Canadian economy at a glance
U.S. economy at a glance
Oil market update
Other economic indicators
How entrepreneurs can deal with high levels of stress
Worries can take a heavy physical and mental toll
For some of us, November can be a particularly gloomy month when the days get shorter and temperatures drop. It’s easy to feel down and blue at this time of year.
Entrepreneurs can be particularly hard hit by stress, given their heavy workload, pressure to succeed and the high stakes associated with owning a business. This month’s letter looks at what you can do to better manage stress and, generally, improve how you feel about the business you run.
Entrepreneurship is uniquely challenging and stressful
Based on Statistics Canada data, a third of all new businesses are no longer open after five years. After 10 years that number jumps to 50%.
Those stats indicate how much risk is involved in becoming an entrepreneur. So, it’s no surprise that three quarters of entrepreneurs say they deal with a high degree of stress at work, according to a recent survey of about 500 business owners conducted by the Canadian Metal Health Association (CMHA). Financial insecurity and social and professional isolation top the list of factors contributing to high stress.
What you can do to cope
The CMHA study identifies common coping strategies that entrepreneurs have adopted at work to deal with stress. Strategies included delegating tasks to others, making more intuitive decisions and motivating employees to take on more responsibility. Some entrepreneurs also said that they developed a stronger sense of purpose and became more persistent about getting work done, to deal with high stress levels. For more information on the relationship between persistence, perseverance and success check out this TED Talk by Angela Duckworth.
A number of studies have demonstrated that higher rates of job satisfaction are also correlated with lower stress levels. A recent BDC study showed a strong link between entrepreneurs’ level of satisfaction with their work and their managerial and technical skills.
Based on a survey of about 1,000 business owners, the BDC study found that unsatisfied entrepreneurs were much more likely to have lower managerial and technical skill scores. The data suggests that entrepreneurs may have an easier time dealing with tasks that they feel most comfortable with and feel adequately equipped to perform.
Invest in your skills
A key recommendation of the BDC study was to invest in your skills. Here are some ideas about how entrepreneurs can invest in their skills:
- Look into programs at colleges and universities designed for business owners. These courses typically focus on fundamental business skills and are tailored to fit the schedules of busy entrepreneurs.
- Inquire with your local chambers of commerce and other business organizations. They offer courses, seminars and networking events where participants can meet others facing similar challenges and learn from them.
- Investigate online courses which facilitate learning at your own pace. BDC’s Entrepreneur’s Learning Centre offers free courses on topics like financing your business, financial management and operational efficiency.
- Seek out a business coach. A coach is typically a successful entrepreneur or corporate executive with significant experience. A coach can provide advice and ensure you identify and focus on tasks that will yield big improvements to business, and consequently, your stress levels.
You are a key part of your business’s success. You need to be healthy in order to succeed. Make time to think about what you could do differently to better manage stress and improve your mental and physical health.
Canadian economy at a glance
The housing market is back on track
The housing market in Canada is improving. Housing sales and starts are both on the rise. This is positive news for the Canadian economy because housing accounts for more than 7% of GDP.
A number of factors contributed to the slowdown in the housing market.
- Ontario and British Columbia imposed a tax on foreign residential investment to reduce foreign demand in the greater Vancouver area and the greater Toronto area.
- The federal government introduced a stress test on mortgages in response to high levels of household debt.
- Interest rates increased substantially in 2017 and 2018.
These factors muted demand in the housing market, producing a decline in activity that limited economic growth in many parts of the country.
A strong job market is supporting a rebound
The good performance of the job market is a key reason for the rebound in housing. Despite modest economic growth, the Canadian economy created 442,500 jobs in the last year.
Businesses continue to hire even though the level of economic uncertainty remains high. As a result, many provinces are experiencing historically low unemployment levels.
Job creation has been particularly strong in Quebec and Ontario, supporting a robust housing market in these provinces. British Columbia is also benefitting from a solid job market, helping the recovery of residential investment in that province.
Low rates are another factor
Another positive factor has been lower interest rates. Five successive rate hikes from the Bank of Canada in 2017 and 2018 contributed to the housing slowdown. This year, the bank has maintained its policy rate, but mortgage rates have still been falling, reflecting global market interest rates.
