MISSISSAUGA, Ontario -

Although there has been a strong bounce-back in the Canadian economy, the country hasn’t seen that same kind of growth in consumer confidence. What’s more, conditions outside of Canada have proven to be “worrisome.”

Bearing all this in mind, ALG Canada trimmed residual values moderately for its current November/December 2011 edition.

ALG Canada started out its analysis by highlighting the growth in the Canadian economy during the third quarter. In July, GDP climbed 0.3 percent, and it jumped 0.4 percent in August. That followed a 0.1-percent decline in the second quarter.

“This negative second-quarter growth was mostly due to the decline in energy exports and the automotive parts supply chain issues, which have not been a problem in the third quarter,” officials explained. “Other indicators have continued to come in strong, but as has been the case throughout most of the post-recessionary period for Canada, risks remain outside of the country’s borders, which are a cause for concern.

“A lackluster outlook in the United States and the ongoing struggles with European sovereign debt are the major issues cited as worrisome,” they continued. “Consumer confidence, which can be used as a measurement of optimism in the country, has not rebounded as strongly as the overall economy in Canada, and sits at 76.4 index points in the month of November.”

October represented the worst month for consumer confidence in more than two years; but it improved 4.7 points in November, ALG pointed out.

Moving along, ALG then delved into the ebbs-and-flows of gas prices, housing prices, wage and the exchange rate, as well as how each of these factors are likely to impact residuals down the road.

Gas Prices

Starting with fuel costs, these averaged $1.25/liter during October, compared to the $1.30/liter mid-year peak.

“This is still above levels seen during 2010, and even with these recent downward trends, ALG still expects gas prices to continue to rise in the near future on a year-over-year basis though at a slower rate than was seen for the past few years,” officials noted. “This is likely to create slight downward pressure on overall industry residual values with variations among the segments.”

Housing Impact

As for the housing industry, October marked approximately a three-year high for housing starts, with roughly 208,000 for the month. The average for 2011 is only 190,000, approximately.

“Given these numbers, it is no surprise that home prices have also showed positive trends in September, also sitting at their highest level of the year, (approximately) 1.7 percent higher than in January of 2011,” ALG contends.

“With the overall economy still holding strong, and the recent positive numbers in housing, ALG expects home prices to consistently increase for the foreseeable future to more positively impact residual values especially in the luxury fold,” it noted.

Wages

Next up were wages and their impact on residuals. During October, unemployment was about 7.3 percent, compared to the 7.5 percent yearly average.

ALG called this another month of “solid” numbers.

Based on how strong the labor market is, weekly wages will likely remain on the upswing.

ALG said that projections indicate “weekly wages will also continue to show growth similar to historical trends, though estimates remain conservative relative to the rate of growth seen from 2006 to 2008.”

As such, with disposable income climbing, residuals will benefit.

Exchange Rate

Lastly, ALG examined the impact of the exchange rate, noting that the Canadian dollar was on par with the U.S. dollar in October.

“It is still clear that the Canadian economy has done much better coming out of its respective recession than the U.S., but ALG expects that as the U.S. recovery accelerates, the relative strength of the Canadian dollar will fall slowly back towards its historical averages,” ALG noted.