Evidence that Canada is turning the corner toward a self-sustaining recovery continues to mount. Improvement in the US labor market is undoubtedly lifting demand for Canada’s exports, but data from the Great White North suggests the continent’s No. 2 power has separated somewhat from America. Things didn’t get as bad in Canada and are turning around faster–in stark contrast with the experiences of the last two recessions.

Statistics Canada reported last week that the country’s index of leading economic indicators rose 1.3 percent in November, almost two times as fast as analysts anticipated. Nine of the index’s 10 components rose and one was unchanged, the broadest increase in more than two years.

Among the components that make up StatsCan’s index of leading indicators, only the average workweek was unchanged in October.

It being the case that sustainable recovery depends on seeing actual growth rather than simply absence of deterioration, StatsCan’s follow-up releases on employment are encouraging. The official data agency reported this morning that the number of people receiving regular Employment Insurance (EI) benefits in October edged down 0.5 percent. The number of regular EI beneficiaries peaked in June before beginning to decline. From October 2008 to June 2009 monthly increases averaged 41,100 people. Initial and renewal claims, which have fallen in every province since peaking in May, continued to decline, falling 2.5 percent in October.

Another StatsCan report out today showed a modest, 34,500 increase in October non-farm payroll employment. Payroll employment has been rising at an average of 4,200 jobs a month nationally since June. “This is not large, but is a notable change from the average monthly loss of 51,200 jobs in the eight months that followed October 2008,” StatsCan noted.

As for the leading indicators, “The advance was led by household demand, while the recovery of demand in the United States gave a boost to manufacturing in Canada,” StatsCan reported in the December 15 issue of The Daily. “Growth was widespread, as for the first time in over two years none of the 10 components declined.”

The housing component, a composite of new starts and existing sales, rose 2.5 percent, posting a seventh consecutive gain.

“Household spending strengthened across the board,” said StatsCan. “Existing home sales showed renewed vigour after slowing over the summer, while housing starts continued to recover. Consumer demand for furniture and appliances and other durable goods both rose faster than the month before.”

Business and personal services employment increased 0.3 percent, the first advance in more than a year. The S&P/Toronto Stock Exchange Composite Index rose 2 percent.

The manufacturing component continued to improve along with the gradual upturn in demand from abroad for Canada’s products. New orders were up 7.6 percent, the second gain in four months. The ratio of shipments to inventories increased for the fourth consecutive month.

Canadian leaders are making decent progress in their efforts to maximize the country’s global opportunities. But more than 70 percent of its trade is still conducted with its southern neighbor. As much as it’s been able to de-couple, what happens in the US still matters to Canada. Good news, then, that the US Conference Board’s leading indicator climbed 0.7 percent in October, its sixth straight increase. StatsCan noted that rebounds in housing and financial markets have begun to spread to the US labor market.

Among the many curiosities about this “great” recession is the fact that the Canadian labor market, although it did suffer its worst downturn since the early 1990s, has been stronger than the US market. As StatsCan notes in a December 1 special report:

During the first six months of 2008, Canadian and American unemployment rates were almost at parity. Shortly thereafter–and for the first time since 1982–the US unemployment rate surpassed the rate in Canada as the recession began to have a strong impact on the US labor market. Since the beginning of the downturn in Canada, the unemployment rate also increased in Canada, but at a slightly slower pace than the United States. As a result, the Canadian rates have remained consistently below American figures since May 2008. During the previous two recessions, the Canadian labor market experienced the larger increase in unemployment rates.

It should be noted that the higher US rate is related to greater job losses in financial, professional and business industries. According to the US Current Employment Statistics (CES) survey, the financial and business sector accounted for nearly 25 percent of all job losses south of the border between October 2008 and October 2009. In comparison, the number of jobs in these industries rose in Canada during that period, albeit modestly.

Perpetual Growth Machine

As we noted ahead of Prime Minister Stephen Harper’s first visit to China, one benchmark of the state of bilateral relations between the Great White North and the Middle Kingdom would be the granting of “approved destination status” on Canada.

During Harper’s second day in China, the two governments confirmed an agreement had been reached and that Canada would join the estimated 130 countries already benefiting from the official designation.

The status gives the Canadian tourism industry a boost by permitting Chinese travel agents to market Canada as a vacation spot. Tourism experts estimate the deal could be worth CAD100 million annually to Canada. By 2020, China is expected to be the world’s largest outbound market, producing some 100 million tourists. The Conference Board of Canada forecast a 50 percent increase in tourism over the next five years because of the agreement.

Still, as Harper noted at the end of his trip, Canada still only “scratching the surface” of potential for bilateral trade with China. One national champion, however, continues to make significant progress in the Middle Kingdom.

