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Employment quality deteriorating; Business confidence drops again; Credit demand decelerates

NOVEMBER 03, 2011

Note:  I'm sincerely sorry for the lack of posts over the past week and a half.  It's partly due to the time expectations of my new position, but more so due to the fact that I have had an unbelievable string of bad luck with my health.  I've been fighting some nasty cold/flu mutant thing for the better part of two weeks now.  It's pretty much wiped me out.  I also want to thank my readers for the overwhelmingly positive response when I announced my new position.  It was much appreciated. 

With all that said, the last week and a half has been a confounding mix of positive data points (stronger than expected GDP growth in Canada, positive data out of the US) and negative data points (Europe coming closer to a Band-Aid solution for the debt problems only to have the outcome turned over to the always-rational Greek citizens; Weak data out of China).  It's been a roller coaster for sure.  Here are some data points that caught my eye over the last couple days:

 

CIBC on Canadian employment quality:

It's interesting that once we strip out the growth in employment in construction and housing-related industries, we find that the Canadian employment picture, while still positive, is far from glowing.  But even with that being said, the quality of employment has been detereorating in Canada.  Readers may be interested in a CIBC report released yesterday and titled, "Quality of Jobs:  Losing Momentum."

Some key quotes and figures:

The pace of job growth in Canada is slowing, with the economy generating on average 17,000 new jobs a month over the third quarter vs. 29,000 a month in the second quarter and 33,000 in the first quarter. And those fewer jobs are, on average, of lower quality.

Our CIBC Employment Quality Index (EQI) fell by 0.5% in the third quarter and is down by 1.5% over the past seven months.

...The decline in our quality index over the past seven months is not so obvious when one glances at the headline statistics. During this period, paid employment rose faster than self-employment and full-time job creation outpaced growth in part-time jobs. The reason for the index’s decline, despite these positive indicators, is the fact that all the fulltime jobs created during this period were in low-paying sectors.

Not surprisingly, the Employment Quality Index has risen in the resource provinces of Alberta, Manitoba, and Saskatchewan, boosted in large part by rising commodity prices and the employment benefit from new projects.  The laggards are Ontario, BC, and the Atlantic provinces:

It will be interesting to see how this index fares over the next few years as provincial/federal governments and consumers will attempt a simultaneous deleveraging, weaning off the credit that has largely underpinned the current boom.

 

Conference Board releases business confidence index:

The Conference Board of Canada has released their latest quarterly business confidence readings.  From the report:

The confidence of Canadian business leaders has dropped for the third straight quarter, indicating an increasing concern about the future of both their own firms and the Canadian economy. The Index of Business Confidence now sits at 92.6, down sharply from 103.7 last quarter and 109.5 in the fourth quarter of 2010. While this is a large decline, the index is still far above the 68.9 experienced during the financial crisis of 2008. However, many of the indicators in the survey are down since the last quarter: responses to questions regarding financial position, rate of return on capital, capacity utilization, and the performance of the Canadian economy all indicated declining expectations for the future. Just 12.7 per cent of respondents believe that economic conditions in Canada will improve in the next six months, down from 30.6 per cent last quarter, while the number of respondents who believe conditions will worsen increased 18 points to 35 per cent.

...This is the first time since the beginning of 2009 that business leaders who think conditions will get worse outnumber those who think conditions will get better.

'Nuff said.

 

Mortgage credit demand decelerates again, consumer credit stagnates:

We've seen a strong decelerating trend in the year-over-year change in the outstanding balance of mortgage and consumer credit in Canada over the past few months.  While it is generally being spun as a positive thing as consumers are taking on more debt, the reality is that consumer spending and house prices simply cannot be sustained at these levels without an ongoing strong expansion in credit levels given current debt burdens and income growth.  It's a pretty simple reality.  The housing boom is reliant on credit.  The boom in consumer spending, which has surged from 58% of GDP to 65% of GDP in less than a decade, is also reliant on consumer credit, particularly the HELOC.

Decelerating credit demand is not good news for the housing bulls.  Period.

 

Cheers,

Ben

 

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Ben Rabidoux
By Ben Rabidoux

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15 Comments

  • Olga said:
    • 2 years, 5 months

    Ben, it is good to see the post again, I have been checking the site daily to see if anything new came up.
    I have a question though. When mortgage credit demand decelerates but the prices and activity on a Toronto market remain high, could that mean that significant number of the buyers pay cash (or bigger downpayments) i.e. the money from abroad? Is there any economic indicator or co-factor that could give us a clue what % of the home buyers pay in cash?

