The reckoning?

Yesterday’s news: real estate is tanking. Sales lower, inventory higher, prices slowly melting.

Today’s news: Labour is tanking. Unemployment up. Vacancies down. The jobless rate ticking higher.

We’ve just learned that out-of-work people are staying out of work longer. Almost a fifth of those lacking jobs have been that way now for six months or more. The labour force is growing, too, way faster than employers can hire. There were 99,000 more folks of working age among us last month. And yet-full time jobs dropped by more than three thousand.

More painful is the situation with the kiddos. While the national unemployment rate is up to 6.4%, it’s more than double that (13.5%) for those between 15 and 24. Over half (54%) of students are earning nothing – the worst result in more than 25 years.

Some people argue that without a bulge in the population the Canadian situation would be more dire, bordering on recession. In total 1.11 million folks have joined us in the past year. That’s a formidable whack of new consumption and demand, along with talent and muscle. This may be a valid reason employment cannot keep up with workers – the economy produced about 340,000 jobs during this time, so only a third of the newcomers (in theory) found work. But this population expansion is also a reason the economy continues to chug forward.

And here’s the third thing of note. Wages still outpace inflation. The average hourly wage is growing at 5.2%, reports StatsCan, or almost twice the CPI rate. This won’t last, says BMO Economics: “The pronounced softness in the broader job market suggests that it is only a matter of time before wages slow.”

Here’s what the economists conclude:

This report drives home the point that the Canadian labour market can simply no longer be considered tight—in fact, it is quickly tipping in the other direction. We learned last week that the job vacancy rate has dropped below pre-pandemic levels, and the unemployment rate is now steadily marching higher into weak terrain. As a standalone result, the softening job market raises the odds of a Bank of Canada rate cut.

When will that cut come?

“After today’s reading, financial markets have increased their odds to greater than 50% that the next cut is coming at their July 24th decision,” say economists at TD. If not then, Mr. Market is giving close to 100% odds that the next chop will come in September – for both the Bank of Canada and the Fed. (The US added 206,000 jobs, and is slowing, with the jobless rate popping above 4% for the first time in several years.)

What are we to make of all this?

“The economy is not falling off a cliff,” says TD. But others see it differently. “We are about to learn just how damaging unemployment is to an economy with some of the highest consumer debt loads on the face of the earth,” says crusty mortgage broker and influencer Ron Butler. “Should we assume it will get worse? Yeah, we absolutely must assume that. Maybe much worse: right up to over 8% (unemployment).”

If he’s right, real estate is in trouble. If BMO is correct, and a rapidly changing labour force means 5% wage gains will turn into, maybe, 0%, then housing markets are threatened. And if TD gets it right in saying, “rate cuts will be gradual over the remainder of the year,” then buyers may stay on the sidelines.

Worse, it’s June. Post-Canada Day. The high summer months of July and August are some of the slowest for property sales, especially when the humidity means bananas can grow in Burlington. Mortgage rates are still prohibitive. Prices are still absurd. Affordability levels are insane, as RBC keeps reminding us. Over 100% of family income is required to carry a house in Vancouver, while the national average is 63%. Compare that with 35% in the States, where they consider such a burden to be a ‘crisis’.

Will this deterioration cause Tiff to sweat and pull forward the next rate cut to the 24th? Would it matter? Or will the central bank let things fester until September? And what kind of market-mashing mess could politics deliver by then, with the US apoplectic?

As Butler hints, is this the reckoning?

With average incomes of seventy grand and houses at a million, it has to come sometime. Now seems fine.

About the picture: “Hi Garth, appreciate what you do, please keep it up,” writes Edward, on the South Shore of Nova Scotia. “This is Samara cooling off in the refreshing waters of Mahone Bay during the recent heatwave.”

To be in touch or sed a picture of your beast, email to ‘garh@garth.ca’.