Half of all job losses that occurred in Canada, happened in BC

Perhaps one of the most chilling statistics for the real estate industry came out late this past week.

Many in the real estate industry have comforted themselves lately by saying prices in Vancouver aren't going to fall significantly. They rationalize prices will just stabilize or maybe they will drop a bit.

One thing R/E people insist is that prices in our little Village on the Edge of the Rainforest will not crash. They insist "you won’t see a crash here in Vancouver unless there economy takes a sudden turn for the worse."

Well Stats Can just announced that BC lost half of all the jobs lost in Canada last month.

Statistics Canada says of the 30,400 jobs that disappeared across Canada, 14,500 were in B.C., pushing up the provincial jobless rate four-tenths of a point to an even seven per cent in July.

And the bottom line is that people who don't have jobs... they don't buy houses.

Things get more interesting with each passing day.

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Disconnect

The Village on the Edge of the Rainforest is the poster child amongst Canadian cities for disconnect.

The most poignant example can be seen from the corner of Hastings and Main. Looking north, towards the homes nestled on the side of Grouse Mountain, you gaze upon Canada's wealthiest postal code.

It's about a 15 minute drive (at nighttime) from where you are standing. And where you are standing is at the heart of Canada's poorest postal code.

Joining that chasm is the stunning disjoint between Real Estate values and our economy.

Beyond all expectations, Vancouver’s housing market is hitting record sales activities and prices late in 2009.

Against that backdrop Statistics Canada released its labour report for October and advised that the nation lost 43,000 jobs.

This clawed back most of the increases in employment that occurred in August (+27,000) and September (+31,000).

Nationally this serious round of recessionary job cuts began a year ago, in October 2008, much later than in most other countries. So far the total number of job losses has added up to 400,000. Slightly more than half of those have come in manufacturing.

In B.C. the bloodletting continues. Another 13,000 jobs vanished last month and most were in manufacturing, education and the trades. The Wet Coast jobless rate now jumps to 8.3% from 7.4% and clearly shows our province is still in grip of the recession.

There are three stages of employment declines undertaken by firms in an economic downturn: 1) initial panic layoffs; 2) “hanging on for dear life” layoffs; and 3) re-positioning for the future layoffs. The final stage is what will predominate for the next several months.

And after February that 'repositioning' will intensify as job losses shoot up when all those people who are working for, and around, VANOC are devoid of a raison d'etre.

But our housing market chugs on as if incomes were being fueled by boom times. Normally Real estate is closely tied to the labour markets, incomes, lending/rates, credit, supply/demand, confidence, etc - but the closest tie is always with the economy and labour markets.

But that tie, in Lotusland, has been severed.

Stimulus and government agencies are allowing people without money to buy homes. CMHC has removed the risk from lenders so that mortgages are available to those who, in other times, wouldn't get them. And the bubble builds ever so dangerously higher.

How long can that disconnect continue? Even the most ardent Real Estate bulls are starting to speak out. Yesterday it was BCREA's Cameron Muir who admits we will have "the slowest recovery we’ve ever seen coming out of a recession."

And it was Muir who said it best; "it's irrational exuberance and it cannot last."

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Vancouver: North America's most bubbly city?

Mark my words, dear reader. The dog days of summer, 2009 will go down in history as the pinacle of our housing folly.

In the same week that we find out that July broke all time sales records for real estate in the Village on the Edge of the Rainforest, Stats Can informs us that the July job loss number were five times worse that most analysts were predicting as 45,000 net workers were officially pushed to pogey.

The unemployment rate stayed steady at an 11-year high of 8.6%, but that's only because discouraged unemployed people, mainly youth, gave up searching for a job.

“[It's a] classic sign of discouraged workers throwing in the towel,” said Douglas Porter, deputy chief economist at BMO Nesbitt Burns.

An economy can still grow if employment stagnates. But an economy can't muster growth if jobs are being destroyed. The all-important consumer spending power will never jump start things under these conditions.

As we predicted several months ago, tourism jobs have been hit hard given the recession in the U.S. and Canada, border issues, fall-like weather in July in most of the country, and the high cost associated with the Canadian dollar.

But it's the private sector that is taking the heaviest blow. Employment fell by 75,000 positions, bringing total job losses since last October to 436,000.

July's private-sector losses were the worst since the record-breaking decline in January. A 35,000 rise in self-employment partially offset the drop, but economists tend to be leery about self-employment numbers in the depths of a recession because self-employment is often a last resort.

The self-employment gain “is not necessarily a good thing as it underscores the lack of opportunity in the formal job market,” said Charmaine Buskas, senior economics strategist at TD Securities Inc. “And as workers have fewer job prospects and bargaining power, wages have obviously suffered.”

