Sunday , 16 June 2024

Canadian Economy Still Strong But Setting Itself Up For a Very Hard Fall! Here’s Why (+2K Views)

Canada’s impressive post-recession economic stability has been driven by strong11-10-24-canada domestic demand and, as a result, unemployment has dropped to 7.1%. While that’s all well and good, a great deal of the domestic demand growth has been financed with consumer debt –  which continues to grow – and Canadians are now more indebted than the Brits or the Americans – two other groups historically addicted to debt.

So say edited excerpts from an article* from entitled Canada’s latest job report is a mixed blessing.

[The following article is presented by  Lorimer Wilson, editor of and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]

Further edited excerpts from the article* are as follows:

Continuing Strong Domestic Demand 

Source: Bank of Canada (click to enlarge)

Consumer Debt at New Highs

A great deal of the domestic demand growth has been financed with consumer debt –  which continues to grow. At the same time, while wages have gone up, disposable household incomes have been fairly stagnant over the past 3 years. That is causing household leverage to hit new highs. Canadians are now more indebted than the Brits or the Americans – two other groups historically addicted to debt.

Source: Barclays Capital

House Prices STILL Rising

Much of that debt has been housing related. In spite of Bank of Canada’s latest efforts to tighten credit in the housing market home prices continue to rise. Given the economic weakness, home price appreciation has been slower in recent years, but prices nevertheless are hitting new records.

Source: CREA

Falling Unemployment Rate BUT

The unemployment rate has fallen to 7.1%, while youth unemployment fell to 13.6% from 14.5%.
A look behind the headline numbers reveals a somewhat troubling trend however. As the Bank of Montreal (BMO) latest research points out, almost half the jobs in May came from construction, while the manufacturing sector lost jobs.

It is great to see construction creating jobs in Canada – particularly for young people – but as BMO points out, it’s a mixed blessing. Construction now accounts for a record high percentage of overall employment [7.6%], and this concentrated bet on real estate and construction, while creating jobs in the short term, is putting Canadian economy at greater risk in the future.

Weakening Demand for Crude Oil in U.S.

Demand for crude imports in the U.S. is weakening (due to increased domestic production).

Canadian Dollar Remains Relatively Strong

The Canadian dollar remaining relatively strong and, [with the country so dependent on exports] it is difficult to see how Canadian households will significantly increase disposable income in the near future. Any deleveraging could therefore prove to be quite painful.

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6. Invest Tax Efficiently


[To repeat,] Canada’s concentrated bet on real estate and construction, while creating jobs in the short term, is putting Canadian economy at greater risk in the future [and, with it unlikely that]  Canadian households will significantly increase disposable income in the near future, any deleveraging could therefore prove to be quite painful. 

[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]

* (Content copyright 2009-2013. All rights reserved)

Other Articles of Interest on Canada:

1. Debt/Income Ratios of U.S., U.K., Canada, Australia & Germany – The Worst Is…

Canada has the dubious honour of having the highest debt/income ratio when compared to the U.S., the U.K., Australia, Spain and Germany. What is even more troubling is that the trend in Canada has a strong upward bias compared to all the other countries which have either stabilized (Australia & Spain) or are declining (U.K., U.S. and Germany). Read More »

2. Canadian Debt-to-Income Ratio Has Entered the Danger Zone! Is a Housing Crash Imminent?


The Canadian ratio of debt to income hit 163.4% in the second quarter, up from 161.7% at the end of last year, according to figures released Monday by Statistics Canada. That’s the highest ratio of debt to income ever recorded in Canada, and more inflated than the levels witnessed in the U.S. and Britain before their housing market collapses in the mid-2000s. Words: 625 Read More »

3. Canada Could Be Developing a Minsky Moment In Real Estate – Here’s Why


According to the Case-Shiller 10-City index Canadian house prices only appreciated by 84% between 1990 and 2006 compared to 181% in the U.S.. However, as U.S. prices plunged by almost 33% between the peak in April 2006 and the trough in May 2009, the chart below shows that Canadian home prices continued to rise, driven by very low interest rates and relatively benign unemployment. By July 2012, they had reached similar heights as U.S. prices before their decline and fall. I believe that house prices and consumer debt levels are overextended in Canada and that a “Minsky-moment” may be developing in Canadian credit markets. [Let me explain why I have come to that conclusion.] Words: 1892 Read More »

