JACKSON HOLE, Wyo. - If anyone thought Janet Yellen might clarify her view of the U.S. job market in her speech here Friday, the Federal Reserve chair had a message:
The picture is still hazy.
Though the unemployment rate has steadily dropped, Yellen suggested that other gauges of the job market have become harder to assess and may reflect persistent weakness. These include many people jobless for more than six months, millions working part time who want full-time jobs and weak pay growth.
Yellen offered no clarity on the timing of the first interest rate increase, which most economists still expect by mid-2015.
Investors had been anticipating any firmer sign from Yellen about whether an improving economy might prompt the Fed to act sooner than expected to start raising rates. She instead offered further uncertainty. Damage inflicted by the Great Recession had complicated the Fed's ability to assess the U.S. job market and made it harder to determine when to adjust rates, Yellen said.
"Uncertainty is the key word," said Ian Shepherdson, chief economist at Pantheon Economics. "Yellen is not about to leap from the fence at the next (Fed) meeting."
Yellen said that for now, a broad assessment of the job market suggests that the economy still needs Fed support in the form of ultra-low rates and that inflation has yet to become a concern.
"The assessment of labour market slack is rarely simple and has been especially challenging recently," Yellen said at the conference, which the Federal Reserve Bank of Kansas City sponsors each year at a lodge beside the majestic Grand Tetons.
Yellen invoked language the Fed has used that record-low short-term rates will likely remain appropriate for a "considerable time" after the Fed stops buying bonds to keep long-term rates down. The bond buying is set to end this fall.
Yellen stressed that the Fed's rate decisions will be dictated by the economy's performance. Repeating language from an appearance before Congress in July, Yellen said that if the economy improved faster than expected or if inflation heated up, rates could rise sooner. But she also said that if the economy under-performed, the Fed could delay its first rate hike.
"Monetary policy is not on a preset course," she said.
In a separate speech, Mario Draghi, head of the European Central Bank, said the ECB was prepared to do more to boost the shaky recovery in the 18 nations that use the euro. But he said governments must co-ordinate efforts to reduce persistently high unemployment.
The ECB has cut rates and offered cheap loans to banks and is considering asset purchases to pump more money into Europe's economy. Draghi told the Jackson Hole conference that "we stand ready to adjust our policy stance further" if needed. But he offered no guidance on when such help might come.
In her keynote address, Yellen suggested that pay gains for U.S. workers, which have been sluggish since the recession ended five years ago, could rise faster without necessarily igniting inflation.
John Silvia, chief economist at Wells Fargo, said Yellen's remarks confirmed his view that the Fed's first rate increase will occur next June. "Yellen still wants more time to evaluate the data," he said.
Silvia also said the speech hints that the Fed is "willing to take a little more inflation to achieve their labour market goals." If inflation were to top the Fed's target of 2 per cent, "I don't think they're going to panic."
This year's conference drew a pocket of demonstrators who shadowed Yellen and the other participants in the lobby of the lodge as they entered and left the invitation-only gathering. They sported green T-shirts and carried placards with the question, "What recovery?"
Related to this year's conference theme of "Re-evaluating Labor Market Dynamics," Yellen's speech addressed the difficulty the Fed faces in trying to determine the relative health of the job market given the damage caused by the 2007-2009 recession.
Paul Dales, senior U.S. economist at Capital Economics, wrote in a research note that "despite the faster-than-expected decline in the unemployment rate, Yellen does not appear to have changed her view that there is still 'significant' slack in the labour market."
Yellen's comments came two days after release of the minutes of the Fed's July 29-30 meeting. The minutes showed that officials engaged in an intensifying debate over whether to raise rates sooner than expected if the economy keeps strengthening.
Some officials, the minutes said, thought the Fed would need "to call for a relatively prompt move" to begin raising short-term rates from record lows, where it has kept them since the financial crisis struck in 2008. Otherwise, they felt the Fed risked overshooting its targets for unemployment and inflation.
In the end, the Fed made no changes at the July meeting. It approved, 9-1, maintaining its current stance on rates. But the minutes pointed to a distinct division among officials over the timing of an increase.
That debate continued at Jackson Hole, with Fed officials expressing clashing views during a series of TV interviews.
Charles Plosser, president of the Fed's Philadelphia regional bank, said he was uncomfortable with the Fed's policy statement that it expects to keep its key short-term rate unchanged for a "considerable time" after its bond purchases end. Plosser cast the lone dissenting vote at the July meeting.
Dennis Lockhart, president of the Atlanta Fed, said in a CNBC interview Friday that he was "holding to the mid-2015" time period for the first rate hike but said this view could change if the economic data strengthens.
Nicholas Colas, chief market strategist at the investment firm ConvergEx, said Yellen's speech did nothing to change his expectation that the Fed will begin to raise rates in the second quarter of 2015.
"Janet Yellen is maintaining as much space for herself for policy flexibility as she possibly can," Colas said. "She's underlining how complex this is."
Crutsinger reported from Washington. AP Business Writers Christopher S. Rugaber and Paul Wiseman in Washington and David McHugh in Frankfurt, Germany, contributed to this report.
WASHINGTON - Seeking to quell a politically charged controversy, the Obama administration announced new measures Friday to allow religious nonprofits and some companies to opt out of paying for birth control for female employees while still ensuring those employees have access to contraception.
