It’s Friday, so let’s start with the uplifting news: Canadians now have lower-paid jobs, and more household debt.
That might not actually be a revelation. But two new reports released yesterday, one from RBC and another from CIBC, will back you up if your mortgage seems huge and your job prospects wilting. The reports come a day after Bank of Canada governor Stephen Poloz kept the benchmark rate steady, saying that the economy was running as forecast, and exports and investment would help plug the hole in budgets left by the oil rout. But since it’s the weekend, a note that the fortunes of Canada’s middle class aren’t so bad: in a study by the New York Times last spring, the Canadian middle class was judged to be the richest in the world, pushing Americans out of the top spot.
In Europe, European Central Bank president Mario Draghi stepped on the optimism accelerator at yesterday’s meeting, saying that the beleaguered eurozone had turned the corner to recovery – before the first dose of quantitative easing had even began. (That program officially starts on Monday.) The eurozone is also reporting fourth-quarter GDP this morning. In the U.S. yesterday, all 31 banks passed first round of bank stress testing, which judged their capital cushions in scenarios of financial stress. That’s a significant improvement from last year, when Citibank, among others, failed the tests.
The biggest news to look for today is Jobs Day in the U.S., which will bring numbers on the health of the (recently) bouncy employment picture to the south. There will also be numbers for the goods and services trade deficit, and consumer credit. In Canada, we have fourth-quarter labour productivity, building permits and the merchandise trade balance for January.
Canadians are the kings and queens of household debt. That Canadians have high levels of debt is not a revelation, but a new study by RBC colours in some of the numbers, and notes that levels of debt grew by 4.6 per cent in just the first month of year, with the bulk of last year’s $80 billion in debt – mortgages, personal loans and credit cards – racking up at the tail end of the year. Where is all this debt coming from? Houses. While credit card and personal loan debt have actually been reduced, mortgage debt has increased. This comes as household savings have sunk, and the Bank of Canada and the Canadian Mortgage and Housing Corporation have repeatedly warned of the risk of a correction of high house prices – which may already be happening in Alberta, as successful sales slumped. The Globe notes a few sobering statistics from a McKinsey report: not only is household debt in Canada larger than GDP, as a debt-to-income ratio it is 163 per cent – compared to Greece’s 175 per cent – and in the years since the financial crisis, the rate at which Canada has acquired debt is only second compared to Greece. Business debt also jumped suddenly in January.
“We have people without jobs and jobs without people.” This comes from Benjamin Tal, deputy chief economist at CIBC in a CP story, which just published a study backing up some of the trends we saw in stark relief in the last jobs report: the Canadian job market has structural problems. Not only are skills mismatched to needs (which he suggests remedying with changes to education and making qualification easier for highly skilled immigrants), but over the last decades, low-paid, part-time and self-employment has increased, leaving fewer with the full-time stable jobs that many part-time workers would actually like. That doesn’t mean that many part-time jobs or self-employment aren’t ideal for many people, but that on average, both pay less, and they’re more widespread than ever –the report noted the economy has never really recovered from the dent to full-time employment from each recession. But the slowdown in wages isn’t equally spread: over 10 years, earnings for higher-paid jobs have climbed “twice as rapidly” as those in low-paid jobs.
Go Go Super Mario. Yesterday, at the ECB’s meeting, the president of the bank was already thumping his chest, as one economist called it, by telling Europeans the economic zone was already reaping the benefits of a massive bond-buying program that has yet to begin. That program will see the first dose of a 1.1-trillion euro QE program, which will administer 60 billion euros in asset purchases, per month. There’s something to that: even as the eurozone has battled deflation and, more dramatically, the prospect of a Greek exit from the zone, the news the last few days hasn’t been so bad, with Scandinavia posting good results for the last quarter and manufacturing ticking back up for many countries. In the zone’s largest economy, Germany, unemployment is at a historical low. Yesterday, even Italy announced their economy had stayed flat in the last quarter – turning around a couple quarters of contraction. Draghi also upped the forecast for the eurozone, saying growth would hit 1.5 per cent this year (versus the earlier estimate of one per cent), with growth for the next two years, and a flat rate of inflation, instead of deflation. Wishful thinking? One economist at ING offered this take: ““[The forecasts] sounded as if the ECB is a bit inebriated by its own QE announcement.” So far this morning, European markets seem largely unconvinced, they’re trading around flat. Greece is surprisingly quiet at the moment (deceivingly, perhaps), as the country still faces running out of cash – but Draghi also slipped in an announcement yesterday that the bank had approved another 500 billion euro emergency loan for the country.
How much does your brain love Super Bowl ads? Susan Krashinsky at the Globe went under a brain sensor to find out (highlights include her reactions to Steve Buscemi, and chocolate), as part of Canada’s first “neuro-research” program to test reactions to ads. The drive to market-research your brain comes at an interesting time, after the CRTC ruled that Canadians should no longer be deprived of the glory of watching Super Bowl ads, which are currently switched out to show Canadian TV ads. Bell, for one, is not happy – and is appealing the ruling.
Need to know:
TSX: 15,103.11 (+20.27), Thursday
Loonie: 79.96 (0.58 cents), Thursday
Oil (WTI): $51.03 (4:45 a.m.)