2016 Economic and Business Performance Canada and the World June 19, 2016

2016 Economic and Business Performance Canada and the World June 19, 2016By: Paul Young, CPA, CGA

This presentation is on perspective when it comes Business and Economic results for 1st Quarter 2016

Paul Young - Presenter

BioCPA/CGA25 years of experience in Academia, Industry and Financial solutionsYoutube Channel - https://www.youtube.com/channel/UCAArky1bAXPSuV2NLtUnyLg

AgendaGrowth 2016Market ReturnsBusiness performance Canada ProfitCanadian Manufacturing SalesBusiness performance USA - ProfitFederal Government PerformanceCanada IssuesWorld IssuesCap and TradeOther Links

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Global Forecast

http://www.gbm.scotiabank.com/English/bns_econ/forecast.pdf5

Source BMO Economics

Weekly Round June 17, 2016

http://www.bmonesbittburns.com/economics/equity/20160617/equityweekly.pdf6

Business Performance 1Q16 Canada

Canadian corporations earned $73.1billion in operating profits in the first quarter, down4.6% from the previous quarter. The decrease was attributable to a $2.8billion drop in profits in the energy sector. (The energy sector comprises oil and gas extraction and support activities and petroleum and coal products manufacturers.) Profits for financial enterprises fell $1.7billion. Slight profit gains in other industries were not enough to offset these declines. Overall, operating profits were down in11of22industriesOperating Revenue grew less than 1% for 1St Quarter 2016

http://www.statcan.gc.ca/daily-quotidien/160526/dq160526b-eng.pdfhttp://www.statcan.gc.ca/daily-quotidien/160526/t001b-eng.htm

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Earnings Announcement First quarter earnings are expected to decline 5.0% from Q1 2015. Of the 499 companies in the S&P 500 that have reported earnings to date for Q1 2016, 73% have reported earnings above analyst expectations. This is above the long-term average of 63% and above the average over the past four quarters of 68%. 53% of companies have reported Q1 2016 revenue above analyst expectations. This is below the longterm average of 60% and above the average over the past four quarters of 46%. For Q2 2016, there have been 80 negative EPS preannouncements issued by S&P 500 corporations compared to 31 positive EPS preannouncements. By dividing 80 by 31, one arrives at an N/P ratio of 2.6 for the S&P 500 Index. The forward four-quarter (2Q16 1Q17) P/E ratio for the S&P 500 is 17.2. During the week of June 13, 1 S&P 500 company is expected to report Q1 2016 earnings and 3 companies are expected to report Q2 2016 earnings.

http://www.trpropresearch.com/pdf/This_Week_In_Earnings.pdf/8

Canadian Manufacturing / Sales

SummaryCanadian manufacturing sales were better than expected for April at +1% m/m in nominal terms and +1.4% m/m in volume terms as prices fell by 0.5% m/m. There was some very good news in the number. New orders surged by 5.8% m/m in real terms and 7.8% m/m in nominal terms. The real manufacturing orders number is by no means a post crisis high (orders were higher in real terms as recently as January 2016) but at least the number reflects some type of momentum and pick up in the manufacturing sector. The number leaves constant dollar manufacturing sales tracking at +2.3% q/q annualized to start Q2. This is a pretty good start given the March drop-off in sales of -0.9% m/m, and lends some hope that Q2, which is widely expected to be a soft quarter in Canada due to a drop-off in exports and the implications of the Alberta fire, might at least continue to exhibit some positives in terms of underlying manufacturing sector momentum. Canadian industries operated at 81.4% of their production capacity in the first quarter, up from 80.9% in the previous quarter. The mining, quarrying, and oil and gas extraction industries were the main source of this increase.The sectoral outcomes were extremely mixed. It was a pretty peculiar print with some sectors posting big gains petroleum and coal products at +8.3% m/m aair and rail at +6.3% m/m and +39.5% m/m respectively) 11 of 21 sectors representing 45% of industry reported contractions. Tsectors included food manufacturing (-0.3% m/m), beverages (-0.6% m/m), textiles and clothing (-4.4% m/m on the latter), paper (-0.6% m/m), plastics and rubber (-2.1%m/m), machinery (-0.9% m/m), electrical equipment (-3.3% m/m), and motor vehicle parts (-1.1% m/m). The implication is that some of the sectors that showed unexpected strength could well edge down as the quarter progresses, particularly petroleum and coal products.

