U.S. Consumer Problems are Spreading to Canada
The U.S. consumer is being plagued by falling house prices, the high cost of gasoline and tighter credit. All of these problems, although to a lesser degree, are spreading to Canada. For example, the Canadian Real Estate Association has announced that the average sales price of existing homes in Canada dropped by 0.4% in June 2008 versus June 2007. And the Bank of Canada, in its monetary statement of July 15th, announced a lowering of its expectation of "real" (i.e., inflation-adjusted) GDP growth to only 1.0% in 2008.

Total job growth (+1.8%) in June 2008 in Canada remained solid on a year-over-year basis, but not spectacular. There are some worrying trends behind the overall number. Part-time employment (+4.9%) has shot up, while full-time employment (+1.1%) has dropped to its lowest level in many years. Part-time work provides consumers with neither the same stability nor higher pay that usually comes with full-time employment.

Similarly, it is clear from the second graph below, that the private sector (+1.0%) is gradually reining in employment growth. Much of the recent increase in overall job growth has come from the public sector. Only in the last four months, has government given an indication that it is starting to rethink its hiring plans as well. By the way, there are about four private sector jobs in the economy for every one public sector job.

Wage Gains (+4.4%) are Outpacing Inflation

Finally, average hourly wages in Canada were +4.4% year over year in June. This was a slight moderation from their peak level of nearly 5.0% at the start of this year, but the figure has been above 4.0% for almost a year now. The gain in wages is exceeding the current rate of increase of the Consumer Price Index (+2.2%). It is part of the reason that the Bank of Canada is expecting inflation to reach 4.0% by early 2009. Also, rising wages in a slowing economy will squeeze profit levels.