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Inside Ground Zero Of Canada’s Recession
Inside Ground Zero Of Canada’s Recession
In the past year, we have extensively profiled the collapse of ground zero of Canada’s oil industry as a result of the plunge in the price of oil, in posts such as the following:
- “Canada Crude Contagion: Calgary Home Prices Drop Most In 2 Years“
- “Canada’s Biggest Oil Casualty To Date: Calgary’s Nexen Shutters Oil Trading Desk“
- “The Canadian Housing Bubble Has Begun To Burst“
- “Canada’s Oil Patch Confidence Crashes“
- “Canada Mauled by Oil Bust, Job Losses Pile Up – Housing Bubble, Banks at Risk“
- “The Stage Is Set For A Massive Housing Market Correction in Canada’s Oilpatch“
Since then it has gotten far, far worse for Canada. In fact, as of September 1 it culminated with the first official recession in 7 years.
And it’s only downhill from there. As Mark Thornton of the Mises Institute points out, in a report from the Financial Post shows that Calgary in Alberta Canada now has 1.7 million square feet of empty office space, the most in North America with another 5.2 million under construction! After years of booming construction, the natural resource rich country is starting to feel the pinch. To wit:
The number of half-empty office buildings in Alberta is projected to spike, as Colliers International predicts an “ill-timed” building boom should push up vacancy rates in Calgary and Edmonton. In a report released Tuesday, the real-estate brokerage’s chief economist Andrew Nelson said, “the fall in oil prices has had a negative impact on the energy-reliant markets (in Western Canada),” which has contributed to rising vacancy rates and falling rental prices in Alberta’s two largest cities.Vacancy rates jumped over the course of the second quarter. In Calgary’s case, Colliers reported the downtown vacancy rate rose to 13 per cent from 10 per cent, while Edmonton’s vacancy rate increased to 11.2 per cent from 10.6 per cent.
…click on the above link to read the rest of the article…
What’s Coming Unglued Now in Canada?
What’s Coming Unglued Now in Canada?
Canada lumbered through the first half of 2015 in a “technical recession,” Statistics Canada confirmed this week, as GDP shrank in both quarters. Among the culprits: the swooning energy sector and an investment slump.
Now everybody is lining up behind the hope that a sudden acceleration will put the economy back on track in the third quarter, despite oil that has re-crashed and despite the ongoing collapse – and that’s what it is – of the all-important energy sector.
To get to this acceleration, the once booming residential and commercial construction sectors have to hold up, or else Canada’s economy is in real trouble. Alas….
“Canada is also in the midst of an ill-timed supply surge that caused vacancy rates to rise even in markets with positive absorption” in the second quarter, warns a new report by commercial real estate firm Colliers International cited by the Financial Post. It paints a picture of an epic office boom turned into an even more epic office glut, particularly in Calgary and Edmonton, Alberta, the epicenter of Canada’s oil patch.
This office glut comes on top of Calgary’s housing meltdown. For the first eight months, total home sales in Calgary plunged 25%, according to the Calgary Real Estate Board. Condo sales collapsed 39% in August and 30% year-to-date. Inventory sits a lot longer on the market before it sells, if it sells. And pressures are building on prices: the average condo price was down over 10% in August from a year ago.
Commercial real estate is heading in a similar direction. Only worse. Calgary was a boom town. Office towers have been sprouting like mushrooms. In recent years, commercial real estate costs downtown were “going through the roof” and “accelerating at a pace far beyond the Canadian average,” Calgary Chamber of Commerce director of policy and research Justin Smith told the Financial Post. But it takes years to plan and build office towers, and now no one can just turn off the flow.
…click on the above link to read the rest of the article…
Three Worrying Economic Trends Beyond Canada’s GDP Drop
Three Worrying Economic Trends Beyond Canada’s GDP Drop
New data confirms what 79 per cent of Canadians already felt.
The much anticipated quarterly GDP numbers are out, and StatsCan confirmed what 79 per cent of Canadians already felt to be the case — Canada’s economy is in decline. A drop in economic activity of 0.1 per cent in the second quarter of 2015 officially tipped Canada in recession territory (after a drop of 0.2 per cent in the first quarter).