Lower rates will continue to support the housing market. The global economy is slowing down amid trade disputes and political uncertainty and this is forcing many central banks to lower their rates.
Additionally, the Bank of Canada has eased its stress test criteria, which is facilitating the access to mortgages for first-time buyers.
Uncertainty remains high
Although the housing market is improving, the Canadian economy still faces some headwinds. Brexit and the trade dispute between the U.S. and China are contributing to a high level of uncertainty in the global economy.
This is having a negative impact on business confidence around the world, including in Canada. As a result, Canadian businesses are scaling back their investment plans, which is limiting economic growth. Despite the global slowdown, Canadian exports have been resilient so far. However, if the situation persists, they could come under more pressure.
Bank of Canada holds rates steady
The Bank of Canada kept its policy rate at 1.75%. The bank sees an improvement in the economy in 2020 supported by the solid job market, which will help housing and consumption. The Canadian economy should be operating at close to its potential in 2020 and probably won't require lower rates as stimulus.
What does it mean for entrepreneurs?
- Despite global uncertainty, the Canadian economy continues to grow supported by consumers, exports and government spending.
- A strong job market is creating employment and wage gains that will support consumer spending and residential investment. The housing market is recovering, especially in Quebec, Ontario and B.C.
- Credits conditions remain highly favourable for businesses and households. Lower rates should continue to support consumption and the housing market.
U.S. economy at a glance
Uncertainty forces the Federal Reserve to reduce interest rates again
The U.S. economy continues to show solid growth, supported by consumer spending and a robust housing market. However, the trade dispute with China and political instability in the country are creating a high level of uncertainty.
In response, the Federal Reserve reduced its trend-setting interest rates for the third time since last summer to prevent a slowdown of the economy.
Business investment is down
Business investment fell in the U.S. for the second quarter in a row. While lower oil prices are partially to blame for the decline, the main reason was uncertainty caused by the trade dispute with China.
Trade with China accounts for 21% of total U.S. goods imports and 7% of exports. The U.S. government has imposed tariffs on more than US$500 billion of Chinese imports in an effort to get China to give better access to its market.
The tariffs have reduced Chinese exports by 11% since the beginning of 2019. They have also had an impact on American businesses. Depending on the product, businesses have to pay 15 or 25% tariffs on their imports from China or find new suppliers in other countries. This situation is creating a lot of uncertainty for businesses and, as a result, business investment is declining.
Consumers remain confident
If businesses are worrying about the economy, U.S. consumers show no signs of losing confidence so far.
The economy continues to create jobs at a solid pace and salaries are on the rise, contributing to a high level of consumer confidence. Indeed, the unemployment rate was 3.6% in October, one of the lowest rates in 50 years. More and more Americans are getting back into the job market after years of difficulty finding a job.
The good performance of the job market and lower interest rates are translating into an increase in consumer spending and residential investment. Sales of interest-rate sensitive products, such as cars and furniture, grew by 4.4% year-to-date and total consumption is also growing at a solid pace. These results are significant because consumer spending accounts for about two-thirds of GDP.
The housing market is also gathering momentum after a few months of decline. The recent interest rate reduction should stimulate more growth in the coming months.
The economy continues to grow above its potential
Despite the uncertainty created by the trade conflict with China, the U.S. economy continues to grow above trend. The recent interest rate reduction will help support growth in these times of high turbulence.
We expect the U.S. economy to have solid growth in 2019 and 2020 supported by consumer spending and residential investments.
What does it mean for entrepreneurs?
- U.S. demand for Canadian exports remains strong and continues to provide opportunities for Canadian exporters.
- The Canadian dollar should remain at a relatively low value against the greenback providing exporters with an added advantage.
- Interest rates in the U.S. will remain low over the next few months, meaning low borrowing costs.
Oil market update
Fears of a global slowdown push oil prices down
The International Energy Administration (IEA) has revised downward its 2019 and 2020 forecasts for oil demand in response to concerns about a global economic slowdown.
