Mayday?

Big news day. US labour market erupts in the States. Jobs in Canada take a gut punch for the second month running.

Is it a crisis? Is it good?

As you may know, we ‘lost’ 30,600 paycheques in July, says StatsCan. The talking heads on BNN said this was due to a cooling of the economy, and sure-as-shootin’ proof the place is sliding inexorably into a recessionary state.

In contrast the US added 528,000 workers. That shoved the jobless rate down to 3.5%. That is (a) the lowest since we started counting this stuff in the 1960s and (b) considered to be full employment. There are more empty jobs now than people to fill them.

The implications:

First, no recession. Or if there is one, you might not notice. The American economy is not grinding to a halt nor in peril. It has absorbed an aggressive rate tightening by the central bankers, shrugged off ridiculous energy costs, the Putin war, Pelosi triggering China, more Covid, Monkey pox and Beyonce’s new horse.

Look at the stock market. We may still be in a bearish state, but traders are obviously risk-on. July was the best month in years. Double-digit gains, and so far in August it’s all holding – despite the Fed. Corporate profits are robust with over 70% of companies beating estimates. So it begs the question: what if they called a recession and nobody came?

I hope you took the advice months ago when this volatility enveloped us: stay invested. This is why.

So the boffo jobs numbers guarantee rates will rise again next month. Mr. Market is pricing in 75 beeps, which seems about right. More evidence that homeowners and the indebted will be shouldering the burden of monetary policy, while Wall Street and liquid people do just fine.

Canada?

Don’t be fussed about shedding jobs. Our unemployment rate of 4.9% is the lowest since 1970. Wages are galloping ahead at a rate of more than 5%. Job postings are 65% higher than they were before the pandemic. We have a record number of job openings. And the stats mask the fact big numbers of people are quitting the workforce in the ongoing Great Resignation – especially in the health care sector where life has been grim.

In fact 53,000 fewer workers in health and education were offset by 23,000 more in goods-producing industries. That tells you something.

The most important thing to remember is the overall labour force in Canada shrank by almost as much (27,000) as the reported ‘lost’ jobs (30,000). That’s why the unemployment rate stuck at 4.9%, why the economy is not turning icy, why the Bank of Canada will carry on with its next rate hike on September the 7th and why the premise here of late – financial markets up and housing market down – is strengthened.

To underscore that, look at the real estate report RBC just dropped:

The housing correction now runs far and wide across Canada. Early reports from local real estate boards provide further evidence that higher interest rates have taken a huge toll in July. In the Toronto and Vancouver areas, the decline in activity is quickly becoming one of the deepest of the past half a century. Prices are sliding fast, and the exuberance that permeated these markets earlier this year is being replaced by fear.

Our expectations for further hikes by the Bank of Canada—another 75 basis points to go in the overnight rate by the fall—will keep chilling the market in the months ahead. We expect the downturn to intensify and spread further as buyers take a wait-and-see approach while ascertaining the impact of higher lending rates. Canada’s least affordable markets Vancouver and Toronto, and their surrounding regions, are most at risk in light of their excessively stretched affordability and outsized price gains during the pandemic.

Exactly what we have been saying here on a certain pathetic blog for several months. How as all this not inevitable? Why are people so shocked now? (Don’t answer that. I know.)

“Everyone talks about the devastating 1% rate increase last month,” says crusty mortgage broker veteran Ron Butler. “How intense the reaction was, how you could just watch activity fall off a cliff. September 7th is coming. Another increase is coming. Market sentiment will continue to cool. And prices. And activity.”

Indeed. All of the Covid premium will inevitably be wiped away. The odds of us surpassing the 32% market dive in the early 1990s in Canada and 2006 in the US are high. “The frenzy that took Toronto’s market to unprecedented heights this winter is completely gone,” says RBC. And the numbers prove it.

In fact, look at this. In Oshawa, with detached homes, we’re already there – a 33% price reduction in a few months. The people who bought in February, it turns out, paid $402,734 too much. Ouch. The people who buy now might just join them.

Source: Royal Heritage Realty Inc; Toronto Regional Real Estate Board

About the picture: Days ago we featured a picture of this blog being read in the cockpit of a plane flying at 820 km/hr at an altitude of 35,000 feet, over Winnipeg, submitted by flyboy Aaron. “I don’t know who Aaron is,” writes James (also a commercial pilot), “but it’s nice to know I’m not the only one who enjoys your blog at 41,000 feet! Been reading your blog for 8 years. Financial freedom feels great – Thanks for the (free) guidance!”