The dip in GDP is what’s making the headlines this week, but there are three other trends in the new data released by StatsCan that suggest the economic slowdown is here to stay. Indeed, as my colleague David Macdonald noted here, “recession is just the tip of Canada’s economic iceberg.”
1. Business investment is down for the third consecutive quarter
This decline comes on the heels of a long post-recession period of weak business investment since early 2012. You may remember the former governor of the Bank of Canada, Mark Carney, famously accusing companies of sitting on piles of“dead money” in the summer of 2012. A quick look at the statistics shows little has changed since.
Business investment in non-residential structures and machinery and equipment from 2010 to 2015, via StatsCan.
The problem is that without business investment, we can expect weaker job growth and a slower economy to continue.
The Bank of Canada cut its interest rate in January 2015 in an attempt to to encourage investment and boost the economy. Unfortunately, all this seems to have done is further distort real estate markets, particularly in places like Vancouver where housing affordability is reaching record lows.
2. A number of key economic sectors are in decline, not just oil and gas
Over the last decade, Canada’s economy has become overly reliant on mining and oil exports. It’s not surprising that when the price of oil and minerals drops sharply, as it has over the last year, our resource sector would be hit hard. But the economic decline extends beyond mining, oil and gas.
…click on the above link to read the rest of the article…
Friday job numbers may tell tales GDP missed: Don Pittis
Stats could show if slump is over and whether there is a rebound outside the oil industry
Opponents in the battle over whether the Canadian economy is collapsing or clawing its way back to recovery will get more ammunition on Friday. That’s when we learn the latest figures on job creation and unemployment.
Statistics Canada’s GDP data that we got earlier in the week is useful, but in several ways, the labour force survey is even better.
“I’d personally put more weight on labour market figures than the GDP,” says Mike Veall, professor of economics at McMaster University. Veall’s specialty is econometrics, reading economics through math and statistics.
Two months late
One of the problems with gross domestic product is that it’s not a simple figure, he says. It is more of a statistical construct estimating the total activity of the entire Canadian economy.
The owner of a Nova Scotia roofing company says he is finally getting his choice of good employees as workers return from Alberta. He says returning oil patch workers have been well trained in safety. (CBC)
One result of that lack of simplicity is a lengthy delay getting a reading of the data. Another is month-to-month inaccuracy.
The long and technical process of gathering all the components that go into creating those GDP calculations takes time. That means we don’t get a reading on each month’s economic growth until months after it happened.
Even then, new data can alter the calculations, resulting in revised figures. This week, for example, Statistics Canada told us the economy had actually shrunk by 0.8 per cent in the first three months of the year after previously telling us it had shrunk only 0.6 per cent.
“The main advantage of jobs numbers is their currency,” says Veall. “They’re more up to date.”
…click on the above link to read the rest of the article…
Recession confirmed as Canada’s GDP shrank in 2nd quarter
Recession confirmed as Canada’s GDP shrank in 2nd quarter
Canada’s economy expanded in June but declined by 0.1 per cent for the second quarter as a whole, meeting the bar of what is legally defined as a recession.
The economy expanded by 0.5 per cent in June, Statistics Canada said.
But that slight monthly uptick wasn’t enough to offset the contraction in the previous two months, which means for the second quarter as a whole, the economy shrank.
- Recession? Knowing if we’re in one matters: Don Pittis
- Alberta has lost 35,000 oilpatch jobs, petroleum producers say
- How a recession would shake up the election campaign
The economy also shrank in the first quarter, which means Canada’s economy has met the bare minimum required before a recession is declared — two consecutive quarters of decline.
On an annualized basis, the economy shrank by 0.5 per cent in the April-to-June period, after contracting at an 0.8-per-cent annual pace in the first three months of 2015. For comparison purposes, the U.S. economy expanded by 3.7 per cent during the same period, the data agency noted.
The ‘R’ word
Statistics Canada’s gross domestic product figures released today show the economy expanded in June, but declined by 0.1 per cent for the second quarter, meeting the bar of what is considered a recession. (Jacques Boissinot/Canadian Press)
The numbers bring an end to what had been a contentious issue during the current federal election campaign.
