Consequences

The moral of yesterday’s post? Simple. You reap what you sow.

This morning we reaped a big hike in the jobless rate, a loss of work nationally, youth unemployment shooting to 12.6% and, yeah, the certainty that the CB will be hacking rates. Maybe not by next Wednesday, but for sure in June.

The country’s population is growing and its productivity falling while debt expands and politicians at all levels obsess over real estate. But that’s the problem. Our condo economy throws massive amounts of capital (private and public) at housing, to the detriment of developing and diversifying the country. Read the post and links yesterday. This is getting close to poochedness.

The latest news should rattle everybody. America created 303,000 jobs last month – despite its clown politics and dangerous foreign entanglements. We lost two thousand positions. Their unemployment rate is 3.8%. Ours is now 6.1% – up by a fifth in a year. US economic growth is running at over 3%. We’re basically at zero. Our dollar is worth 73% of theirs. For the price of a slanty semi in midtown Toronto you can buy a stone mansion in Chicago.

This is not going in the right direction.

But if you are looking for a drop in interest rates, you came to the right country. The Canadian economy is cooling fast. The inflation rate is sub-3%. GDP growth has flatlined. Now the labour market is rolling over. If the Bank of Canada waits too long to start decreasing the cost of money and flowing more liquidity into the economy, we’ll be in recession while the Yanks achieve their soft landing.

Why are we falling behind?

High rates are hurting small and large businesses alike. The cost of carrying debt has swollen. Payroll taxes have jumped. Wages are increasing at over 5% as employees strive to afford real estate in an unaffordable country. So we’ve seen the biggest jump in the jobless rate in two years as employers cut back and business optimism fades. As mentioned, the kids are taking it in the rump. Things have not been this tough for those 15-to-24 in eight years.

“We would suggest that the job market is officially no longer tight, and may be quickly tipping the other way,” say the economists at BMO. “The BoC will likely view the overall results as pointing to more disinflationary pressure ahead, and will await the next couple of inflation prints, but a June cut is looking a bit more likely now.”

That’s what everybody’s repeating. “A rising unemployment rate and further signs that inflation pressures are broadly consistent with our base-case assumption that the central bank will shift to cuts by mid-year,” states RBC. “Today’s report casts a cloud over the Canadian economy,” says TD. “Markets are increasingly betting that the BoC will pull the trigger on its first rate cut in June.” And CIBC adds this: “The cracks that had been slowly emerging within the Canadian labour market suddenly got much wider in March. While markets had been pushing back expectations for a first Bank of Canada interest rate cut following strong GDP data to start the year, today’s labour force release should see them pulling those expectations forward again closer in line to our expectation for a first move in June.”

Meanwhile, as we detailed, the housing market is suffering the same way jobs are.

Inventories are growing, prices have calcified and sales are an industry disappointment. This is spring. There was barely any winter. The grass needed mowing in March. People are playing golf and pickleball in their shorts. Mortgage rates have dropped smartly from their peak. The spectre of lower rates plus pent-up demand from a barren 2023 were expected to ignite buyer interest. But…

The question lingers then. Has the central bank already waited too long to loosen its grip? After 10 interest rate increases and a 1,900% explosion in its policy rate, after a tripling of home loan costs and a massive hemorrhaging of public money in debt service charges plus a hurtful increase in corporate overhead, has monetary policy gone too far?

In a country with a serious real estate addiction, it sure looks that way. And guess whose fault that is?

About the picture: “This is Pancake, neighbourhood celebrity, soliciting treats and scritches,” writes Nathan. “She’s a 7-year old corgi, and needed very expensive (back-to-back back) surgeries for severe IVDD last year but is now as sassy as ever after a long road to recovery. The personal finance tie-in should be obvious – without the (liquid) financial resources, her story might have ended last year. Instead, we’re hoping for many more years of her attention-seeking companionship.”

To be in touch or send a picture of your beast, emal to ‘[email protected]’.