The IEA cut its forecast of oil demand growth for this year to one million barrels per day (mb/d) and 1.2 million for 2020, representing a 100,000 barrels reduction in each year. Fears of global economic weakness have more than offset the effects of a plunge in oil supplies following an attack on Saudi Arabian facilities in September.
Meanwhile, oil prices rebounded somewhat on positive headlines about the possibility of “a phase one” trade deal between the United States and China. However, the effect was tempered by news of a build-up in U.S. inventories that was significantly higher than expected by most analysts.
Almost a year ago, the OPEC+ group of major producers agreed to cut production by 1.2 mb/d for the first half of 2019 to support prices. In June, OPEC+ extended the cut until March 2020 and the group is set to review the policy again on December 5 and 6.
OPEC Secretary-General Mohamma Barkindo said the organization will do “whatever it takes” to keep markets in balance.
OPEC usually aims to maintain the price of oil at about US$70 per barrel. Brent has been hovering around US$60 recently, and concerns about the global slowdown might push OPEC+ to maintain its cuts longer than planned. If so, this will likely help support prices in 2020, mitigating the impact of weaker demand.
The gap between WTI and WCS widens
The differential between prices for West Texas Intermediate (WTI) and Western Canadian Select (WCS) widened to an 11-month high in the first week of November. WCS—the benchmark price for heavy Canadian crude—has weakened even more than Brent and WTI. The reason? A leak in the Keystone pipeline forced TC Energy to shut down the line in late October. At the time of writing, there was no official estimate of when it will be back in service.
Western Canadian producers were already facing well-known transportation challenges, and the temporary closure of Keystone further reduces transportation capacity by nearly 600,000 barrels per day.
A few days before the Keystone leak, the Alberta government announced a new policy to support oil producers. While the government extended oil curtailments for another year to December 2020, it said operators will now be able to apply for a waiver to the curtailment.
To meet increased demand, suppliers will be able to boost production if the additional product is exported outside of the province by rail. While rail is an option, it costs more and only makes economic sense when the gap with WTI exceeds about US$20 per barrel. The differential stood slightly above that threshold at the beginning of the month.
Prices are expected to remain low in the coming months as global demand slows in reaction to a weaker global economy. This is not good news for Canadian producers who are facing longer than expected curtailment, a pipeline shutdown and a widening price discount for their product.
Other economic indicators
The U.S. and Canadian policy rate: Neck-to-neck
On October 30, the Bank of Canada, once again, left its key interest rate untouched at 1.75%. Later that day, the US Federal Reserve announced a third consecutive rate cut bringing the American policy rate neck-to-neck with the Canadian one. While both economies are operating close to potential, central banks have raise concerns about the impact of the trade war and the global slowdown.
Little movement by the loonie
The loonie continued its slow appreciation against the greenback in October, hovering around US$0.76 this month. In general, the Canadian dollar did not move significantly since the beginning of the year. But the loonie began to improve progressively against the US dollar this fall as the interest rate differential between Canada and the US closed.
Business confidence wavers
The Canadian Federation of Independent Business (CFIB) Business Barometer Index remained stable in October. SMEs confidence increased by 0.5 points, reaching 59.8. Business owners appeared to be more confident about their growth outlook, as seen by the positive outlook in unfilled orders and accounts receivable. A little over 43% of owners feel their business is currently in good shape the highest share seen in a year. The CFIB estimates that these levels are near the top of their historical averages.
That said, there are important differences amongst provinces. The index value for Saskatchewan dropped to 50 (an index under 50 means that the number of business owners that expect their business' performance to be weaker next year outnumber those that expect it to be stronger). All three Maritime provinces and Quebec continue to be the most optimistic about the future.
Business credit conditions remain practically unchanged
According to the Bank of Canada’s Senior Loan Officer Survey, the credit conditions facing small businesses remained unchanged during the third quarter of the year. Companies in the energy sector and in Prairies reported tightening of both price and non-price lending conditions. Credit conditions were stable overall for households as well but there was easing in mortgage lending conditions, while non-mortgage leading conditions tightened. The effective rate of both businesses and households remain unchanged in October.