Welcome to Mind Your Business ! Consider this your weekly guide to understanding what’s happening in the worlds of economics, business and finance. By Peter Armstrong | | |  | It may feel like the weight of the world is on your shoulders as the economy slows its way into a potential recession. (Lightspring/Shutterstock) | | | Every now and then, the data releases line up perfectly.
This is one of those weeks. We’ll get an interest rate decision out of the Bank of Canada. But the bank will also release its Monetary Policy Report. It’s a deep dive into the state of the economy and forecasts looking ahead.
We’ll get a look at how Canadian housing numbers are holding up as interest rates and pessimism both increase.
And in the United States, we’ll get the latest CPI numbers mapping the increase everyone is seeing in prices.
It’s like Super Bowl week for economic data nerds. (Well, technically, I think that’s the week of the federal budget, but you get my meaning.)
So, what do we need to know before this deluge of data arrives?
We’ve talked a lot about the state of the economy. But allow me to remind you: it’s doing really well right now. I wrote a piece last week saying jobs numbers are great, the economy is expanding and yet everyone is talking about a potential recession.
On Friday, Canadian jobs numbers showed the unemployment rate fall yet again (to 4.9 per cent!) even while the economy shed 43,000 jobs. | | |  | | | The jobs report was a mixed bag. A surprising number of jobs were lost. But the participation rate is holding fairly steady, wages are rising (5.2 per cent!) and total hours worked is up, too.
Still, the forecasts for a recession next year are growing.
“When you’re at the top of the hill, the only way to go is down,” wrote RBC economists Nathan Janzen and Claire Fan.
“Canada’s economic growth has fired on all cylinders following pandemic shutdowns. But a historic labour squeeze, soaring food and energy prices and rising interest rates are now closing in. Those pressures will likely push the economy into a moderate contraction in 2023.”
So, RBC is telling us a recession is in the cards. But Janzen and Fan say it will be “moderate” and short-lived. But a recession is a recession, and it will be painful.
One key thing driving economic growth through these last two and a half years has been a rather indomitable Canadian consumer. Households spent and spent, even at the worst moments of the COVID-19 catastrophe.
One thing we spent a ton of money on was real estate. People who lived in condos bought houses so they could hunker down through the restrictions. Others bought bigger houses or moved to the suburbs with more space and a pool. Sales of recreational homes like cottages (or cabins or camps, depending on where you live) went through the roof.
As home values increased, homeowners felt richer, so they spent more. We’ll get the latest update on this chart on Friday, but by all indications, sales volumes have plummeted and in big cities like Toronto, home prices have fallen 14 per cent from their (admittedly quite crazy) peak in March. | | |  | | | Janzen and Fan say home prices will fall 10 per cent over the next year, which they calculate will subtract more than $800 billion from household net worth.
“That would only partially retrace the $2.4 trillion surge in real estate equity since 2019. Still, it will leave Canadians feeling 'less wealthy,' prompting them to spend less in the housing market and elsewhere.”
Even a 10 per cent fall in real estate prices would only drag us back to the middle of 2021, so it won’t do much to address affordability, but it will make people feel worse and less likely to spend.
And that's the concern here. Inflation is eating into our purchasing power. Higher interest rates are making things even more expensive, and the cooling of the economy will make people even more pessimistic about the state of things.
As we've discussed at length, consumer confidence can very quickly amplify a potential downturn. If people get really pessimistic, they can turn a short, moderate recession into something much worse. | | |  | | The Bank of Canada will release its latest interest rate decision on Wednesday. Economists believe it will be a 0.5 per cent hike, but there's a very real shot that the bank pushes ahead with something more aggressive. | | | | | | Rising interest rates are hitting every aspect of the economy, but we'll be watching the real estate sector this week. The Canadian Real Estate Association will release its monthly sales figures for June on Friday. | | | | | | On Wednesday, we will get a look at surging inflation numbers in the United States. Prices are already at a multi-decade high, with no sign of slowing. | | | | | Three things to read, watch and listen to this week | | |  | Minions: The Rise of Gru is drawing unusual crowds to movie theatres. (Illumination Entertainment/Universal Pictures/The Associated Press) | | | 1. Minions sweep into theatres | | | There are so many things I like about this story. And at its heart, it’s a story about people reconnecting with the business of actually going to the theatres, which felt like an impossibility just a couple of years ago.
To recap, movie theatres around the world are being inundated with young men, dressed to the nines, often carrying bananas in their pockets. They’re spruced up to go see the new movie Minions: The Rise of Gru.
For the most part, these dapper teens are as well-behaved as they are dressed. They hold the door for other moviegoers. Their schtick is to emulate the “gentleminions” of the movie. It’s become a giant trend on TikTok.
But, inevitably, there has been some lousy behaviour and some pushback from cinema chains.
In an As It Happens segment last week, the manager of one theatre complained about rowdy behaviour.