Since October, the work force has contracted by 2.4%, all in full-time work. Most of the losses have been in manufacturing, construction, transportation and warehousing.

And yet, in the Village on the Edge of the Rainforest, we have a huge wave of first time homebuyers entering into bidding wars for real estate. They are assuming mortgages with record low downpayments and 35-year amortizations only because they can take advantage of dirt cheap, manipulated mortgage rates.

35-year amortizations on mortgages where only 5% is used as a downpayment (which is pretty much the norm with all new buyers)mean that the principal is barely touched with monthly payments

If housing prices drop by as little as 8%, anyone of these new home buyers who have bought in 2009 could end up in an underwater position - just like that.

And with a worsening job picture, a private sector being decimated by the economy, a federal finance minister who warns the country to "prepare for even more job losses", it all adds up to a precarious position where all it will take is a little push for our bubble to burst in a spectacular fashion.

Sound crazy? Well how's this for a sign of the crazy times? BCTV (or Global), the undisputed king of private broadcasting in BC, just reported that it's parent company defaulted on an $18.5 million US interest payment to bondholders.

This in not an environment that can support a rising real estate market.

Spectacular fashion... mark my words.

(P.S. For those keeping track there were three bank failures in the United States today bringing the year's total to 72)

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April Job Loss Numbers

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So did you catch April's job numbers from Stats Can?

After most economists and observers were predicting another 53,000 jobs lost, Stats Can reported the following stunning job GAINS!

"Employment grew by 36,000 in April, the result of an increase in self-employment. Despite this increase, overall employment has fallen by 321,000 since the peak in October 2008. The unemployment rate was unchanged at 8.0% in April, remaining at its highest level in seven years, with the growth in employment coinciding with an increase in the labour force."

On the strength of this news the TSX jumped over 270 points and the Canadian dollar surged ahead over a cent and a half.

What great news for the economy, right?

Well... not so fast. You know how all those statistical survey's say they are accurate to within 2 or 3 points four out of five times? And the fifth time they are way, way off?

Whisperer will bet you that this is one of those surveys: way, way off.

Here's why.

First of all, everyone - and I mean everyone - was floored by these results. Secondly, things get awfuly fishy when you examine those results a little closer.

"Statistics Canada said 35,900 positions were added during the month, driven by an increase in self-employment... The biggest employment gains were in Quebec, up 22,000, and British Columbia, up 17,000."

17,000 jobs gained in British Columbia??? BC, the province which has been recording closure after closure, gained 17,000 jobs? What manner of new math is this?

"Quebec's employment increase of 22,000 in April was accompanied by a slight rise in the unemployment rate to 8.4%, the result of more people in the labour force. Since last October, employment in Quebec has declined 0.8%, less than the 1.9% drop at the national level."

"In British Columbia, employment rose by 17,000 in April. The unemployment rate remained at 7.4%, as there were more people in the labour force. Despite April's gains, employment has declined by 52,000 (-2.2%) since October 2008."

Wait a minute and hold the phone, here! Quebec's unemployment rate went up? BC's rate of unemployment did not change? So how is there an increase in jobs???

Explore the data a little further and you discover that most of the jobs were 'created' in the self employed sector, 9 out of 10 jobs created. And the people that filled these jobs were phantom workers (those workers who were previously not counted as unemployed).

And how do they get these numbers? Well, on page 53 of the report it says, "the statistics contained in this report are based on information obtained through a sample survey of 53,000 representative households across the country."

So they phoned up 53,000 homes (presumeably 5,000 in BC and 5,000 in Quebec) and they find that the same number of people are out of work in BC and more people are out of work in Quebec than last month... but 36,000 jobs were gained across the country because a whole bunch of people said they were now working for themselves at home.

Marvelous.

And what are they doing? Collecting pop cans for the deposit?

Trade is still down -23% year over year (YOY). Manufacturing is doing better, but it is still down -6% YOY and only comprises 7% of the employment. If you look at Table 6-1, page 50, both employment participation and employment rates are down for the lower mainland.

And the same number of people who were unemployed in BC in March are still unemployed. And in Quebec, even more people are unemployed. Yet the 36,000 job gain came from these two provinces.

Marvelous.

Clearly this is that 1/5 survey that is skewed and non-representative of reality.

Funny how it comes at a time when politicians are desperate to nuture and protect what they see are precious 'green shoots' of improvement in the economy.

And the 15-second soundbyte on the news is all it takes for the market to zoom upward.

Now you know why markets collapse they way they do, months down the road, when investors suddenly 'discover' stock gains aren't really based on sound fundamentals after all.

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Email: village_whisperer@live.ca