Even so, the accommodations may not fully satisfy religious groups who oppose any system that makes them complicit in providing coverage they believe is immoral.
Effective immediately, the U.S. will start allowing faith-affiliated charities, colleges and hospitals to notify the government â€” rather than their insurers â€” that they object to birth control on religious grounds.
A previous accommodation offered by the Obama administration allowed those nonprofits to avoid paying for birth control by sending their insurers a document called Form 700, which transfers responsibility for paying for birth control from the employer to the insurer. But Roman Catholic bishops and other religious plaintiffs argued just submitting that form was like signing a permission slip to engage in evil.
In a related move, the administration announced plans to allow for-profit corporations like Hobby Lobby Inc. to start using Form 700. The Supreme Court ruled in June that the government can't force companies like Hobby Lobby to pay for birth control, sending the administration scrambling for a way to ensure their employees can still get birth control one way or another at no added cost.
The dual decisions mark the Obama administration's latest effort to address a long-running conflict that has pitted the White House against churches and other religious groups. The dispute has sparked dozens of legal challenges, fueling an election-year debate about whether religious liberty should trump a woman's access to health care options.
"Today's announcement reinforces our commitment to providing women with access to coverage for contraception, while respecting religious considerations raised by non-profit organizations and closely held for-profit companies," said Health and Human Services Secretary Sylvia Burwell.
Yet the latest proposals will likely run up against the same objections, because they still enable employees to receive contraception through their health plans â€” one of a range of preventive services required under President Barack Obama's health care law.
"We will be studying the new rule with our clients, but if today's announcement is just a different way for the government to hijack the health plans of religious ministries, it is unlikely to end the litigation," said Mark Rienzi, senior counsel at the Becket Fund for Religious Liberty. The fund has represented both Hobby Lobby and Wheaton College, an evangelical school whose case also made its way to the Supreme Court.
Days after the high court ruled in late June in Hobby Lobby's favour, the justices delivered another blow to the Obama administration by siding with religious nonprofits like Wheaton who said filling out Form 700 wasn't an acceptable accommodation and still constituted a violation of their religious freedom.
The new fixes unveiled Friday appear to embrace suggestions included in both of the Supreme Court rulings.
In the Hobby Lobby case, Justice Samuel Alito suggested in the majority opinion that one solution would be to offer the Form 700 option to some for-profit companies. And in the Wheaton case, the court said the college could avoid Form 700 while the case is being appealed by instead sending a simple letter to the government indicating its objections.
Yet that temporary fix for Wheaton exempted the college from covering contraception altogether. Under the new accommodation, sending the letter will prompt the government to instruct a non-profit's insurer or third-party administrators to take on the responsibility of paying for the birth control, at no cost to the employer. As with Form 700, the government will reimburse the insurers through credits against fees owed under other parts of the health law.
The administration's hope is that the new accommodation will be more palatable because it creates more distance between religious nonprofits and the health services they oppose, by inserting the government as a middleman between nonprofits and their insurers. Sen. Barbara Boxer, D-Calif., an advocate for birth control access, said that Obama had "bent over backwards" to accommodate religious groups and called for those organizations to drop their opposition.
But social conservatives scoffed, with the Family Research Council dismissing the new fix as an "insulting accounting gimmick." Archbishop Joseph Kurtz, president of the U.S. Conference of Catholic Bishops, said the church was disappointed because the administration hadn't backed off its insistence that employer-provided plans still offer coverage the church deems objectionable.
The Form 700 alternative will require religious nonprofits to send the government a letter that includes the organization's name, the type of health plan they offer, and the name and contact information for their insurance issuers or third-party administrators, officials said. Groups must also explain which types of birth control they object to and state the objection is based on sincerely held beliefs.
The accommodation aimed at for-profit companies will apply only to "closely held" corporations, such as Hobby Lobby, that are owned by families or a small number of investors. The government is asking for the public's input about how narrowly to define a "closely held" corporation, meaning the specifics won't be finalized for many months.
Reach Josh Lederman on Twitter at http://twitter.com/joshledermanAP
Some of the most active companies traded Friday on the Toronto Stock Exchange:
Toronto Stock Exchange (15,535.55, down 20.54 points):
Carpathian Gold Inc. (TSX:CPN). Miner. Unchanged at two cents on 8.3 million shares.
Southern Pacific Resource Corp. (TSX:STP). Oil and gas. Down one cent, or 11.76 per cent, to 7.5 cents on 4.8 million shares.
Twin Butte Energy Ltd. (TSX:TBE). Oil and gas. Down four cents, or 2.09 per cent, to $1.87 on 3.8 million shares.
NeuLion, Inc. (TSX:NLN). Communication services. Up six cents, or 5.66 per cent, to $1.12 on 3.7 million shares.
Talisman Energy Inc. (TSX:TLM). Oil and gas. Up 29 cents, or 2.52 per cent, to $11.78 on 3.2 million shares.
Royal Bank of Canada (TSX:RY). Bank. Down 86 cents, or 1.05 per cent, to $80.80 on 2.7 million shares. The bank posted a record $2.38-billion profit in its third quarter, up four per cent from a year earlier, and also boosted its dividend.
Companies reporting major news
Seabridge Gold Inc. (TSX:SEA). Miner. Up 15 cents, or 1.29 per cent, to $11.82 on 100,170 shares. The Alaskan government says it wants greater involvement as a controversial B.C. mine moves through the approval process and suggests Ottawa should consider a more comprehensive review. The KSM gold and copper mine proposed by the company has raised concerns in Alaska about the potential impact on fish and the environment.