"At first, it was things you typically expect from high-spirited kids. They were excited, stuck on their phones, talking a lot, cheering. But once the film [started], they didn't stop, they didn't settle down. It just got louder and louder. They were starting to throw things to each other, throw things past our regular customers, past families sat there with the children," said Daniel Philips-Smith, manager of Mallard Cinema in Guernsey, an island in the English Channel.
The cinema briefly halted screenings of the movie altogether. It's now only selling tickets at the door so it can watch for potential troublemakers.
"We have, temporarily at least, had to put a blanket ban on anyone coming in dressed up that's evidently dressed up for, you know, the TikTok trend," Philips-Smith said.
Other cinemas have followed suit and have limited sales. One cinema said it would not allow "unaccompanied children wearing suits" to buy tickets to see the film.
Here’s the thing: for two and a half years, movie theatres were clobbered by restrictions and wary audiences. Now they’ve reopened and to their immense good fortune, a global trend has young people flocking back to buy tickets and popcorn.
Surely, the theatres can manage special screenings? Specific times to cater to the hordes of teens?
I’m old enough to remember my local cinema hosting singalong showings of The Rocky Horror Picture Show. It’s the business of businesses to adapt and cater to audiences, isn’t it?
Check out the trailer for Minions: The Rise of Gru here.
Check out the As It Happens segment here. | | | 2. Crude's wild week | | | The price of oil went on a very strange ride this week.
The price of the main North American Benchmark WTI, collapsed below $100 a barrel. That's down $20 from a couple of weeks ago.
Whenever I get interested in or confused by energy markets, I turn to Rory Johnston, founder of the Commodity Context newsletter. And sure enough, he posted an edition this week helpfully walking us through what happened, what it means and where we go from here.
First off, he makes it clear, this isn’t a forecast. It’s Rory explaining what indicators he uses to assess what the market is doing.
The oil market is weird. I mean, all markets are weird. But oil has a bunch of singularities that don’t get explained enough: backwardation, contagos, crackspreads. Rory explains them and tells you how to use them to better understand the forces at play.
Honestly, you should read this now and bookmark for later.
Here’s the conclusion (spoiler alert):
“Crude remains trapped in a volatility regime sparked by Russia’s invasion of Ukraine, which makes market movements veer to the extreme at a moment’s notice ... my key indicators suggest that the health of the oil market remains relatively intact despite the flat price carnage,” writes Johnston.
He was right. WTI bounced back above $100 on Friday and seems to be holding.
Check out this edition of Commodity Context here. | | | 3. Has Russia dodged the worst economic hits? | | | I've decided to keep a section here collecting all the bits and segments that touch on the economic implications of the war in Ukraine.
We've talked a lot in this space about how Russia's economy has weathered the worst of the storm since it invaded Ukraine.
Western sanctions have hit and disrupted but not derailed the Russian economy. Its economy is driven by oil exports and as we all know, the price of oil has surged enormously through this crisis.
Now, many are wondering if Russia will emerge less damaged than they'd thought.
Bloomberg wrote this:
"Russia appears on track for a much shallower recession than many forecasters initially expected this year, boosted by rising oil production that has blunted the impact of U.S. and European sanctions over its war in Ukraine."
Russian oil production initially fell at the beginning of the war in Ukraine, but it has popped back seven per cent in June. Domestic demand is holding steady and Russian exporters have found new markets in Asia.
This piece in Business Insider quotes a JP Morgan analyst, saying the forecast for this year and next is changing.
"Looking beyond political tensions, the Russian economy is delivering upside surprises," JPMorgan said. "For now, Russia is tracking a far milder recession than had been feared when the invasion began."
Check out the Bloomberg piece here.
Read the Business Insider piece here. | | | How the economy looks beyond Bay Street | | | COVID's 7th wave | | | For the last two and a half years, the most important economic indicator has been COVID case counts.
It's been a while since I posted one of these. But it's clear another wave us upon us.
A new variant is pushing cases, positive test rates and other key indicators higher. This time, there's a lot less appetite for restrictions. So the economic impact is less clear.
But remember, the labour market is already the tightest we've seen in decades. If businesses have to weather another round of sick calls and unavailable workers, the impact on the economy will still be serious. | | |  | This thread is a good reminder that even though we feel done with COVID, it's not done with us. And I get it — boy, am I done with COVID.
But it has been the primary driver of the economy since February of 2020. And there's no reason to think the disease can't wreak havoc on the economy again.
So, stay outside, be safe and wear a mask when you should.
I'm off for some vacation time with the family. I don't plan on posting anything again until Monday August 1. If something really interesting pops up, I'll probably break that promise, but assume we are on a break until August.
I hope you all have a wonderful summer planned and can get out and enjoy some time in this lovely country. | | | That's it for this week. | | | Drop me a line anytime. Send ideas, comments, feedback and notes to peterarmstrong@cbc.ca. Problems with the newsletter? Please let me know about any typos, errors or glitches.
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