While most economists would agree that a recession is a more complex beast than merely pegging it to two quarters of negative growth, most agree it’s as good a place to start as any.
Indeed, the federal government’s recent legislation on balanced budgets defines a recession as “a period of at least two consecutive quarters of negative growth in real gross domestic product for Canada, as reported by Statistics Canada.”
…click on the above link to read the rest of the article…
Biggest Crash In South Korea Exports Since 2009 Confirms Global Trade In Freefall
Biggest Crash In South Korea Exports Since 2009 Confirms Global Trade In Freefall
While the market’s attention overnight was focused on China’s crumbling manufacturing and service PMI, data which was already hinted in the flash PMI reports earlier in August, the real stunner came not from China but from South Korea, which last night reported an unprecedented 14.7% collapse in exports, far worse than the -5.9% consensus estimate, and more than 4 times worse than July’s 3.4%.
The number is critical because not only do exports account for about half of South Korea’s GDP (with Samusng alone anecdotally accountable for 20% of the country’s GDP), but because it also happens to be the first major exporting country to report monthly trade data. That makes it the perfect barometer of global trade flows, or as the case may be, the canary in the global trade coalmine. It also confirms what we reported just one week ago when we said that “Global Trade Is In Freefall“.
The carnage in Korean trade is unmistakable in the following Barclays chart:
Putting South Korea plunging trade in context, this was the worst monthly decline since August 2009, and was coupled by an 18.3% tumble in imports, the biggest drop since February. Worse, South Korea may soon run into a true Black Swan: a trade deficit: in August, the country’s trade surplus tightened to just $4.3 billion, one third worse than tha $6.1 billion expected, and nearly less tthan half the $7.7 billion surplus in July, suggesting South Korea may be forced to dip into its reserves next, or finally engage in what many have said is long overdue: the next Asian currency devaluation as China’s FX war spills over to what may be the most important harbinger of global trade.
…click on the above link to read the rest of the article…
Macau’s Economy Blows Up
Macau’s Economy Blows Up
China’s crackdown on corruption, or at least the ostentatious display of the spoils of corruption, and its selective hunt for corrupt officials, which to some observers resembles a political purge, may or may not tamp down on actual corruption, which is what greases the wheels in the Chinese economy. But it’s certainly doing a number on Macau.
Macau is the only place in China where Chinese can legally gamble away their wealth without having to resort to the stock market or other schemes. It’s also a convenient place where they can circumvent China’s currency controls to siphon money out of China and send it to “safe havens,” such as over-priced homes in the most expensive trophy cities in the US near the peak of US Housing Bubble 2.
Until February 2014, Macau was on an awesome ride that had kicked off in 2001, when it permitted foreign casino operators to build gambling palaces. In 2002, Macau became the number one gambling destination in the world. Even during the Financial-Crisis, Macau’s gaming revenues rose nearly 10%. These endlessly soaring revenues were a thermometer into China’s economic boom.
So in its crackdown on corruption, China is hitting Macau in both departments: scaring high-rollers away and monkey-wrenching its capital-controls evasion machinery. And this year, Macau has taken a third blow: the deteriorating economy in mainland China.
As a result, Macau’s real GDP plunged 24.5% in the first quarter year-over-year and then went ahead and plunged an even more terrible 26.4% in the second quarter, to 77.5 billion Macau patacas ($9.7 billion), the lowest level since early 2011.
The Statistics and Census Service (DSEC) in its report today blamed “exports of gaming services,” as it calls gambling revenues that had plunged 40.5% year over year, and “exports of other tourism services,” which had plunged 21.5%. “Total exports of services” crashed by 35.9%.
…click on the above link to read the rest of the article…
It Gets Even Uglier In Canada
It Gets Even Uglier In Canada
The Province of Alberta, the epicenter of the Canadian oil bust, may be sliding into something much worse than a plain-vanilla recession. And it’s not exactly perking up the rest of Canada.
Layoffs are already cascading through the oil patch, as companies are retrenching and adjusting to the new reality. New vehicle sales are plummeting. And home sales are taking a broadside.