WASHINGTON - The central bankers meeting this week at their annual conference in Jackson Hole, Wyoming, aren't exactly in sync. Many are taking steps that clash with the policies of others.
The Federal Reserve is preparing to reduce its economic support. By contrast, the European Central Bank is considering more stimulus. So is the Bank of Japan. The Bank of England seems to be moving toward raising interest rates.
It isn't just the biggest economies whose central banks are pulling in different directions.
This year, central banks in Mexico, Sweden and South Korea, among others, have lowered rates. Others â€” in Russia and South Africa, for example â€” have raised them.
It's a long way from the co-ordinated efforts that major central banks made after the 2008 financial crisis erupted and economies began to stall. As governments slashed taxes and spent stimulus money, central banks shrank rates to unclog credit and avert a 1930s-style depression.
Today's diverging central bank strategies aren't without risk. Consider what happened in developing markets last year after Fed officials hinted that they might soon slow the pace of their monthly bond purchases. Those purchases have been intended to keep long-term U.S. loan rates low to encourage borrowing and spur growth.
With the prospect of higher U.S. bond yields, some emerging markets went into a tailspin. Investors pulled their holdings from those countries for fear their value would plunge as capital fled for the United States.
Some emerging economies responded by raising their own rates and bolstering their shaky currencies. The tumult proved temporary. But it showed what could happen once the Fed ends its bond purchases this fall and eventually raises short-term rates â€” something it says won't happen for a "considerable time" after its purchases end.
Many economists say central banks have no choice but to pursue divergent interest-rate strategies now because of their economies' varying growth rates.
"It just reflects different stages of the economic recovery in different parts of the world," said Stuart Hoffman, chief economist at PNC Financial Services Group. "The U.S. recovery is well ahead of recoveries in Europe and Japan."
Sung Won Sohn, an economics professor at California State University, Channel Islands, noted that the United States acted faster than others to boost growth with aggressive low-rate policies. U.S. regulators have also been more forceful in requiring U.S. banks to raise capital and deal with bad loans. Those actions have contributed to stronger U.S. growth, he said.
Healthier growth prospects and the likelihood of higher rates could make the United States increasingly attractive to investors. Sohn and Hoffman think the U.S. dollar will rise in value, particularly against Japan's yen and the common European currency, the euro, as investors seek rising U.S. yields.
Here's a look at policies being pursued by key central banks:
The Fed has reduced its monthly bond purchases at six straight meetings, from $85 billion a month to $25 billion a month. Chair Janet Yellen repeated the view Friday that she expects the Fed to end the purchases altogether this fall. What no one knows is when the Fed will start raising short-term rates. Most economists think it will be in mid-2015. Though U.S. hiring has been strong and the unemployment rate has dropped steadily to 6.2 per cent, other gauges of the job market, such as pay growth, remain weak. When Yellen gave the keynote speech in Jackson Hole on Friday morning, she suggested that the Great Recession complicated the Fed's ability to assess those gauges to determine when to adjust rates.
EUROPEAN CENTRAL BANK
Mario Draghi, head of the ECB, said in a speech at Jackson Hole on Friday that the ECB was ready to do more to boost the shaky recovery among the 18 nations that use the euro currency. Draghi has noted in the past that the ECB and the Fed are operating on conflicting tracks: The Fed is looking to gradually raise rates, while the ECB is sticking with a low-rate policy and is open to providing further help if the eurozone economy â€” which failed to grow at all last quarter â€” should worsen. Draghi's comments have helped lower the euro's value against the dollar. A cheaper euro makes European exports more affordable and U.S. products more expensive in European markets.
BANK OF JAPAN
Haruhiko Kuroda, head of Japan's central bank, told reporters in Jackson Hole on Friday that the bank planned to continue its "extremely accommodative monetary stance" until inflation has risen to the bank's 2 per cent target and doesn't fall back. He said the bank's support could be expanded if necessary. Japan's economy shrank at an annual pace of 6.8 per cent in the second quarter, in part because a new sales-tax increase depressed consumer spending. Japan's gross domestic product fell at a 1.7 per cent rate compared with the same quarter a year ago. It was Japan's worst quarterly decline in GDP since the tsunami and earthquake that hit in 2011. The economic plunge dealt a setback to the government of Prime Minister Shinzo Abe. He has been trying to pull the world's third-largest economy out of two decades of stagnation with the help of aggressive action by the Bank of Japan. The economic weakness has heightened the pressure on Japan's central bank to expand its stimulative efforts.
BANK OF ENGLAND
Britain's central bank has kept its main rate at a record low of 0.5 per cent since 2009 to help support the economy. But faster growth and declining unemployment have raised expectations that rates will start rising soon. This month, the Bank of England's consensus on maintaining ultra-low rates collapsed after more than three years. Two members of its monetary policy committee voted to raise the rate by 0.25 percentage point because growth has picked up, according to minutes of the most recent committee meeting. Still, the other members still felt there wasn't enough evidence of rising inflation or wages to justify an immediate rate increase. Benjamin Broadbent, the Bank of England's deputy governor for monetary policy, said in an interview at Jackson Hole that even when it starts raising rates, it will likely be gradual because "you have to be careful not to stamp on a recovery before it's really got going."