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  • zerodown said:
    • 2 years, 5 months

    Just curious, but I don't want to have to sleuth it out, which metrics did your employer find most proprietary and required you to remove? I think there was lots of good stuff, but I'm curious what they found most noteworthy.

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  • jesse said:
    • 2 years, 5 months

    High levels of debt will indicate a greater chance of instability, but making large asset purchases with existing capital is not necessarily a sign of health. Poorly yielding assets are the problem, not the debt.

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  • Jackson said:
    • 2 years, 5 months

    "While it is generally being spun as a positive thing as consumers are taking on more debt, the reality is that consumer spending and house prices simply cannot be sustained at these levels without an ongoing strong expansion in credit levels given current debt burdens and income growth."

    And yet today's TREB report showed that October sales increased 17.5% YOY and average prices up 8% YOY.
    Not only these prices are sustained, but they have been increasing while mortgage accumulation has been decreasing. How do you explain that?

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  • Greg said:
    • 2 years, 5 months

    Here is the latest rigged TREB stats for October. http://i44.tinypic.com/aot9co.png

    Look at YOY change reported by TREB compared to changes with the latest revisions. Pretty misleading when September sales with revisions drop to 18% while it was reported at 25% on the release date.

    There was also an interesting note on this report:

    "Monthly sales data follow a recurring seasonal trend that should be removed before comparing monthly results within the same year. After adjusting for seasonality, the annualized rate of sales for October was 97,100, which was above the average of 90,700 for the first three quarters of 2011."

    I could be mistaken but TREB may have seen the revised data I've posted on various blogs and decided to address it. Regardless, why did they 'all of sudden' start reporting seasonally adjusted sales? I'll tell you why--because it's all about the big fat juicy media headlines reporting 17.5% today when it was really 14.4%, then over the next couple of months it will drop to 12%, then 8%, and so on...

    The tragedy is some people are making investment decisions based on this data.

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  • mfx said:
    • 2 years, 5 months

    this report, the initial number reported is always higher than the revised number. too optimistic and biased

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  • Jackson said:
    • 2 years, 5 months

    Still, 14.4% is pretty high too. I am puzzled.

    I don't know how much higher RE prices in GTA will go, but it appears that current increases in price and volume are highly unjustified. I think the higher the prices will go in this final stage of euphoria the faster and harder the crash will be. I can't wait.

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  • Olga said:
    • 2 years, 5 months

    Last Fall the sales in RE were very low, almost dead, I do not remember exactly when they started to pick up but it was around Nov or Dec when China gov decided to limit the number of the RE they can own in China to manage the speculations and our gov decided to fix the economy by increasing the quote for the investment immigrant class - we saw the prices in Richmond BC skyrocketed by 20% in 2-3 month and now they are slowly coming down (we have another month price come down by 1.2%). I would wait to see how Nov or Dec will compare YOY. How October sales for GTA compare to September?

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  • Greg said:
    • 2 years, 5 months

    @Jackson 14.4% will keep getting revised down for the next 3-5 months. Look at the blue revisions in the chart below to see how previous months are being revised down.

    I have more clarification now that TREB stated they report seasonally adjusted sales figures (as of July), however, what I found is that they compare 2011 adjusted figures to 2010 unadjusted figures (lower). I revised my chart to show (in red) where they are sourcing year-over-year percent changes. http://i44.tinypic.com/2hh0ls1.png

    Overall, this technique is to make the numbers look higher then they appear. Is it manipulative? Yes. If you're a stats-man, you know comparing the current year's seasonally adjusted data to the prior year's unadjusted data is just wrong.

    Enough about that.

    @Olga The truth behind the housing market is that sales transaction have peaked as of 2007. All you are seeing is reckless bidding wars that have diverged from a fundamental global contraction. Understand that in order for homes to sustain their value, the market will need a boom like the 1990s, and that's not likely to happen unless another multi-trillion global stimulus is unveiled.

    http://i43.tinypic.com/1442wy1.png

    Keep in mind that 2011 year-to-date sales will keep getting revised down until the spring 2012, so I presume 2011 sales will fall short compared to 2010.

