Hot houses, shrinking budgets

Today’s breakfast is the Full Canadian: Jobs, Housing, Income Inequality, and Even More Household Debt.

This morning will bring February numbers on unemployment and hourly wages for Canada, giving us a chance to look once again at the quality of the job market – the previous month’s job gains were largely a case of quantity over quality – and another chance to look at the ongoing debate over the quality of the jobs survey itself. We’ll also get a chance to look at recently released numbers on household debt, once again hitting a record high, and another set of warnings that Canada has a dangerous housing bubble on its hands.

On the global front, a worldwide equity sell-off earlier this week, spurred by a high dollar and a sinking euro, appears to be turning around as the dollar has slightly weakened. In Japan, the Nikkei 225 closed at an almost five-year high, while European markets are starting the day on an increase. An unexpected retail sales report from the U.S., which extended a decline in sales for the third month despite another strong showing in the latest jobs report, put a hitch in the dollar’s step. On the other hand, oil continues to fall today, slipping under $47.

Today, the main things to watch for are a consumer confidence reading for the U.S., as well as producer price index numbers, a central bank meeting in Russia – where central bank meetings have lately brought several surprise rate hikes or cuts to try to ease ruble volatility – and, of course, anything to do with Greece. In Brussels, Greece and Germany’s recent efforts to push through reforms despite clear mutual dislike are seeing a growing rift between the countries’ finance ministers. Lots of references to the Second World War aren’t improving the mood. The U.K. has also become the first country to ask to join a Chinese-led investment bank, slated to be a competitor to the World Bank – a decision the U.S. criticized.

Just to end on a high note, we’ll finish up with the very, very, very exciting news for toy-manufacturers everywhere (plus toddlers, and Disney shareholders) that we can all expect a sequel to Frozen. 

Wake up, Canada. That was the message from several columnists, following new numbers on the Canadian housing industry and an IMF note earlier this week that warned the country’s housing prices are overvalued. At Maclean’s, Jason Kirby said that while we’re focusing on oil prices, we really should be looking at the housing market, noting the energy market makes up less than 10 per cent of Canadian GDP – three per cent less than real estate. As Calgary has fallen out of the “hot three” centres for housing prices, he insists that the housing market is less resilient than we often think. You can also take Jason’s incredibly fun quiz: “Who said it: Canada-U.S. housing bubble edition” here. At the Globe, Kevin Carmichael focused on a twin pairing of a regulatory blind spot when it comes to popping asset bubbles, and threw cold water on bank claims that the housing market is just fine, as government insurance for mortgages passes the risk onto the taxpayer (a risk the IMF also highlighted.) Earlier this week, CMHC announced housing starts were down by 40 per cent, including declines in Toronto and Vancouver, and yesterday, Statistics Canada said that prices for new homes declined in January for the first time in 5½ years.

 

Debt, debt, all the debt. Here’s another skipping record on the Canadian economy for you: household debt is extremely high. That’s not news, but the numbers keep getting higher, with the debt-to-income ratio hitting a new record, of 163.3 per cent. The ratio wasn’t due to increasing debt, exactly – credit card debt was, in fact, down – but less disposable income. But before panic sets in, several economists noted that overall, Canadians, while indebted, have also seen their assets increase. Household net assets, not including houses, have doubled since the crisis, but then again, debt has nearly quadrupled. Take into account “non-financial assets” – Canadians’ real estate – and they have four times the assets they do debts. Of course, that brings us back up to the question of whether Canada has a housing bubble.

Income inequality goes gluten-free. Is it hip to talk about the widening of the wealth gap? That’s the question in this Maclean’s editorial, following on the increasing pace of discussions on income inequality, from the bestsellers’ lists to the IMF to the panels in Davos this year at the World Economic Forum. But are the claims of a gap in Canada overestimated, or at least obscured by the topic’s trendiness? The question has thrown new shades on debates about an increase to the contribution levels for Tax Free Savings Accounts. But reports that obscure the levelling-impact of progressive tax may be skewing the picture.

Frozen 2 is a really big deal. Because Frozen was a massive, staggering money-maker. It was the most profitable animated film ever, and not only was the film popular, so were the endless spin-offs, from dolls and backpacks to costumes and theme park features. So big was the lure of Frozen that the area of Disney profits related to products was up almost 50 per cent in the last quarter, and the announcement of the sequel pushed Disney’s shares up by almost four per cent. They weren’t the only ones who got a boost, either: two of the worlds’ biggest toymakers were also cheering. Mattel, which currently makes Frozen toys, saw its shares jump 4.2 per cent after the announcement, and Hasbro, which will take over the contract for Frozen next year, saw its shares rise 1.3 per cent after the previous day. Just call it fairytale magic.

Need to know:
TSX: 14,779.72 (+31.52), Thursday
Loonie: 78.72 (+0.36 cents), Thursday
Oil (WTI): $46.70, Friday (7:30 a.m.)