OTHER CENTRAL BANKS
Private forecasters have sharply revised their economic growth forecasts for such countries as Russia, which is being hurt by sanctions imposed over its actions in Ukraine. Russia's central bank boosted rates to defend its currency and try to stem the outflow of foreign capital. Brazil, South America's largest economy, has been hurt by a steep fall in industrial production. That has resulted, in part, from high interest rates and an overvalued currency.
AP writer Matthew Brown contributed to this report from Jackson Hole, Wyoming, and AP Business Writer David McHugh contributed from Frankfurt, Germany.
TORONTO - The Toronto stock market closed lower Friday as the financial sector failed to find lift from record earnings at Canada's biggest bank.
The S&P/TSX composite index dropped 20.54 points to 15,535.55
The profit amounted to $1.64 per share on an adjusted basis, eight cents ahead of estimates.
Royal Bank (TSX:RY) also increased its quarterly dividend by four cents to 75 cents a share. Its shares were down 86 cents to $80.80 but briefly hit an all-time high of $82.15 in initial trading. Royal's stock has surged more than 13 per cent this year.
The other major Canadian banks report next week and "itâ€™s set up for them pretty well to make some money," said Gareth Watson, vice-president, investment management and research, Richardson GMP.
"I think itâ€™s been a similar theme for the past few quarters, in which weâ€™ve had decent equity and bond markets, (so) you should have good capital markets, decent wealth management performance."
The Canadian dollar was unchanged at 91.37 cents US as the consumer price index declined 0.2 per cent month over month in July and retail sales for June jumped 1.1 per cent.
U.S. markets were mainly lower as U.S. Federal Reserve chairwoman Janet Yellen offered no signal that sheâ€™s altered her view that the economy still needs Fed support from interest rates that have been near zero since the financial crisis.
The Dow Jones industrials fell 38.27 points to 17,001.22, while the Nasdaq gained 6.45 points to 4,538.55 and the S&P 500 index edged 3.97 points lower to 1,988.4.
The central bank chief also said at the Fedâ€™s annual conference in Jackson Hole, Wyo.,that the Great Recession complicated the Fedâ€™s ability to assess the U.S. job market and made it harder to determine when to adjust interest rates. She noted that while the unemployment rate has steadily declined, other gauges of the job market are harder to assess and may reflect continued weakness.
The Fed has been generally expected to raise rates mid-2015 but there are concerns the Fed may move even earlier.
Yellen reminded her audience that rate hikes could come sooner than expected if progress in the labour market continued to be more rapid than anticipated or if inflation moves up more rapidly.
Rising rates are seen as a drag for the stock markets since some investors would choose to invest their money in securities with a guaranteed return, like bonds.
The TSX energy sector was flat while October crude fell 31 cents to US$93.65 a barrel.
The base metals component gained 0.22 per cent as September copper rose three cents to US$3.20 a pound.
The gold sector was off about 0.15 per cent as December bullion in New York closed up $4.80 to US$1,280.20 an ounce, reflecting the debate at the Fed about when to hike rates and reports that NATO had expressed alarm over the buildup of Russian forces near Ukraine.
North American markets finished higher this week with the TSX ahead 1.51 per cent and the Dow industrials up 2.03 per cent. Sentiment was helped in part by strong housing and manufacturing data in the U.S. and also reassurance from the Fed that it is in no hurry to raise interest rates.
SALEM, Ore. - The state of Oregon filed a lawsuit Friday against Oracle Corp. and several of its executives over the technology company's role in creating the troubled website for the state's online health insurance exchange.
The lawsuit, filed in Marion County Circuit Court in Salem, seeks more than $200 million in damages and alleges that Oracle officials made false statements, breached contracts and engaged in "a pattern of racketeering activity."
Oracle was the largest technology contractor working on Oregon's health insurance enrolmentwebsite, known as Cover Oregon. The public website was never launched, forcing the state to hire hundreds of workers to process paper applications by hand. The website's failure became a political problem to Democratic Gov. John Kitzhaber, who is running for re-election.
"Today's lawsuit clearly explains how egregiously Oracle has disserved Oregonians and our state agencies," Attorney General Ellen Rosenblum, a Democrat, said in a statement. "Over the course of our investigation, it became abundantly clear that Oracle repeatedly lied and defrauded the state."
In addition to the company, the state's lawsuit individually names six Oracle executives, including President and Chief Financial Officer Safra Catz, and Mythics Inc., which acted as a middleman between Oracle and the state.
In a statement, Oracle called the lawsuit "a desperate attempt to deflect blame from Cover Oregon and the governor for their failures to manage a complex IT project."
"The complaint is a fictional account of the Oregon health care project," the company's statement said. "Oracle is confident that the truth â€” and Oracle â€” will prevail in this action."
Oracle filed its own lawsuit Aug. 8 in federal court alleging breach of contract and seeking payment of more than $23 million in disputed bills. The Redwood City, California, company blames Oregon for the website's failure, saying the state had incompetent and indecisive staff.
Oracle also faults Oregon's decision not to hire a systems integrator, which acts as a sort of general contractor to integrate various technology components. The state's lawsuit says it was Oracle employees who persuaded the state to forego hiring a systems integrator.
"Today, after months of investigation, the attorney general's findings go well beyond disappointing and incomplete work," Kitzhaber said in a statement. "The complaint filed contains serious new allegations of fraud, deceit, and corruption by Oracle."