4. Still NO Housing Bubble in Canada – So What Will Cause Prices to Finally Correct?


Canada’s housing prices continue to escalate [there has been no housing collapse as there has been in the U.S., Spain, U.K., Australia and elsewhere over the past 4-6 years] but concern is rising as to whether they are now, finally, ‘in a bubble’ and about to correct either modestly or severely. This article discusses what would cause a change in direction in Canadian housing prices. Words: 500 Read More »

5. Are Surging Home Prices in Canada Finally Due For a Major Correction?

Given the global economic backdrop, and in particular the sharp correction in energy prices to which Canada is highly exposed, the risks of a Canadian housing correction are rising. Home prices, which corrected about 10% during the recession, have surged again, making household balance sheets look increasingly fragile. Economists are becoming concerned. [Should Canadians be worried too? Let’s review the situation.] Words: 280 Read More »

6. Will Canada Soon See a 20-30% Correction in House Prices?

Canadians are becoming increasingly vulnerable to a housing correction, exposing them to a perfect storm of high debt and falling assets, the Bank of Canada warns…suggesting that many Canadians have constructed their finances on a house of cards, with ever rising home values the key and vulnerable support. [Sound familiar?] Words: 770 Read More »

7. Housing Collapse Coming to Canada? House Price-to-Rent Ratios vs. America’s At Peak Suggest So

The ownership premium in Canada’s largest cities is unprecedented, dangerous to new buyers, and unlikely to persist – and if analogies to the U.S. situation at its peak back in 2005 are at all valid, this is bad news. [Let me explain.] Words: 430 Read More »8. American/Canadian Home Price Performance Comparisons by Major Cities


The following charts indicate relative performance of US home prices in Phoenix, Los Angeles, San Francisco, Chicago, Las Vegas, New York and Miami to Canadian home prices in Vancouver, Calgary, Toronto, and Montreal. US home prices are reflected in Canadian dollars for comparison purposes. Words: 240 Read More »

9. Unlike the U.S and U.K, Canada’s Home Prices Are STILL Rising!


Canada, France and Switzerland stood alone among nine markets measured in recording annual price gains, based on second-quarter data, with inflation-adjusted price increases of 5%, 5% and  4%, respectively, compared to declines of 6% in the U.S., the U.K. and Australia, 10% in Spain and 14% in Ireland. In fact, Canada’s home prices have escalated 44% since 2005 – with a high of 68% in Vancouver – and they are up 7.7% in the past 12 months! Words: 1244 Read More »

10. Canada’s Top Commodity Exports/Imports & How to Invest Accordingly


Canada has the 7th largest economy in the world and is the 2nd largest country by land mass. It has a wealth of natural resources, making it a large energy and minerals exporter. For commodity traders looking to invest primarily in North America, Canada presents a compelling opportunity. [This article takes a look at Canada’s top commodity exports and imports and offers suggestions as how to invest in Canada’s commodity industry.] Words: 905 Read More »

11. Canadian Oil Sands: World’s Single Largest Petroleum Resource and…

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13. Canada’s Oil Sands to Have $520 Billion Impact on U.S. Economy: Here Are the Facts, State by State

Canada is the largest supplier of oil to the U.S. When the U.S. imports oil from Canada, the spin-off economic benefits are substantial. The interactive map of the U.S. below will let you calculate the economic impact generated in each U.S. state from new oil sands projects in Alberta, Canada. Words: 592

14. A Look at the Canadian Oil Sands: the U.S.’s #1 Source of Supply

The third largest source of oil in the world is the Canadian oil sands and the United States already imports more of it from there than from anywhere else. With oil prices on the rise, the controversial oil sands are likely to become even more economically viable, despite experts’ warnings about environmental risks [and the political and environmental gamesmanship to block the Keystone pipeline project from there to refining facilities in the U.S.]. Below are 12 incredible facts about the oil sands. Words: 408

15. The Oil Sands are NOT the “Tar” Sands and 9 More Interesting Facts

The oil sands in northern Alberta are crucially important to the Canadian economy. People from all over the country are traveling there to find work. The news is filled with controversy over proposed pipelines (the Keystone XL and the Northern Gateway) to carry the oil to export markets. Here are 10 things everyone should know about the oil sands. Words: 878

One comment

  1. Canada has land mass and mineral wealth, and their rush to develop their own mineral wealth is perhaps their greatest problem since they are not taking care of their people and instead just promoting for the most wealthy, doing what the USA started doing a long time ago!

    The Canadian voters must insist that their elected Leaders promote what is best for all not just the privileged few!