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  • Olga said:
    • 2 years, 5 months

    Greg, comparing the current year's seasonally adjusted data to the prior year's unadjusted data is not just wrong, it is a fraud and I hope that Ben will look into it and make this fact known to the media and leading economists at the banks etc. People of different levels of involvement make their decision based on a data provided by TREB and they should not get away with this dirty play.

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  • Petr said:
    • 2 years, 5 months

    Happy to see a Ben post! Just like Olga, I check in here 2-3 times a day. Here are some links to even more gloomier articles on what the future holds for the Canadian economy and housing market.

    Canada's job losses an ‘extremely loud warning shot’ for economy
    http://www.theglobeandmail.com/report-on-business/top-business-stories/c...

    House prices to hold next year: CMHC
    http://www.theglobeandmail.com/report-on-business/economy/housing/house-...

    I found a pretty neat infograph showing the spinoffs in stimulating the economy when purchasing a home - http://blog.buzzbuzzhome.com/2011/11/your-home-purchase-impacts-economy-...

    I can see even more jobs being deteriorated if there's a slowdown in housing in Canada next year. If you look at the infograph, British Columbia will be affected the worst [(1/65 in BC) vs (1/109 for the rest of Canada) are directly housing related employment]. I'd say BC will be affected the worse in the housing downturn.

    However, CMHC mentions that there will still be moderate growth in BC. Maybe this will be offset with more migration? I'm not too sure of the logic
    “Ontario, Saskatchewan and Nova Scotia’s growth will be the strongest, while Prince Edward Island and British Columbia are forecast to see modest growth,” CMHC said. “The other provinces, on the other hand, are expected to see decreases. In 2012, housing starts are forecast to increase in British Columbia, Alberta and Manitoba.”

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  • george said:
    • 2 years, 5 months

    "The future history books are not going to be kind to the elected politicians, the Bank of Canada, and the financial regulators who have been at the helm of the good ship Canada for the last 40 years or so for allowing the build up in this country of so much debt and unfunded liabilities (in Medicare, Old Age Security, Guaranteed Income Supplement, the Allowance, public sector pension plans, etc)."

    "We are in debt up to our eyeballs and we are increasing these already staggering debt levels at a very alarming rate. These debt levels in Canada are clearly not sustainable. We are heading for a historical economic crash."

    "The Canadian people (generally speaking) have to accept a fair portion of the responsibility for the present "state of the nation" because they have been distracted by, and feasting upon, all of the "cheap money" which has been made available to them by our fiat monetary system over the last 40 years, and buying the big homes, the toys, and the gadgets on credit, and not stopping to ask themselves if our "high on the hog" standard of living and the "good times" we were all having were sustainable over the long term. The term "chicken today and feathers tomorrow" comes to mind."

    http://thebigfightovermoney.blogspot.com/2011/07/canadians-and-their-governments-have.html

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  • Greg said:
    • 2 years, 5 months

    It appears that of those who are getting employed (in Toronto) are of immigrant status according to the latest numbers released by TIEDI. Canadian-born jobs have been deteriorating by positions being filled or replaced by foreign workers who are most likely willing to work for less. It's pretty much inline with what I stated months ago that the government was going to flood the country with immigrants and provide low wage jobs in order to save money and keep the rental market active. You can see in chart two how more immigrants are taking over jobs across the board, but more so in government related sectors.

    http://i41.tinypic.com/fl8ymo.png
    http://i44.tinypic.com/8ww1m0.png

    Trends such as this should be very concerning as falling wages (due to cheap labour) in a rising housing market will create an 'artificial' sub-prime crisis by pushing the middle class below the poverty line.

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  • george said:
    • 2 years, 5 months

    The following quote is taken from the post at the link which I provided above:

    "Adding it all up, at the present time the total (government, business, and household) debt in Canada is 4599 billion$ (4.599 trillion$), and over the last 12 months it has gone up by 259 billion$, (roughly speaking because the household and business credit numbers are from the end of May 2010 to the end of May 2011 while the increase in the total government debt number is from the end of March 2010 to the end of March 2011)."

    Just to put this 259 billion$ increase in the total debt in this country (in the 12 month time frame I have mentioned above) into perspective, the Canadian Federal Government's expected total program expenses for this year are 248.4 billion $, according to the 2011 Canada Budget Document (Page 200 in the pdf file at the following link)

    http://www.budget.gc.ca/2011/home-accueil-eng.html

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  • Brian said:
    • 2 years, 5 months

    What surprises me is how long this has taken - the general direction has been pretty clear for some time - show how much momentum the economy has

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