The Canadian economy has answered a lot of questions for us in the past few months. Our housing market stumbled, but didn’t go into free fall. Our mining, manufacturing and construction industries suffered, but did not collapse. Retail sales slowed, but you won’t see row upon row of boarded-up stores when you venture out holiday shopping next month. And, of course, it turns out our banks are a fair bit more solid than many gave them credit for.
All of that must qualify as welcome and somewhat surprising news, and the latest bit of encouragement came last week with the release of September jobs figures. As the kids headed back to school, the employment situation in the U.S. continued to worsen—another 263,000 jobs vapourized as the world’s largest economy searches for a way to staunch the bleeding. But in Canada, 31,000 jobs were created, a second straight month of improvement, far outpacing even the rosiest projections on Bay Street.
Even the details were encouraging. Whereas recent months had seen only gains in part-time work and self-employment, this time the hiring was driven by full-time jobs. The most embattled sectors (manufacturing up 26,100, construction up 24,600) were the ones showing the most dramatic turnaround. And Ontario, the province that has suffered the worst by far in this downturn, saw employment rolls swell by 62,000 full-time positions.
Another question answered, right? Well, maybe. There remains one huge element of uncertainty in this recovery, and the rosy jobs figures point directly to it. In September the gains were led by the public sector, while private employers laid off another 17,000. In other words, this surprise surge in employment represents your tax dollars at work. The stimulus spending is indeed doing its job, creating publicly funded infrastructure and building projects that serve to bolster economic activity when it’s needed most. But everybody knows that a government can’t single-handedly drive an economy for long, and that is precisely what it’s doing now.
That is the one question that remains, and the only one that matters: what happens when the stimulus stops and interest rates rise? We’re going to have a huge debt to pay, and that’s when we find out exactly what is left of private sector demand, and just how deeply we are tied to the fate of our number one trading partner. Perhaps we will be pleasantly surprised again.
GRAPH OF THE WEEK: No more easy money
With tightened lending and mounting job losses, the amount of consumer credit outstanding has plummeted. U.S. households are retrenching, which is good, but until consumers start borrowing and buying again, a real recovery may be a long way off.
With interest rates at record lows, and house prices a shadow of their former selves, Americans are diving back into the housing market. An index that tracks U.S. mortgage applications surged last week by 16.4 per cent to its highest level since May, according to the Mortgage Bankers Association. Rates on a 30-year fixed mortgage have dipped below five per cent, a four-month low.
Debt be gone
America’s new-found frugality isn’t good for carmakers and restaurants, but it’s working wonders for households’ shattered balance sheets. The amount of consumer debt outstanding fell $11.9 billion to $2.46 trillion, the seventh straight monthly drop. The biggest decline showed up in credit card debt, which fell $9.9 billion, or 13 per cent.
There is a glimmer of hope for U.S. retailers. The biggest chain stores in the country posted their first sales increase in a year, jumping 0.6 per cent in September compared to the same month last year. The result was higher than expected, and a hopeful sign leading into the all-important holiday shopping season—though analysts still caution that overall sales may remain weak.
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