Quiet Compression
There is a subtle but growing refrain of disconnect emerging through the strength of our economy.
Just coming off a two-year provincial election cycle and ramping into a sleepy fall federal election, Islanders are getting accustom to being advised of all the positive benefits affecting our lives.
In the Charles Dickens book ‘A Tale of Two Cities,’ the story starts with the timeless line: “It was the best of times, it was the worst of times ... we had everything before us, we had nothing before us.” Some of this narrative applies to our times as well.
We are experiencing a conflicted economy of perhaps the strongest construction growth in decades paired with a housing market shortage. We have a gentrification of older properties experiencing a rebirth through increasing market values (driven to a very small extent through short-term rentals). We see a compression of available lower cost rental units mirrored by developers supplying higher cost replacements due to increased land, labour and construction costs.
A strong economy creates strong employment opportunities. Market growth is not paired with available labour supply. Wage costs rise and demand outstrips supply, employers look further afield and recruit employees from outside the province in support of business growth.
Growth creates strain on resources, governments need more inputs to manage demand. Taxation increases in insidious ways: fees increase, transportation costs increase, input costs edge up as all functions of the supply chain seek incremental benefit and the end consumer is the sole bearer of higher prices for goods – inflation.
Inflation is managed partially through monetary policy. Central bankers adjust interest rates to slow down a hot economy and restrain inflation. But this is not a factor. On Wednesday, the U.S. Federal Reserve reduced interest rates. This was the first interest rate cut since December 2008, and equity markets immediately reacted by interpreting this as a negative narrative.
Prince Edward Island’s inflation is generally neutral, up 0.5 per cent in June year-over-year (compared to two per cent for Canada) and our Consumer Price Index dropped 0.1 per cent between May and June. We are essentially flat and not in accelerating growth.
Labour is another strange anomaly in that for June we registered an unemployment rate of 9.3 per cent, up from May. The number of unemployed persons has increased through the spring, a general time of high employment. There were 1,500 more full-time positions added to the economy last year. What’s the disconnect, Islanders are not working in the same relation to the growth of the economy, but jobs are being filled.
Employment is up and unemployment is up. This is not productive and should be examined. The consequences of an adjusting economy.
In general, the economy is great. Perhaps it’s never, ever been better. But this economic tear can possibly turn into a societal rip. This will be the true measure of a nascent government – become the steward of managed growth or the unwitting architect of economic diffusion.
A quiet compression is underway.