Instead of signing up for health insurance under the Affordable Care Act in one sitting, Oregonians had to use a hybrid paper-online process that was costly and slow, and the state had to hire more than 400 workers to help them. Altogether, about $250 million in federal funds has been spent on Oregon's exchange, including technology development, salaries, advertising and rent.
Despite the exchange's technology woes, about 454,500 Oregonians have enrolled in coverage through Cover Oregon using the hybrid process. An estimated 97,000 of those enrolled in private health plans, while about 357,500 enrolled in the Oregon Health Plan, the state's version of Medicaid.
The state decided to stop building the Oracle website earlier this year and transitioned to the federally run enrolmentwebsite.
The FBI and the federal Government Accountability Office are also investigating Oregon's exchange problems.
TORONTO - The Canadian dollar closed unchanged Friday amid a stronger than expected showing on retail sales and tame inflation data.
The loonie was flat at 91.37 cents US as Statistics Canada reported that the consumer price index for July declined 0.2 per cent, versus the 0.1 per cent dip that economists had expected. This translated to an annualized inflation rate of 2.1 per cent, weaker than the 2.2 per cent reading that was forecast and down from 2.4 per cent the previous month.
Retail sales for June jumped 1.1 per cent over May, much higher than the consensus estimate that had called for a 0.3 per cent advance.
Excluding the vehicle sector, sales rose 1.5 per cent.
The market focus was on the U.S. Federal Reserve and a key speech Friday from Fed chairwoman Janet Yellen.
She offered no signal that sheâ€™s altered her view that the American economy still needs Fed support from interest rates that have been near zero since the financial crisis.
The central bank chief also said at the Fedâ€™s annual conference in Jackson Hole, Wyo., that the Great Recession complicated the Fedâ€™s ability to assess the U.S. job market and made it harder to determine when to adjust interest rates. She noted that while the unemployment rate has steadily declined, other gauges of the job market are harder to assess and may reflect continued weakness.
The Fed is generally expected to raise rates mid-2015 but there have been concerns the Fed might move even earlier.
Yellen reminded her audience that rate hikes could come sooner than expected if progress in the labour market continued to be more rapid than anticipated or if inflation moves up more rapidly.
Later in the day, European Central Bank head Mario Draghi told the meeting the ECB is ready to do more to boost the shaky recovery in the 18 countries that use the euro but warned that governments must join in efforts to reduce stubbornly high unemployment.
Meanwhile, geopolitical concerns were on the boil after Ukraine accused Russia of a "direct invasion" after Russia sent dozens of aid trucks into rebel-held eastern Ukraine on Friday without Kyivâ€™s approval.
The latest round of uncertainty pushed the December bullion contract in New York up $4.80 to US$1,280.60 an ounce.
Elsewhere on the commodity markets, October crude was down 31 cents to US$93.65 a barrel while September copper rose three cents to US$3.20 a pound.
TORONTO - The head of Canada's largest bank offered reassurances Friday that it is well prepared to deal with slower growth in some areas, like retail banking, as it reported a record third-quarter profit boosted largely by a surge in its capital markets division.
"We are confident of capturing growth and are confident of organic growth going forward," Dave McKay, Royal bank's new president and chief executive, told analysts during a conference call.
Royal Bank of Canada (TSX:RY), the first of the Canadian banks to report third-quarter results, said it earned $2.38 billion in the period, up four per cent from a year earlier.
The performance, which exceeded analyst expectations, prompted the bank to hike its dividend by six per cent, or four cents, to 75 cents per share, payable Nov. 24.
The earnings were largely attributed to a 66 per cent increase in profits from the capital markets division, which earned $641 million on higher trading fees, more business from advising on takeovers and arranging stock sales.
McKay, who took over in August from long-time CEO Gord Nixon, dismissed concerns the bank may soon rein in capital markets division if profits continue to surpass its internal target of contributing no more than 25 per cent of overall revenues. Last quarter, capital markets made up nearly 27 per cent of Royal's earnings.
The bank established the target to ensure it is not invested too much in such a volatile area, as opposed to other more stable areas like wealth management, deposit-taking and lending.
However, McKay told analysts that the division benefited from a number of factors "unlikely to be repeated to the same degree," adding that the target is a "long-term strategic guideline" and not a hard cap and that the bank's diversification will help shield it from the ups and down of the market.
"We've crossed the 25 per cent (threshold) periodically over the past year, so it's something we've done before. But over the long term, we look forward and say, can we keep this in balance and we feel we can," he said.
Similarly positive results could be seen across nearly all of RBC's division in the latest quarter, except in its personal and commercial banking services which came in at $1.13 billion, down $29 million or two per cent from a year earlier due to costs associated with the sale of its Jamaican operations.
The Canadian banking had record net income of $1.18 billion, up three per cent from a year earlier, but slower growth than in other areas. However, McKay didn't express concern about the comparatively lower performance in Canadian banking division, which accounts for about half of the bank's earnings.
Barclays analyst John Aiken said although the profit and the dividend increase were higher than expected, the earnings have raised some worries over the bank's retail banking sector.
"The slowing growth in domestic retail is likely an issue for the group as a whole as opposed to being Royal-specific. Given its scale, we believe that RY's platform stacks up well, on a relative basis," he wrote in a research note.
