the indication of a potential additional hike in 2023, contingent on the economy's trajectory, highlights the Fed's responsiveness to economic conditions. Despite these adjustments, the US economy continues to show resilience, with Q2 GDP exceeding the estimated 1.8%, reaching an impressive 2.4%. The stock market's upward trajectory further suggests that a recession is not imminent in the USA.
Inflation emerges as a pressing and complex challenge in the economic landscape. Escalating oil prices and increased mortgage interest payments significantly contribute to inflationary pressures. Recent data points to a surge in oil prices over the past month, while rental rates in Toronto have experienced substantial upticks, potentially impacting the Consumer Price Index (CPI) basket. Projections warn of potential inflationary challenges over the next three months, with interest rates likely stabilizing around 5% in the subsequent year.
A critical juncture in Canada's political landscape is the recent cabinet shuffle by Prime Minister Trudeau. The reorganization involved the removal of seven ministers from their positions and the reassignment of most others to unfamiliar roles. The appointment of the Minister of Immigration as the Minister of Housing raises pertinent questions about the suitability of such decisions, considering the expertise required for each portfolio.
The housing market is a crucial facet of the economic landscape. Exploring housing starts and building permit applications in Canada offers valuable insights into the real estate sector. A notable surge in housing starts, primarily driven by the condo segment, contrasts with a decline in monthly building permits for detached homes since 2022. This decline raises concerns about the future availability of single-family homes, as multi-family dwellings gain prominence.
National home sales show a noteworthy resurgence, registering a remarkable 25% increase from the lows observed at the end of 2022. However, it is anticipated that the upward trajectory of home sales will gradually plateau. Listings reflect a modest increase but remain below long-term averages. Ontario stands at the epicenter of active listings, currently at 130k, a substantial decrease from the 250k recorded in 2015. Moreover, prices have surged by 2% in June and 6% over the last three months, yet the Home Price Index (HPI) signals the possibility of a housing market downturn.
Negative year-over-year (y/y) real GDP per capita figures for April and a 40bps surge in unemployment over the past three months, the swiftest escalation since the Global Financial Crisis (GFC), accentuate apprehensions about a recession in the economic outlook.
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