Canada’s Crossroads: Carney’s Leadership, China’s Shadow, and a Cracking Economy

US Stagflation

More Stagflation

There was a slew of U.S. economic data out today and it mostly points to a slowing economy while inflation remains sticky.

Retail Sales and Production Weak

After rushing to buy new cars and other imported goods in March before tariffs raised prices, Americans reduced their spending at retail stores in April in a sign of caution. Retail sales rose a scant 0.1% in April, the government said Thursday, matching the Wall Street forecast. That’s a big comedown from a 1.7% spike in March that marked the biggest increase in more than two years.

Industrial production was flat in April, the Federal Reserve reported Thursday. This is the second straight weak report as uncertainty stemming from tariffs on goods imported to the U.S. starts to slow activity. The decline in April missed the consensus forecast for a 0.1% rise, according to a survey by the Wall Street Journal.

Business Slowing in Two Survey Reports

Business activity continued to decline modestly in New York State in May, according to firms responding to the Empire State Manufacturing Survey. The headline general business conditions index was little changed at negative 9.2.

Manufacturing activity remained weak, according to the firms responding to the May Manufacturing Business Outlook Survey. The diffusion index for current general activity rose from -26.4 to -4.0 in May, paring some of last month’s sharp decline but remaining negative Both price indexes rose to their highest readings since June 2022. The prices paid index increased for the sixth consecutive month to 59.8. The current prices received index rose from 30.7 to 43.6.

There was some better news with producer prices that dropped in April, but economists say the decline in inflation appeared to be a one-off that might not be sustained if tariffs persist at current levels. The producer price index dropped 0.5% last month, the government said, but the decline was largely tied to falling egg and gasoline prices and a quirky category that measures certain business profit margins.

The rate of wholesale inflation in the past year, meanwhile, slowed to 2.4% from 3.4%. That’s the lowest level since last fall.

Fed Chairman Powell Worries on Inflation

“Higher real rates may also reflect the possibility that inflation could be volatile going forward than in the inter-crisis of the 2010s,” Powell said in a speech at a research conference today.

Long-term interest rates are a good deal higher than they were in the 10 years after the global financial crisis of 2007-09, Powell noted.

U.S. Housing Top

In my May 7 substack I showed various charts that showed a top in the housing market. More data today is confirming this

New Home Builder confidence in the market for newly built single-family homes was 34 in May, down six points from April. The latest HMI survey also revealed that 34% of builders cut home prices in May, up from 29% in April and the highest level since December 2023 (36%). Meanwhile, the average price reduction was 5% in May, unchanged from the previous month.

PM Carney and Liberals, the Same Old

So far the Carney Liberals are not making any change, I have little doubt, we will simply see the same old policies that led Canada down the path of destruction. I already highlighted that Carney said he would reduce immigration to 5% of the population saying it was over 7%. That still means a very high immigration of about 2 million per year.

Canada wireless companies are blaming slower subscription growth on lower immigration, so maybe it was over 7%. Canada’s three biggest wireless firms recorded fewer than 54,000 net new mobile subscribers in the first quarter, the lowest number in four years. Or perhaps the government is no longer subsidizing them to get cell phones?

Carney announced his new cabinet and I wanted to see some outside expertise come on board, but not so. He basically shuffled the same old ministers around and added a few new ones that were just elected. At least there is some new experience with them.

Newly elected MP Tim Hodgson, who worked with Carney at Goldman Sachs and served as his special advisor at the Bank of Canada before his role as chair of Hydro One, has become the minister of natural resources and energy.

Stephen Fuhr, who served 20 years in the Royal Canadian Air Force before joining the civilian aviation industry and becoming the CEO of SkyTrac Systems, will serve in a secretary of state role for defense procurement after being elected in April.

I commented that the Liberals should not do a coalition with the NDPs and they probably won't have to as they are very close to a majority with mail in ballots and recounts.

In almost every instance the mail in ballots and recounts ended with a Liberal seat win. They now have 170 seats, just two shy of the majority. The last win from a recount came just 4 days ago. If you can believe it the Liberals won by just one measly vote in the Terrebonne riding in Montreal.

Political scientist Hamish Telford said he had never heard of a federal or provincial election decided by one vote.

In another recount still underway, Liberal Anthony Germain initially beat Conservative Jonathan Rowe by only 12 votes in the newly redrawn Terra Nova-The Peninsulas riding. That razor-thin margin prompted an automatic judicial recount. Supreme Court Justice Garrett Handrigan, the judge overseeing the recount, told CBC News Wednesday evening that there are an unprecedented 1,041 disputed ballots that still need to be reviewed - a process he'll begin to undertake as soon as Thursday.

If the Liberals win this, it was already counted as a Liberal win so cannot give them anymore seats. It is possible that Terrebonne is contested and another election is held there. I predict that once everything is final, the Liberal party will convince (bribe) a couple candidates from the NDP and/or Bloc to jump ship, join the Liberal party and give them a majority.

I think the best description of this election came from a podcast with Sam Cooper where it was called a 'Banana Public Gaslighting Election.'

A good comment on this by Irene The Insomniac "Banana Republic Gaslighting Election"

“ Perfect description. What an embarrassment we have become at best and at worst... authoritarian dictatorship bent on impoverishing Canadians into serfdom, but hey! Elbows up! ?”

President Trump gave an unexpected boost to Carney, who would have guessed this would be the biggest election issue. Talk about election interference.

Many must wonder that bought the narrative that Carney would be tough and fight Trump and now they were let down. When Carney met with Trump, he basically never had a chance. You can't overplay a weak hand without getting called. To be fair, Carney is a lot smarter than Trudeau and comments about Carney, more of a statesman than Trudeau, I think is accurate.

Now that China and U.S. have reduced tariffs, Canada is the only country with significant counter tariffs. How does that look around the world?

Probably because Carney keeps doing what Liberal leaders do, act like they are leaders but really bow to China. Remember, he has billions invested in China. Carney is bought and paid for by the Chinese, will he throw his supporters under the bus? I doubt it. However, I believe in the months and years ahead there is going to be a huge clash with the U.S. and consequence because of Canada's continued supporting role for China. Toronto and Vancouver are basically huge operational locations for Chinese influence, espionage, drug trafficking and money laundering. It is a long term rooted problem and the U.S. knows all to well what is going on.

Trust me, this will come to a boil. I will end with this, which is a big win for Trump. I don't really like the guy and many can't stand his personality, but he manages to get some things done that surprise his critics.

Trump's Riyadh Accord

In Riyadh, the United States and Saudi Arabia finalized what is being described as the largest defense sales agreement in U.S. history—valued at nearly $142 billion—as part of a broader $600 billion investment package. The deal, signed by President Donald J. Trump and Saudi Crown Prince Mohammed bin Salman, marks a significant capital infusion into U.S. strategic sectors. Why give it away to Ukraine when you can sell for profits to Saudi Arabia.