Gareth Watson, vice-president of investment management and research at Richardson GMP, said Royal Bank's performance may be an indicator of what's in store next week when the other major Canadian banks report.
"As long as market conditions remain attractive which they have been for some time now, who knows how long that continues on for, it sets up extremely well for these banks," he said.
RBC's wealth management business earned $285 million, up $52 million or 22 per cent from a year ago, while the bank's insurance business earned $214 million of net income, up $54 million or 34 per cent year-year.
Despite the strong earnings and dividend bump, RBC shares closed down 86 cents or 1.05 per cent at $80.80 after hitting an all-time high of $82.15 in initial trading Friday. Its stock has surged more than 13 per cent this year.
Bank of Montreal (TSX:BMO), and Bank of Nova Scotia (TSX:BNS) are slated to release earnings on Aug. 26. National Bank (TSX:NA) will report on Aug. 27, with Canadian Imperial Bank of Commerce (TSX:CM) and TD Bank (TSX:TD) reporting Aug. 28.
Royal Bank said its quarterly profits included a $40-million loss related to the previously announced sale of RBC's Jamaican operations.
A year earlier, RBC recorded a $90-million income tax adjustment in its favour. Excluding those items, Royal Bank earned an adjusted profit of $2.42 billion â€” up 10 per cent from a year earlier and up 10 per cent from the previous quarter. Last year in Q3, it earned $2.3 billion before adjustments or $2.2 billion excluding the income-tax item.
The profit amounted to $1.59 per share under standard accounting and $1.64 per share on an adjusted basis. Analysts on average expected Royal to earn $1.54 per share of net income and $1.56 per share on an adjusted basis, according to estimates compiled by Thomson Reuters.
Total revenue was $8.98 billion, up 25.2 per cent from $7.17 billion in the third quarter of 2013 and up 8.6 per cent from $8.27 billion in the second quarter of 2014.
In addition to its earnings, Royal Bank also announced that it has appointed Jacynthe Cote as a new board member. Cote, the former president and chief executive of Montreal-based Rio Tinto Alcan, will take on the role effective Sept. 1 after leaving the aluminium mining and production giant in June.
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OTTAWA - Some local TV stations will be forced to close and more than 30,000 people could lose their jobs if Canada's broadcast regulator adopts changes it wants Canadians to consider, says a broadcast industry watchdog group.
The Canadian Radio-television and Telecommunications Commission proposed new regulations this week that would, among other things, allow consumers to pick the individual channels they want from cable and satellite service providers.
The so-called "pick-and-pay" option would come on top of a trimmed-down mandatory service, a "skinny basic" package of local and mostly Canadian content that's also being proposed by the CRTC.
In a document released Thursday, the regulator suggested a cap of between $20 and $30 could be imposed on basic TV packages.
The CRTC also proposed banning service providers from airing Canadian advertising over simulcast American programming â€” what's known in the industry as simultaneous substitution.
Friends of Canadian Broadcasting warns that the combined measures, if enacted, could force up to 19 TV stations to shut their doors.
"The CRTC's proposed changes would be a recipe for station closure and a body blow to Canadian programming," Friends spokesman Ian Morrison said in a statement provided to The Canadian Press.
"They would make it tougher to meet the worthy objectives of the Broadcasting Act which the CRTC is required to uphold."
The group estimates that, by 2020, the changes as laid out would result in the loss of 31,460 jobs, with more than 13,000 being chopped from the broadcasting and production industries alone.
For the Canadian economy, it would be a $2.9-billion blow, the group warned.
The CRTC stresses that its proposed changes are not set in stone, but are simply a framework for public consultations that have been extended until mid-September.
But if the changes were to be enacted, the Coalition of Small Market Independent Television Stations, known as SMITS, has said in a submission to the regulator that the proposals "put in question the very viability of SMITS across Canada."
"This is not a threat, it is a reality," said the coalition, which represents 19 independent stations.
TV broadcasters in some of the country's smallest markets warn that they are vulnerable, particularly in Kamloops, B.C., Medicine Hat and Lloydminster, Alta., Thunder Bay, Ont., and Riviere du Loup, Que.
Bell Mediaâ€™s CTV2 network of stations in Victoria, B.C., London, Ottawa, Barrie and Pembroke, Ont., are also said to be at risk.
In a recent submission to the CRTC, a group of 21 small stations estimated that they were already under financial stress.
They indicated that their combined profit margins had fallen from just under 15 per cent in 2006 to slightly more than four per cent by 2011.
The potential end of simultaneous substitution may mean that Canadian viewers can watch American ads on TV, but it would cause significant harm to small market TV stations in Canada, said Morrison.
Complaints about viewers not being able to see U.S. advertising are usually the loudest when big sporting events such as the Super Bowl are aired.
But Canadian TV stations rely on local commercial revenue to pay for the rights to broadcast such events, and losing the ability to air Canadian ads over the American ones would come at a hefty cost.
"Simultaneous substitution is a fundamental underpinning of all Canadian broadcasting," said Morrison.
"The loss of simulcast would jeopardize ... the viability of many local TV stations across the country, especially those in smaller markets."
The CRTC is proposing two options for ending the practice: getting rid of simultaneous ads altogether, or disallowing them only during live event broadcasts.
While Friends supports the continuation of simultaneous substitution, Morrison argues that CBC English TV should not be airing advertising at all â€” a stand that seems to run counter to the CBC's recent drive for more ad revenues as it struggles through a financial crisis.