In August so far, total home sales in Calgary plunged 28% from a year ago, on flat prices. Condo sales collapsed 39%, with the median price down 8%, according to theCalgary Real Estate Board. Year-to-date, total home sales in Calgary are down 25%; condo sales 30%. And those condos that did sell spent 30% longer on the market than condos did a year ago, as sellers hang on by their fingernails to the illusion of wealth, and sales are stalling.
And the Business Barometer Index for all of Canada, which measures the optimism among small businesses, dropped again in August for the third month in a row. An index level between 65 and 70 indicates that the economy is growing at its potential. But now it hit 56.7, the lowest level since April 2009.
The Canadian Federation of Independent Business, which produces the index, blamed the commodity bust but added additional sectors, particularly those that are considered absolutely crucial for the hopefully coming economic recovery in the second half: construction, transportation, and retail.
The index dropped in 7 of 10 provinces, even in British Columbia, which was weighed down by “domestic conditions, coupled with weakening economic prospects in Asia.”
And that feverishly expected rebound of GDP in the second half from recessionary levels in the first half? Small business owners don’t see it. What they see is a continued downturn.
But it’s in Alberta where small business optimism has totally crashed. The Index dropped 3.5 points in August to 40.4, the worst level since March 2009, and just one such step above the historic low of 37, of February 2009, the very bottom of the Financial Crisis.
…click on the above link to read the rest of the article…
China Entering Ugly Recession, Not Just a “Hard Landing?”
China Entering Ugly Recession, Not Just a “Hard Landing?”
A “hard landing” would be tough for China. But it would still mean economic growth, if very slow growth by Chinese standards. At worst, it would mean stagnation. But now, evidence is piling up that the economy is actually shrinking.
There is practically universal agreement outside official Chinese reporting that the economy hasn’t been growing at anything near the official and for most countries awesome rate of 7% in the last two quarters.
In the US, we don’t know what our quarterly GDP growth is either. We get the first estimate, which may be negative, and then the second estimate, which may be worse. Then the third estimate may suddenly be positive, by which time people stopped paying attention. GDP continues to be revised years later. It’s tough to measure a big economy.
But China doesn’t even revise its GDP growth number. It comes out shortly after the quarter ends and stands as rock-solid as the Communist Party itself. And it always matches or exceeds the decreed target.
Hence no one believes it.
Yang Jian, managing editor of Automotive News China, who has been fretting about plunging auto sales, put it this way:
[E]ven some Chinese government officials remain wary of the reliability of economic data released by the National Bureau of Statistics.
Li Keqiang, now Chinese premier, was one of them. When he was head of the local communist party in northeast China’s Liaoning province ten years ago, he invented his own method of gauging the national economy’s performance by relying on three variables government statisticians cannot easily inflate – electricity consumption, rail cargo volume, and bank lending.
Li’s economic model has been widely adopted by researchers these days. In the first half of the year, except for bank lending, electricity consumption and rail car volumes across China both declined….
So how bad is the economy?
…click on the above link to read the rest of the article…
That 70s show – episode 4
We have shown in the previous three episodes (episode 1, 2 and 3) how the US economy structurally changed after Nixon took the US off gold, letting the Federal Reserve do what it does best. Obviously, with the “hard” anchor of the US dollar cut loose, the rest followed suit. It is telling that the so-called post-Bretton Wood “gold standard” of all currencies, the Deutsche mark lost 65 per cent of its purchasing power from 1971 to 1990.
Also note that the French, with its inferior Franc lost 84 per cent of its purchasing power over the same, time hated the Germans for it. As a “victorious” nation of the Second World War, the French had a right to veto German unification, and would only agree to re-merge east and west if the Germans would give up their coveted mark and join the euro.
But we digress, in the this episode we will focus on debt levels within the context of unrestrained central banking.
Throughout history the US economy used to be leveraged, on average, 1.5 times GDP; total credit market debt fluctuated more or less within a tight range of maximum one standard deviation from its long term mean. Prior to 1971 the only time debt levels really got out of hand was during the Great Depression on back of a 45 per cent decline in nominal GDP. Total outstanding debt, in dollar terms actually fell by 12 per cent over the same time span.
So, the US economy was leveraged 1.5 times its annual output from 1840 to 1971 before fundamentally changing its trajectory. Needless to say, this low debt period was also when the US economy became the world’s largest and most sophisticated (see here) and ultimately a global hegemon.
