July 31, 2008

The Bank of Canada has stayed on the sidelines and left Prime at 4.75%. With inflation fears from Energy & Food pricing being counteracted by a slowing economy and a US economy in major recession the BoC is handcuffed with little ability to move in either direction. Though some feel the US will come out of recession next year, our feeling is they will be in one for the next 18 - 24 months minimum, which will keep our rates down. Variable rate mortgage make the most sense in this environment of a low Prime rate and still fairly low fixed rates. If you are in a fixed rate it is very important that you have a review done as soon as possible to see whether making a break in your term is worthwhile...it likely is!

As always the best way to deal with this is to put a strategy in place designed for your needs and goals...

Current News & Forecasts

CIBC World Markets Rate Forecast: link

VIRGINIA GALT

Globe and Mail Update

July 31, 2008 at 10:46 AM EDT

Economic activity “continued its seesaw pattern of recent months,” as real gross domestic product edged down 0.1 per cent in May on the heels of April's 0.4 per cent rebound, Statistics Canada reported Thursday.

“There was a significant decrease in the energy sector in May. Declines were also recorded in finance, forestry, construction and wholesale trade. Conversely, manufacturing, retail trade and the public sector advanced,” Statscan said.

Economists, who had expected that the GDP would eke out a modest 0.2 per cent increase in May, were caught off guard.

Statscan's report came as “a bit of a shocker,” Bank of Montreal economist Douglas Porter said in a research note. The weak economic performance also leaves the Bank of Canada with little room to raise interest rates in the near future, economists said.

“May's GDP report underlines the growth risks that have prevented the Bank of Canada from raising interest rates to counter inflation, and such risks will likely remain throughout the third quarter,” said Canadian Imperial Bank of Commerce economist Krishen Rangasamy.

Mr. Porter said it appears that the economy narrowly avoided falling into “a technical recession” - defined as two back-to-back quarters of contraction -in the first half of this year.

Still, the widespread nature of the weakness captured by the May GDP report “underlines the fact that the economy is swimming upstream,” Mr. Porter said.

“This is the fourth decline in six months, and indicates a growing softening trend in the Canadian economy,” Toronto-Dominion Bank economist Charmaine Buskas said in a research note.

“If we assume a flat June reading for GDP, the second quarter might be only as high as 0.5 per cent. This suggests the Bank [of Canada] might not really be in a position to raise rates until well into 2009,” she wrote.

Statistics Canada reported advances in the manufacturing, retail trade and public sectors.

But energy sector output fell 0.9 per cent in May. Output in the mining sector fell 1.4 per cent in May and “the finance and insurance sector retreated as a result of a reduced level of activity in banking services on the financial markets.”

The construction sector fell for a third consecutive month, down 0.4 per cent in May. Activity declined in non-residential building, engineering and repair work, Statscan said.

“The increases in apartment and row house construction were not enough to offset the declines in single-family and semi-detached homes construction ý Activities of real estate agents and brokers declined for the sixth consecutive month, due to lower sales of existing homes in most provinces.”

On the upside, manufacturing production edged up 0.1 per cent in May, on the heels of a partial rebound in April, Statscan said.

“Value added in the retail sector grew by 0.1 per cent in May. There were notable increases in the volume of activities at new and used car dealers as well as in home centres and hardware stores.

“In contrast, the volume of sales by food and beverage stores was down.”