"But getting out of the ad business would be the first and necessary bold step toward saving CBC from itself and developing a truly distinctive offering," Morrison argues.
His group recommends the CRTC redirect money to the CBC that the cable and satellite companies currently pay into a fund to create community programming.
The group has also proposed the CRTC force new media companies such as Netflix to pay to prop up the Canadian broadcasting system, a measure that it estimates could eventually add $150 million annually to the CBC's bottom line.
"Rather than gutting the underpinnings of a great system, the CRTC should support Canadian programming, strengthen diversity in the system, and use its authority to affirm the cornerstone place of the CBC," Morrison said.
FREDERICTON - A New Brunswick judge rejected a bid Friday by aboriginal leaders to block an increase in the amount of softwood lumber that can be harvested from Crown lands in the province.
The Assembly of First Nations' Chiefs of New Brunswick asked the Court of Queen's Bench to impose an injunction that would have prevented the provincial government from signing final agreements with forestry companies.
The chiefs expressed disappointment over the judge's decision and said in a statement they are considering further legal action, including the possibility of an appeal.
The agreements are part of the province's 10-year forestry plan, which allows companies to cut 660,000 more cubic metres of softwood annually, an increase of about 20 per cent.
The chiefs argued that the province failed to adequately consult First Nations communities about the plan.
In denying their request, Judge Judy Clendening said the chiefs might have an argument to make.
"I find that perhaps the applicants may have a triable issue with regard to consultation and accommodation about the terms of the forest management strategy," she said.
The group also argued the increase in the amount of wood that can be cut will cause irreversible harm to the environment and plant and animal species that the First Nations rely on.
But Clendening said the facts have not been fleshed out to the extent that the issue of irreparable harm can be determined.
"Balancing the rights of all parties at this stage is not possible on the evidence before the court, hence, the status quo will be maintained," Clendening said.
None of the lawyers for the forestry companies or the First Nations groups would comment outside the court.
Susan Levi-Peters, a former chief of the Elsipogtog First Nation, said efforts to block the deals with the large forestry companies needs to continue.
"We cannot give up because what they're doing right now is going against conservation," she said after the decision.
The forestry plan is a major part of the bid by the Progressive Conservatives to be re-elected in the province's Sept. 22 election. The party says the strategy will create jobs and rejuvenate the forestry sector.
MACHAKOS, Kenya - In an industrial area outside Kenya's capital city, workers in hard hats and white masks take shiny new power drills to computer parts. This assembly line is not assembling, though. It is dismantling some of the estimated 50 million metric tons of hazardous electronic-waste the world generated last year.
The clanking is rhythmic as the workers unscrew, detach and toss motherboards onto piles of gleaming circuitry at the East African Compliant Recycling facility. Workers wipe hard drives with magnets, shred small appliances, and bundle old cables like bales of multi-colored hay.
Stacks of dingy grey computer towers â€” some with now-ancient floppy disk drives â€” cover much of one wall. The cornerstone is a cardboard box labeled "PCs for Africa."
The amount of electronic waste generated globally last year is enough to fill 100 Empire State Buildings and represents more than 15 pounds (6.8 kilograms) for every living person, according to the U.N. Environmental Program. Much of that e-waste is exported to developing countries like India and Kenya in the form of used goods, where it ends up in landfills or is burned, putting lead, arsenic and mercury into the environment.
Kenyan leaders are working on new laws and regulations requiring proper disposal of e-waste, defined as anything with a battery or a cord.
"A lot of e-waste is shipped to these countries in order to get rid of it," said Ruediger Kuehr, the executive secretary of Solving the E-Waste Problem, a Germany-based organization co-ordinated by the U.N.
Impoverished Nairobi residents collect end-of-life electronics for processing. In Nairobi's Mukuru slum, women pick through dumpsites or purchase discarded material from electronics repair shops. They earn about $2 for a CRT tube-style television. If dumped, that television would have released 6.5 pounds (3 kilograms) of lead into the environment.
"I can say we have already done something good," waste collector Joyce Nyawira said, referring to cleaning the environment.
Some of this e-waste stems from private Western charities donating products near the end of their life cycles, like the box of "PCs for Africa" sitting in the warehouse. Public initiatives like school computer programs also contribute.
"You can imagine if you are giving one kid a laptop, it's very easy for this laptop to die anytime," said Joshua Patroba, operations manager at East African Compliant Recycling, a company in Machakos, about an hour east of Nairobi, that began business in December and has already collected and sold more than 130,000 pounds of e-waste.
East African Compliant Recycling funds its operations by selling high-tech waste to countries like the U.K., China and Hong Kong with the machinery to isolate the precious metals and rare minerals from the scrap. High-grade motherboards can contain platinum, gold and silver. New products also pose a growing problem, as cheap gadgets become more widespread. Kuehr said more e-waste is generated in developing and transitioning countries than in the developed world. The U.N. says that while the world's 7 billion people have 4.5 billion toilets, they also have 6 billion phones.
"Most people, when their phones are dead, they give them to their children as toys, and then the children break them," said Margaret Kamar, Kenya's Minister of Higher Education, Science & Technology. "People get exposed to a lot of dangerous materials that are used when electronic materials are being manufactured."