Source: History of the United States from Colonial times to 1970, Federal Reserve, Bureau of Economic Analysis, Bawerk.net
…click on the above link to read the rest of the article…
New Vehicle Sales Collapse in Canada’s Oil Patch
New Vehicle Sales Collapse in Canada’s Oil Patch
Oil spills into the broader economy.
Canada’s economy has split in two. The resource producing economy is deteriorating at a breath-taking pace, broadsided by collapsing commodity prices. For Canada, the most important commodity is crude oil.
West Texas Intermediate has plunged below $39 a barrel, not seen since the Financial Crisis, and Western Canadian Select to a catastrophic $25 (C$33.32) a barrel. Canadian tar-sands producers are particularly hard hit; they’re the globe’s high-cost producers. And the epicenter of this activity is the province of Alberta.
Then there’s the rest of the economy, which is trying not to wobble too visibly as its foundation is breaking up. It is very likely that Canada is in a “technical recession” – defined as two quarters of negative GDP growth. The first five months already outlined a shrinking economy, dragged down not only by the resource sector but also by other weak links [read… It Gets Ugly in Canada].
Now everyone is waiting for the June GDP numbers to be released. Canada is heading into a general election this fall, and the economy is front and center.
But new vehicles sales are still hanging in there. As in the US, the industry is powered by cheap and easy credit. It’s enabled by a frazzled Bank of Canada that keeps lowering the rates. Subprime customers are being aggressively courted by banks and alternative lenders that lust for the easy profits to be made on folks who think they don’t have a choice. And Wall Street makes a bundle repackaging these subprime auto loans into highly rated structured securities.
So new vehicles sales rose 0.4% in July from a strong July 2014, to 177,844 units, setting a new monthly record, for the seventh month in a row, according to the Canadian Auto Dealer. July sales were 14.8% above the past-five-year average. Year-to-date, sales rose by 2.4% over last year.
…click on the above link to read the rest of the article…
China Is Pushing On A String Ensemble
China Is Pushing On A String Ensemble
Look, it’s very clear where I stand on China; I’ve written a lot about it. And not just recently. Nicole Foss, who fully shares my views on the topic, reminded me the other day of a piece I wrote in July 2012, named Meet China’s New Leader : Pon Zi. China has been a giant lying debt bubble for years. Much if not most of its growth ‘miracle’ was nothing but a huge credit expansion, with an outsize role for the shadow banking system.
A lot of this has remained underreported in western media, probably because its reporters were afraid, for one reason or another, to shatter the global illusion that the western financial fiasco could be saved from utter mayhem by a country producing largely trinkets. Even today I read a Bloomberg article that claims China’s Q1 GDP growth was 7%. You’re not helping, boys, other than to keep a dream alive that has long been exposed as false.
China’s stock markets have a long way to fall further yet. This little graph from the FT shows why. The Shanghai Composite closed down another 1.27% today at 2,927.29 points. If it ‘only’ returns to its -early- 2014 levels, it has another 30% or so to go to the downside. If inflation correction is applied, it may fall to 1,000 points, for a 60% or so ‘correction’. If we move back 10 or 20 years, well, you get the picture.
…click on the above link to read the rest of the article…
Why the Bear of 2015 Is Different from the Bear of 2008
Why the Bear of 2015 Is Different from the Bear of 2008
Are there any conditions now that are actually better than those of 2008?
It’s tempting to see similarities in last week’s global stock market mini-crash and the monumental meltdown that almost took down the Global Financial System in 2008-2009. The dizzying drop invites comparison to the last Bear Market that took the S&P 500 from 1,565 in October 2007 to 667 on March 9, 2009.
1. Then: Markets and central banks feared inflation, as WTIC oil had hit $133 per barrel in the summer of 2008.But this Bear is beginning in circumstances quite different from 2007-08. Let’s list a few of the differences:
Now: As oil tests the $40/barrel level, markets and central banks fear deflation.