Research in Motion (TSX: RIM, NSDQ: RIMM) beat analyst estimates for its fiscal third quarter and guided higher than analysts anticipated for the fourth quarter. RIM reported shipments of more than 10 million BlackBerrys during the third quarter, with better-than-expected earnings, revenue and subscriber growth.

RIM earned USD628.4 million (USD11.0 per share) for its fiscal third quarter ended November 30, up from USD396.3 million (USD0.69 per share) a year ago. Revenue in what was USD3.92 billion, up from USD2.78 billion in the third quarter of 2008.

The company said it added about 4.4 million net new BlackBerry subscribers in the quarter to bring its total user base to approximately 36 million. Management also forecast revenue of USD4.2 billion to USD4.4 billion and earnings per share (EPS) of USD1.23 to USD1.31 per share.

RIM continues to expand its presence in China, this week announcing a deal with China Telecom (NYSE: CHA) to offer BlackBerry devices in the Mainland. China Mobile (NYSE: CHL), the world’s biggest telecom operator by subscribers, has offered BlackBerrys to big businesses in China since 2006. Earlier in December RIM announced it will offer handsets to individuals and small businesses through China Mobile.

RIM also plans to introduce a handset running on a Chinese-developed mobile-phone technology called time division synchronous code division multiple access.

The commerce question, however, is only one aspect of Chinese-Canadian relations, and there remain plenty of potential pitfalls on the diplomatic front. Harper has gone a long way toward mitigating the damage his very public meetings with the Dalai Lama did to Ottawa’s relationship with Beijing. The situation with accused smuggler Lai Changxing could be the next flashpoint.

All Right, Hamilton

Professor of Economics James Hamilton toils at the University of California, San Diego, atop bluffs above La Jolla overlooking the Pacific Ocean. One of us actually spent four years with similar views and similar comforts; looking out at a couple feet of snow today makes one yearn for the days of hitting the beach for Christmas.

But let’s set aside the wistfulness; Professor Hamilton offers a quick, to-the-point review of the present crisis, What Went Wrong and How Can We Fix It?, that’s worth the few minutes’ reading time it requires.  

The Roundup

News is traditionally light around this time of year, but CE Portfolio holdings and How They Rate companies continue to get things done.

Last week, for example, Aggressive Holding Crescent Point Energy (TSX: CPG, OTC: CSCTF) announced a deal to swap a 100 percent working interest in the Pembina Cardium play, a 50 percent working interest in the Dodsland Viking play and CAD434 million in cash for fellow Aggressive Holding Penn West Energy Trust’s (TSX: PWT-U, NYSE: PWE) assets in southwest Saskatchewan’s Lower Shaunavon crude oil resources.

The light-oil Pembina and Dodsland assets include production of approximately 600 barrels of oil equivalent per day (boe/d), undeveloped land of 32 net sections, and proved plus probable reserves of approximately 6.7 million boe. The Lower Shaunavon assets comprise approximately 3,500 boe/d of production, 86 percent of which is crude oil production, approximately 172 net sections of undeveloped land, and proved plus probable reserves of 27.5 million boe.

This mutually beneficial arrangement allows Crescent Point to consolidate its position in the Lower Shaunavon while simultaneously giving Penn West a similar opportunity to strengthen grips on the Dodsland Viking and Pembina Cardium light oil plays. Penn West will also enjoy a bit of balance-sheet relief with the infusion of cash.

Crescent Point Energy is a buy up to USD37. Penn West Energy Trust is a buy up to USD20.

Here’s the news from the rest of the Portfolio as well as a look at what’s happening in How They Rate.

Conservative Holdings

Just Energy Income Fund (TSX: JE-U, OTC: JUSTF) has revised upward the amount it expects to pay for its year-end, top-up distribution. In addition to its regular CAD0.06889 per unit distribution payable on December 31, will pay a special dividend of an estimated CAD0.1333 per share on January 31 to shareholders of record as of December 31.

The final amount of the special dividend will be based on income generated by the fund for the year ended December 31. Just Energy Income Fund is a buy up to USD14.

RioCan REIT (TSX: REI-U, OTC: RIOCF) completed the previously announced acquisition of four retail properties encompassing approximately 1.2 million square feet. Three of the four properties are anchored by Wal-Mart (NYSE: WMT) stores, which account for 54 percent of the occupied space by gross leasable area and generate 34 percent of the gross rental revenue.

RioCan used joint ventures to complete two of the purchases. Grandview Corners in Surrey, British Columbia, was purchased with Canada Pension Plan Investment Board on a 50-50 basis. Sun Life Financial (TSX: SLF, NYSE: SLF), meanwhile, has take a 60 percent interest to RioCan’s 40 percent stake in Edmonton West Retail Centre.

RioCan’s interest in the four properties is 728,653 square feet and its net purchase price (out of a total prices of CAD280 million) is approximately CAD166 million, which was paid with cash on hand. RioCan REIT is a buy up to USD18.

