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.
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.