Canada’s impressive post-recession economic stability has been driven by strong domestic demand and, as a result, unemployment has dropped to 7.1%. While that’s all well and good, a great deal of the domestic demand growth has been financed with consumer debt – which continues to grow – and Canadians are now more indebted than the Brits or the Americans – two other groups historically addicted to debt.
So say edited excerpts from an article* from http://soberlook.com entitled Canada’s latest job report is a mixed blessing.
[The following article is presented by Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Further edited excerpts from the article* are as follows:
Continuing Strong Domestic Demand
|Source: Bank of Canada (click to enlarge)|
Consumer Debt at New Highs
A great deal of the domestic demand growth has been financed with consumer debt – which continues to grow. At the same time, while wages have gone up, disposable household incomes have been fairly stagnant over the past 3 years. That is causing household leverage to hit new highs. Canadians are now more indebted than the Brits or the Americans – two other groups historically addicted to debt.
|Source: Barclays Capital|
House Prices STILL Rising
Much of that debt has been housing related. In spite of Bank of Canada’s latest efforts to tighten credit in the housing market home prices continue to rise. Given the economic weakness, home price appreciation has been slower in recent years, but prices nevertheless are hitting new records.
Falling Unemployment Rate BUT
The unemployment rate has fallen to 7.1%, while youth unemployment fell to 13.6% from 14.5%.
A look behind the headline numbers reveals a somewhat troubling trend however. As the Bank of Montreal (BMO) latest research points out, almost half the jobs in May came from construction, while the manufacturing sector lost jobs.
It is great to see construction creating jobs in Canada – particularly for young people – but as BMO points out, it’s a mixed blessing. Construction now accounts for a record high percentage of overall employment [7.6%], and this concentrated bet on real estate and construction, while creating jobs in the short term, is putting Canadian economy at greater risk in the future.
Weakening Demand for Crude Oil in U.S.
Demand for crude imports in the U.S. is weakening (due to increased domestic production).
Canadian Dollar Remains Relatively Strong
The Canadian dollar remaining relatively strong and, [with the country so dependent on exports] it is difficult to see how Canadian households will significantly increase disposable income in the near future. Any deleveraging could therefore prove to be quite painful.
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[To repeat,] Canada’s concentrated bet on real estate and construction, while creating jobs in the short term, is putting Canadian economy at greater risk in the future [and, with it unlikely that] Canadian households will significantly increase disposable income in the near future, any deleveraging could therefore prove to be quite painful.
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://soberlook.com/2013/06/canadas-latest-job-report-is-mixed.html (Content copyright 2009-2013. SoberLook.com. All rights reserved)
Other Articles of Interest on Canada:
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The Canadian ratio of debt to income hit 163.4% in the second quarter, up from 161.7% at the end of last year, according to figures released Monday by Statistics Canada. That’s the highest ratio of debt to income ever recorded in Canada, and more inflated than the levels witnessed in the U.S. and Britain before their housing market collapses in the mid-2000s. Words: 625 Read More »
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