Oil and Gas

Harvest Energy Trust’s (TSX: HTE-U, NYSE: HTE) deal with Korea National Oil Company will close today after Canada Minister of Industry granted the final regulatory approval outstanding. Harvest has now received all necessary approvals from unitholders, Alberta Court of Queen’s Bench, Investment Canada and Competition Canada.

Through its subsidiary KNOC Canada the Korean state-owned oil company is buying Harvest for CAD10 per unit in cash. Sell Harvest Energy Trust.

Suncor Energy (TSX: SU, NYSE: SU) expects repairs at one of its two oil sands upgraders to take two to four weeks following a brief fire December 15. Production is expected to be reduced by approximately 120,000 to 150,000 barrels per day (bpd), but management doesn’t expect the incident to impact 2009 production outlook of between 290,000 and 305,000 bpd. Suncor Energy is a hold.

Real Estate Trusts

Calloway REIT (TSX: CWT-U, OTC: CWYUF) is issuing, on a bought deal basis, a combination of CAD60 million principal amount 5.75 percent convertible unsecured subordinated debentures and 2.1 million trust units at CAD19.05 per unit. The REIT will use the proceeds to pay down its credit line, to finance future acquisitions and for general trust purposes. Calloway REIT is a buy up to USD16.

Cominar REIT (TSX: CUF-U, OTC: CMLEF) is issuing, on a bought deal basis, CAD75 million aggregate principal amount of 5.75 percent convertible unsecured subordinated debentures. The debentures, which will mature on June 30, 2017, are convertible at the holder’s option into units any time prior to the earlier of the maturity date and the date fixed for redemption at a conversion price of CAD25 per unit, a ratio of approximately 40 units per CAD1,000 principal amount of debentures.

Proceeds will be used to pay down credit-facility debt incurred to maintain Cominar’s acquisition and development pipeline and for future acquisitions and developments. Cominar REIT is a buy up to USD18.

H&R REIT (TSX: HR-U, OTC: HRREF) struggled to put together financing to complete the Calgary office tower The Bow; it’s now replacing the final piece of the puzzle–an arrangement with Fairfax Financial Holdings–with a cheaper bought-deal issuance of CAD175 million of 6 percent convertible unsecured subordinated debentures due June 30, 2017.

According to H&R CEO Tom Hofstedter, “Redeeming the Warrants and the issuance of cost effective long-term financing provides significant benefits to our unitholders. In particular, H&R is redeeming the warrants utilizing a reference price of CAD13.50, while issuing convertible debentures with a conversion price of CAD19.”

EnCana’s (TSX: ECA, NYSE: ECA) 25-year lease to occupy 100 percent of The Bow is worth an estimated CAD94 million in net operating income to H&R. Built into the contract are annual rental rate increases of 1.5 percent that insulate H&R in a difficult commercial real estate environment. The Bow is on track for completion in 2011, at which time H&R is expected to sell a 50 percent stake in the project.

Primaris REIT (TSX: PMZ-U, OTC: PMZFF) completed the acquisition of two retail properties–a 100 percent interest in Sunridge Mall in Calgary and a 50 percent non-managed interest in Woodgrove Centre in British Columbia–from Ivanhoe Cambridge for CAD357.7 million. This is the largest real estate deal in Canada thus far in 2009.

Primaris will pay 5.89 percent–300 basis points over the benchmark bond yield–for its CAD153 million, seven-year mortgage on Sunridge Mall. The three-year, three-month Woodgrove mortgage bears interest at 4.75 percent. The REIT funded the remainder of the purchase price with cash on hand (CAD125 million) and an existing credit line. Primaris REIT is a sell.

Energy Services

Cathedral Energy Services Trust (TSX: CET-U, OTC: CEUNF) has completed its corporate conversion via a plan of arrangement with SemBioSys Genetics. The new shares will trade on the Toronto Stock Exchange under the symbol CET with a couple of days; we’ll update the US over-the-counter symbol as soon as we have the information. Cathedral Energy Services, now paying an annual dividend of CAD0.24, is a buy up to USD5.

Information Technology

BCE (TSX: BCE, NYSE: BCE) announced a 7 percent increase to its annual dividend to CAD1.74 per share. The first quarterly payment will be made April 15, 2010, to shareholders of record March 15, 2010.

In addition to the dividend increase management announced it will use CAD500 million of its year-end cash surplus to buy back shares and CAD500 million to make a pension contribution. BCE is a hold.

Financial Services

Brookfield Real Estate Services (TSX: BRE-U, OTC: BREUF) is paying a special cash distribution for 2009 of CAD0.04 per unit on January 29 to unitholders of record on December 31. The special payment will allow Brookfield to comply with the fund’s declaration of trust, which requires it to distribute all taxable income within a calendar year. Brookfield Real Estate Services is a buy up to USD11.