What to look for in employment data
Big picture has a great post on employment data and what the post really says is what you should be looking at in the data. Taking the numbers at face value simply isn`t enough and an understanding of what the numbers means is very important.
I simply believe that the economy will be sluggish for years and the younger generations are going to have a very difficult time. I have referred back to Vancouver many times and I simply think that Vancouver`s economy has very much been a mini-economy that mirrors what the greater economy has entered. When I first entered the housing market housing simply was not affordable. I`d say it was 4 to 5 times average household income.
My husband had a good job and we had good family income relative to the population, but housing was such that our disposible income was extremely limited. I came up behind the popular acronym, DINK, double income no kids. It was supposed to symbolize the spending and income status of couples without children such us, but the high cost of housing simply absorbed what might have been disposible income. For Vancouver`s economy, I wasn`t young enough to win the quarter million housing lottery, which was a typical gain people made if they owned a house by about 1990. Indeed, I have never owned a house in Vancouver, opting for townhomes as the only houses I could afford were dumps or had an hour commute to work.
I used to always think that if everyone spent money like I did, as relative to household income our spending outside of paying for mortgage was very very low, that the economy would halt to a stand still.
Vancouver has been a very hard economy for immigrants and young people, and progressively even some that managed to buy a home. For example, I know a woman who has a two bedroom apartment and a reasonable job for someone without higher education. When she bought her home she always managed her bills with some left over. Over a 10 year period she was saying making ends meet was simply getting harder and harder and she was at the point there weren`t places to cut. She had not borrowed from her home to increase debt. Wages had been relatively flat and necessities, property tax, and maintenance had gone up far above the so called rate of inflation.
Everything about the data that is out there suggests that what was true for Vancouver`s economy starting 20 years ago is now true for the much of the world economy. It takes years to clear high household debt loads and enable spending again. Additionally, once people are really forced to control their spending and have highly limited spending choices they keep a great deal of their frugal spending habits even when circumstances no longer dictate choices.
The other thing about Vancouver`s early high real estate costs is that these costs were transferred to everything. All business had higher operating costs to cover real estate costs. Something that has been very interesting about comparting prices between myself and my former Newfoundland roommate is that while some prices up north have been a shock to me, others seem reasonable. No prices up north seemed reasonable to my former roommate. That would be the difference in operating costs being transferred to goods. In Newfoundland you can still get a house for $200k, about a third the price in Vancouver, and a $600k house in Vancouver without a major commute was a dump. If you were will to drive an hour each way to your job, and longer if there were accidents, $600k would get a nice house.
But, that brings another point. Vancouver`s housing market was pushed up by enormous immigration, and significant numbers of immigrants were wealthy. Wages relative to housing costs have not kept up, but employment has been ok, but only because of very low paying jobs, like tourism. Newfoundland has not had the immigration and it has also had higher unemployment. Both living costs and housing have remained way lower.
I do not have a crystal glass for how the economy works itself out, but the methods used to induce recovery under the Bush administration ought to have been outlawed. They ignored all lessons about easy credit learned from the Great Depression. The problems in the economy would have been identified earlier and the adjustments to household balance sheets and business would have been much more mild compared to what has to happen to fix this mess. Additionally, the massive baby boom population has lost 8 years of prudent planning for retirement, that was instead replace by a false economy and a false sense of security.