President Uhuru Kenyatta in June signed regulations requiring e-waste be disposed of at government-licensed facilities meeting international standards. More detailed regulations written into an environmental act are pending.
FORT MCMURRAY, Alta. - Actor Leonardo DiCaprio is the latest celebrity to visit Alberta's oilsands.
Sources involved with the visit say DiCaprio is doing research for an environmental documentary.
The Oscar-nominated star of "The Wolf of Wall Street" has a long history of involvement with the environment.
He sits on the boards of several international conservation organizations and started an environmental charity foundation in 1998.
The controversial oilsands development near Fort McMurray has seen a string of high-profile visitors in recent years.
They include human rights leader Archbishop Desmond Tutu, musician Neil Young and Oscar-winning film director James Cameron.
OTTAWA - Tame inflation, but robust retail sales sent conflicting signals Friday about the Canadian economy, economists say.
Statistics Canada said the rise in the cost of living was tempered in July, with the annual inflation rate coming in at 2.1 per cent.
That was down from June when the consumer price index rose by 2.4 per cent over 12 months, a two-year high.
But in a separate report, retail sales showed strong growth, jumping by 1.1 per cent in June to $42.6 billion â€” a third consecutive month of increases that added up to a nearly five per cent rise in sales during the first half of 2014.
The conflicting readings send two different messages to the Bank of Canada about its trend-setting policy rate, said Doug Porter, chief economist at BMO Capital Markets.
Still, the tone set by the numbers is that economic growth is taking a foot-hold, said Porter.
"The (central) bank tends to take CPI a bit more seriously, and inflationâ€™s calmer tone after the first-half run-up will come as a significant relief for policy-makers," he said in a note to clients.
"On the flip side, the underlying strength in consumer spending is impressive, and adds to the view that growth made a nice recovery in the spring and early summer after the sluggish start to the year.
The Bank of Canada keeps a close eye on inflation as it calculates whether to move interest rates higher or lower.
Its key rate has held at one per cent for nearly four years and the consensus among economists is that it's not expected to edge upward until closer to mid-2015.
Statistics Canada said prices were higher in July in all eight components it looks at, with shelter costs leading the way, up 3.0 per cent in July, higher than the 2.9 per cent increase seen in June.
Food prices also rose by 2.9 per cent, matching the previous month's up tick. Fresh vegetables made up a big chunk of the increase in food prices, rising 7.5 per cent on a year-over-year basis.
In the volatile energy category, natural gas prices skyrocketed in July, up 20.4 per cent from the same month a year earlier.
However, gasoline costs were up by just 2.1 per cent in July, backing off from the 5.4 per cent increase recorded in June.
And while energy prices will determine which direction the headline inflation rate will take in the coming months, core inflation will likely hover at just under the Bank of Canada's target rate of two per cent over the next few months, predicted RBC assistant chief economist Dawn Desjardin.
"Gyrations in the headline rate will be driven by energy prices that will likely result in a move lower in mid-2015," said Desjardin.
"That said, the underlying trend in inflation will be sufficiently high to convince the Bank to lessen the amount of policy accommodation with the first rate hike most likely to be announced in the second quarter of 2015."
Removing energy and food prices from the mix, Canada's core inflation rate â€” the number the central bank looks at most closely â€” was up by 1.7 per cent in July, down from 1.8 per cent the previous month.
Ontario, Saskatchewan and Alberta saw the biggest jump in prices in a provincial breakdown. Ontario's inflation rate reached 2.5 per cent in July, although that was down from a 3.0 per cent spike in June.
In Saskatchewan, prices were also up by 2.5 per cent for July, an increase from the previous month's 2.2 per cent mark. British Columbia recorded the smallest increase on a provincial basis, at 1.4 per cent, down from 1.9 per cent in June.
On the retail front, figures released by Statistics Canada for June marked a sixth consecutive monthly increase in sales.
But Scotiabank Economics vice president Derek Holt anticipated retail sales growth â€” up by a seasonally-adjusted seven per cent in the second quarter â€” will be short-lived.
"It's a temporary unleashing of pent-up demand from a more miserable than usual winter and will not last into Q3," Holt said.
Retail sales were up in eight of 11 subsectors, and higher by 4.7 per cent overall in the first half of the year compared with the same period in 2013.
By province, sales were higher everywhere except Saskatchewan.
General merchandise stores saw sales rise the most in June, up 3.9 per cent.
OTTAWA - Canada's national annual inflation rate was 2.1 per cent in July, Statistics Canada says. The agency also released rates for major cities, but cautioned that figures may fluctuate widely because they are based on small statistical samples (Previous month in brackets):
_ St. John's, N.L, 2.3 (2.4)
_ Charlottetown-Summerside, 1.7 (2.0)
_ Halifax, 1.9 (2.2)
_ Saint John, N.B., 1.7 (1.9)
_ Quebec City, 1.5 (1.6)
_ Montreal, 1.6 (1.8)
_ Ottawa, 2.1 (2.7)
_ Toronto, 2.7 (3.2)
_ Thunder Bay, Ont., 2.5 (3.0)
_ Winnipeg, 1.6 (2.0)
_ Regina, 2.4 (2.1)
_ Saskatoon, 2.3 (2.1)
_ Edmonton, 2.2 (1.6)
_ Calgary, 2.9 (2.4)
_ Vancouver, 1.6 (2.0)
_ Victoria, 1.4 (1.6)
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