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.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:
Canada has the dubious honour of having the highest debt/income ratio when compared to the U.S., the U.K., Australia, Spain and Germany. What is even more troubling is that the trend in Canada has a strong upward bias compared to all the other countries which have either stabilized (Australia & Spain) or are declining (U.K., U.S. and Germany). Read More »
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 »
According to the Case-Shiller 10-City index Canadian house prices only appreciated by 84% between 1990 and 2006 compared to 181% in the U.S.. However, as U.S. prices plunged by almost 33% between the peak in April 2006 and the trough in May 2009, the chart below shows that Canadian home prices continued to rise, driven by very low interest rates and relatively benign unemployment. By July 2012, they had reached similar heights as U.S. prices before their decline and fall. I believe that house prices and consumer debt levels are overextended in Canada and that a “Minsky-moment” may be developing in Canadian credit markets. [Let me explain why I have come to that conclusion.] Words: 1892 Read More »
Canada’s housing prices continue to escalate [there has been no housing collapse as there has been in the U.S., Spain, U.K., Australia and elsewhere over the past 4-6 years] but concern is rising as to whether they are now, finally, ‘in a bubble’ and about to correct either modestly or severely. This article discusses what would cause a change in direction in Canadian housing prices. Words: 500 Read More »
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Canada, France and Switzerland stood alone among nine markets measured in recording annual price gains, based on second-quarter data, with inflation-adjusted price increases of 5%, 5% and 4%, respectively, compared to declines of 6% in the U.S., the U.K. and Australia, 10% in Spain and 14% in Ireland. In fact, Canada’s home prices have escalated 44% since 2005 – with a high of 68% in Vancouver – and they are up 7.7% in the past 12 months! Words: 1244 Read More »
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