2. Then: China had a relatively modest $7 trillion in total debt, considerably less than 100% of GDP.
now: China’s debt has quadrupled from $7 trillion in 2007 to $28 trillion as of mid-2014, an astonishing 282% of gross domestic product (GDP)
3. Then: Central banks had a full toolbox of unprecedented monetary surprises to unleash on the market: TARP, TARF, BARF (OK, that one is made up) rescue packages and credit guarantees, quantitative easing (QE), zero interest rate policy (ZIRP) and direct purchases of mortgages, to name just the top few.
Now: The central bank toolbox is empty: every tool has already been deployed on an unprecedented scale. Every potential new program is simply a retread of QE, yield curve bending, asset purchases, etc.–the same old bag of tricks.
4. Then: Central banks had a relatively clean slate to work with. Interventions in the market and economy were limited to suppressing interest rates in the post-dot-com meltdown era.
Now: Central banks have never stopped intervening since 2008. The market is in effect a reflection of 6+ years of unprecedented central bank interventions. Rather than a clean slate, central banks face a global marketplace that is dominated by incentives to speculate with leveraged/borrowed money established by 6 years of central bank policies.
…click on the above link to read the rest of the article…
Krugman’s Dopey Diatribe Deifying The Public Debt
Krugman’s Dopey Diatribe Deifying The Public Debt
Actually, dopey does not even begin to describe Paul Krugman’s latest spot of tommyrot. But least it appear that the good professor is being caricaturized, here are his own words. In a world drowning in government debt what we desperately need, by golly, is more of the same:
That is, there’s a reasonable argument to be made that part of what ails the world economy right now is that governments aren’t deep enough in debt.
Yes, indeed. There is currently about $60 trillion of public debt outstanding on a worldwide basis compared to less than $20 trillion at the turn of the century. But somehow this isn’t enough, even though the gain in public debt——-from the US to Europe, Japan, China, Brazil and the rest of the debt saturated EM world—–actually exceeds the $35 billion growth of global GDP during the last 15 years.
But rather than explain why economic growth in most of the world is slowing to a crawl despite this unprecedented eruption of public debt, Krugman chose to smack down one of his patented strawmen. Noting that Rand Paul had lamented that 1835 was the last time the US was “debt free”, the Nobel prize winner offered up a big fat non sequitir:
Wags quickly noted that the U.S. economy has, on the whole, done pretty well these past 180 years, suggesting that having the government owe the private sector money might not be all that bad a thing. The British government, by the way, has been in debt for more than three centuries, an era spanning the Industrial Revolution, victory over Napoleon, and more.
Neither Rand Paul nor any other fiscal conservative ever said that public debt per se would freeze economic growth or technological progress hard in the horse and boggy age. The question is one of degree and of whether at today’s unprecedented public debt levels we get economic growth—–even at a tepid rate—–in spite of rather than because of soaring government debt.
…click on the above link to read the rest of the article…
The Federal Reserve – Which CREATED Quantitative Easing – Admits QE Doesn’t Work
The Federal Reserve – Which CREATED Quantitative Easing – Admits QE Doesn’t Work
Even the Fed Admits QE Doesn’t Work
The Vice President of the Federal Reserve Bank of St Louis (Stephen Williamson) writes in a new Fed white paper (as explained by Zero Hedge):
- The theory behind Quantitative Easing (QE) is “not well-developed”
- The evidence in support of Ben Bernanke’s views on the transmission mechanisms whereby asset purchases affect outcomes are “mixed at best”
- “All of [the] research is problematic,” Williamson continues, as “there is no way to determine whether asset prices move in response to a QE announcement simply because of a signalling effect, whereby QE matters not because of the direct effects of the asset swaps, but because it provides information about future central bank actions with respect to the policy interest rate.” In other words, it could be that the market is just reading QE as a signal that rates will stay lower for longer and that read is what drives market behavior, not the actual bond purchases.
- “There is no work, to my knowledge, that establishes a link from QE to the ultimate goals of the Fed inflation and real economic activity. Indeed, casual evidence suggests that QE has been ineffective in increasing inflation. [Background.] For example, in spite of massive central bank asset purchases in the U.S., the Fed is currently falling short of its 2% inflation target. Further, Switzerland and Japan, which have balance sheets that are much larger than that of the U.S., relative to GDP, have been experiencing very low inflation or deflation.”
…click on the above link to read the rest of the article…
