Did Trudeau’s Liberals hit their peak too soon?
Economic indicators seem to say so
An economy that grew at a scorching 3.8 per cent in the first quarter of the year. Job numbers that are moving in the right direction. A young couple who sell their house in Toronto for $1 million, buy twice the house in Ottawa and now live mortgage-free.
Canadians have never had it so good — at least if you believe the political spin.
“We’re on track to have the second fastest growing economy in the G7 this year and next. Needless to say, our plan is working,” said Justin Trudeau when the second Liberal budget was tabled last month.
The statistics — at least at first glance — bear him out. After the favourable first quarter results, the Bank of Canada forecast annual growth for 2017 to be 2.6 per cent, up from its previous prediction of 2.1 per cent.
Job numbers, too, are promising — employment was up 1.5 per cent in the first quarter and Trudeau boasts of having created a quarter of a million jobs in the past seven months. (The unemployment rate is 6.6 per cent.)
No wonder the Liberals still hold a commanding lead in the polls: if an election was held tomorrow, Trudeau would be returned with a majority government.
Perhaps Conservative and NDP leadership aspirants should concede the 2019 election already? As Kevin O’Leary noted, opposition politicians will never be able to out-selfie the prime minister.
Any electoral upset would have to germinate in an economy where people found their wages and house prices stagnating; where jobs are harder to come by; where people are forced to work harder yet still find it impossible to get ahead.
Fortunately for the opposition parties, if not working Canadians, that is the reality for a growing number of people.
A closer look at the data suggests the Liberals might have peaked too early. The Bank of Canada’s latest monetary policy report, released last week, makes sobering reading. Growth projections for 2017 were raised to 2.6 per cent, but they were downgraded for 2018 and then forecast to be lower still in election year, 2019.
The backdrop is the blistering housing market that helped pay off Curtis and Sarah Blakely’s mortgage. They have just sold their renovated three-bedroom home in Toronto for $1 million — around $700,000 more than they paid for it — and are moving to a home twice as big in Ottawa with no mortgage.
Prices in the Greater Toronto Area rose more than 30 per cent year on year — an increase Bank governor Stephen Poloz said is “divorced” from income growth and demographics.
Much of the increased growth projection was attributable to residential investment (housing will contribute 0.3 per cent to GDP growth this year, instead of detracting 0.1 per cent). Poloz warned we are in an “unsustainable zone.”
The first quarter numbers were also boosted by stabilization in the energy sector and by increases in government transfers, mainly Canada Child Benefit payments, that bolstered consumer spending. But the bank said it is concerned a strong housing price correction could spread to other cities.
In addition to the potential for a bursting housing bubble, the bank expressed worries about slower consumption because consumers are so heavily indebted.
Then there is the notable increase in global protectionism, which the bank deemed “a source of uncertainty.”
Throw in declining business investment — attributable to the aforementioned “uncertainty” — not to mention anemic export growth (ditto), and you have what the bank calls “uneven” growth.
A more human face to the forces shaping our economy emerges from the labour market data.
As economist Ted Carmichael noted, while the total hours worked in all jobs was up 1.4 per cent in the first quarter, the hours worked in an individual’s main job was down. More people, it seems, are working in more than one job to make ends meet.
Statistics Canada’s Labour Force study also suggests many relatively highpaying industries like the resource sector ($13 an hour over the average wage of $26.12) have seen a decline in hours worked, while lower-paying industries like accommodation and food services ($11 an hour below the average) have seen hours worked increase. The exception, it almost goes without saying, is the public sector, which has high hourly wages and has seen hours worked increase.
“This is not a healthy labour market,” said Carmichael in a blog posting.
The traditional engine of the Canadian economy — the commodities industry — has been weakened, leading to more interventionist government, lower interest rates, a cheaper currency and a speculative housing market. More Canadians are working multiple jobs; highpaying jobs are harder to find and employment gains are concentrated in the public sector.
As the bank’s latest report makes clear, job vacancy rates have not changed significantly since early 2015 — and they have decreased in the energy-producing provinces.
By contrast, the U.S. is close to full employment and wages are increasing at a solid clip. Usually, when the U.S. finds itself close to record job openings and record low layoff rates, there is a spillover effect in Canada. But this is not usually. The bank says it expects the uncertainty over U.S. trade policy to weigh on the export outlook.
Without more sales abroad, there is unlikely to be the increased capital expenditure by businesses needed to balance the expected decline in consumption and housing growth.
As Poloz pointed out last week, the price of a house can go down as well as up.
Much the same could be said of political fortunes.
These are volatile, dangerous times — as the song says, one minute you’re dazzled by the beauty of it all; the next you’re waiting for the sky to fall.