Scotiabank Economics - http://www.gbm.scotiabank.com/English/bns_econ/scotiaflash20160615.pdfStats Canada 10

Summary / Key Sector

1. Stats Canada - 11

Manufacturing Sales / Sector

Key pointsCommodity sensitive businessOil and GasFood ProductionMachinery & EquipmentLess capital investmentTransportation sector carrying manufacturingAerospaceAutomotiveTransit (Trains an buses)Shipbuilding (New frigate contract)

1. Stats Canada 12

Paul Young (PY) - Capital Spending / USA

U.S. real capital spending growth has slowed in recent years. Indeed, it has risen by only about 1.5% annually in the last two years. This modest business spending cycle has helped shape the recent character of the / Financial markets. Commodity prices have trended mostly lower, yield spreads have widened, and the stock market has struggled while being led predominately by defensive consumer sectors. Several indicators currently suggest the capital spending cycle may soon accelerate. U.S. demand has been rising faster than supply for some time and this may cause companies to engage in catch-up spending as the commodity crisis ends, the capacity utilization rate is poised to soon turn upward which has often led to a revitalization in capital spending, and / nally private consensus expectations suggest stronger global growth during the next few years.

Source: https://www.wellscap.com

1. https://www.wellscap.com/pdf/emp/20160608.pdf13

Federal Government Fiscal MonitorRevenues in March 2016 totalled $24.1 billion, down $5.0billion from March 2015.Personal income tax revenues were down $1.1 billion, or 9.4 per cent.Corporate income tax revenues were down $2.1billion, or 37.3 per cent. Corporations are generally required to remit monthly instalment payments for the current year based on either their previous years actual tax liability or their current years projected tax liability. This practice can introduce a lag in the impact of economic events on monthly corporate income tax revenues, which only unwinds near the end of the fiscal year.Non-resident income tax revenues were down $0.2billion, or 24.8 per cent.Excise taxes and duties were up $0.5 billion, or 15.0 per cent. Goods and Services Tax (GST) revenues increased by $0.4 billion, energy taxes and customs import duties each increased by $0.1 billion, and other excise taxes and duties decreased by $30million.EI premium revenues were down $0.1billion, or 3.8 per cent.Other revenues, consisting of net profits from enterprise Crown corporations, revenues of consolidated Crown corporations, revenues from sales of goods and services, returns on investments, net foreign exchange revenues and miscellaneous revenues, were down $2.0 billion, or 36.7 per cent. This decline is largely the result of a significant increase in Crown corporation revenues in March 2015, which did not reoccur in 2016.

1. Fiscal Monitor - https://www.fin.gc.ca/fiscmon-revfin/2016-03-eng.asp14

Canada - IssuesInternal Trade BarriersProvincial issuesHydro RatesCorporation Tax hikesCPPEnhancement to CPPCarbon PricingOntario early 2017 Alberta new carbon levy

http://www.lfpress.com/2016/06/17/pov-dont-copy-ontario-in-carbon-pricing http://www.edmontonsun.com/2016/05/25/gunter-alberta-ndp-carbon-tax-legislation-worse-than-thoughthttp://www.cbc.ca/news/canada/toronto/ontario-retirement-pension-plan-cpp-1.3640689

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World Wide IssuesUSA ElectionBrazil Recession UK BrexitVenezuela / social unrestLow Commodity PricesHigh Debt (Household, Government and Business)

Issues with Cap and Trade

China / EmissionsChinas greenhouse gas emissions represent a quarter of the global total. For this reason alone, any tangible progress on Chinese climate action is encouraging. However, what is more promising is what a Chinese emissions trading scheme could mean for the world.To date we have only seen pockets ofemissions trading across the globe; most notably the EU has had a scheme since 2004 and a Californian system has been operating since 2013. Despite concerted efforts, there has been very little headway in linking regional emissions trading schemes. This is because carbon credits would become fungible.Market FailuresThis monthsquarterly auctionof carbon dioxide emission allowances, which was supposed to generate more than a half-billion dollars for politicians to spend, brought in a paltry $10 million as the Air Resources Board sold a tiny fraction of the allowances it was offering.

http://www.sacbee.com/news/politics-government/politics-columns-blogs/dan-walters/article80107032.htmlhttp://www.rff.org/files/document/file/RFF-DP-15-51.pdfhttp://www.energypost.eu/china-announces-national-emissions-trading-scheme-experts-react/ http://cleantechnica.com/2016/06/10/us-carbon-tax-close-inevitable-conservative-leader-proclaims-moral-disgrace-ignoring-global-warming-strong/http://www.bloomberg.com/news/articles/2016-06-09/bucking-big-oil-companies-u-s-house-set-to-condemn-carbon-tax 17

Other SourceTrade Barriers - http://www.slideshare.net/paulyoungcga/internal-trade-canadaManufacturing - http://www.slideshare.net/paulyoungcga/manufacturing-canada-analysis-and-trends-april-2016Trade - http://www.slideshare.net/paulyoungcga/merchandise-trade-for-canada-april-2016Housing - http://www.slideshare.net/paulyoungcga/real-estate-market-north-america-june-2016Retail Sales - http://www.slideshare.net/paulyoungcga/retail-sales-for-north-america-march-2016-and-april-2016Competitiveness - http://www.slideshare.net/paulyoungcga/competitiveness-alberta-june-2016-62916680 or http://www.slideshare.net/paulyoungcga/canada-competitiveness-2015-analysis