Recession?

There is now a fair amount of talk about recessions and rumours of recessions.  The German Central Bank recently warned that Germany may be about to enter a recession and of course there is all the talk about the inverted yield curve as a signal of recession.  The current disruptions in world trade are a factor in slower growth particularly in China and as talk of recession mounts, one might expect that there will be an effect on investor and consumer expectations that indeed makes a recession a self-fulfilling prophecy.  Indeed, the August 24^thEconomist noted that “The onset of a downturn is as much a matter of mood as of money”.  

The most recent Consensus Forecast Major Economies out of FocusEconomics(September 2019) is not ready to call a recession but notes that: “Growth is set to ease this year, due largely to weaker momentum in developed economies and China.  However, tight labor markets and more accommodative monetary policy should provide some support. A further escalation of trade tensions, particularly between the U.S. and China, is the key downside risk.”  At the same time, the outlook for growth is weaker for Canada and Europe with Canada now expected to see real GDP growth in 2019 of 1.4 percent and the Euro Area 1.1 percent with the U.K. and Japan clocking in at 1.2 and 0.9 percent respectively.  Canada is expected to see continued hits to its exports as well as the effect of pipeline delays and oil production cuts as elements of its slowdown.  The major risk factors for the Canadian economy are U.S.-China trade tensions, volatile energy prices (oil) and continued elevated household debt.  

The irony in all of this gloom is that one of the causes has been the behaviour of U.S. President Donald Trump’s administration in disrupting the world economy via trade disputes.  Interestingly enough, the U.S. is such a large wealthy market that combined with low interest rates and rather large government deficits it is expected to see growth ease but is still expected to come in at about 2.4 percent.  In other words, the rest of the world is being hit much harder that the United States as a result of all the economic disruption.  The ultimate irony is that the United States may escape a recession that its behaviour may indeed have helped trigger it in other parts of the world.  

Ranking Property Tax Burdens in Ontario Cities

A recent set of statistics published on the real estate site Zoocasa has attracted a fair amount of attention in the media and ultimately even in Thunder Bay.  The data for these Ontario municipalities includes the property tax rate, the average value of homes and tax calculations for some standardized home values ranging from $250,000 to $1,000,000 dollars.  The highlight of the data is of a course a ranking of property tax rates across 35 Ontario municipalities and the illustration that property tax rates in Windsor are the highest in the province and those in Toronto are the lowest with Thunder Bay coming in at second highest.

Of course, how you rank these tax burdens – especially when we are discussing property taxes in say Thunder Bay or Sudbury compared to southern Ontario cities – can lead to different answers.  In the end, much depends if you want to rank tax rates, the average taxes paid based on average property values, taxes paid per standardized house values or property taxes as a share of resources available – for example household income.  There are two components to calculating a simple estimate of property taxes paid – the value of the home and the tax rate applied. Using the tax and property value data from Zoocasa and household income data from the BMA 2019 report, here are some of the rankings in visual form.

First, Figure 1 plots average house values ranked from highest to lowest for the 35 Ontario municipalities.  The prices range from a high of $1.08 million dollars in Richmond Hill to a low of just under $189,000 for Sault Ste. Marie.  Not surprisingly, houses in the GTA area have the higher values while the four northern Ontario cities in the data are all at the bottom.  Sharing the bottom with northern Ontario cities are other places that have been relatively economically depressed in recent years – Windsor, London, St. Catharines.   

Ontario Employment Growth Showing Regional Weakness

The July 2019 Labour Force Survey was released by Statistics Canada yesterday and showed total national employment in July was down slightly (by -0.1%) while the unemployment rate moved upwards to 5.7 percent.  What was also interesting was the year over year change in employment as it showed the last twelve months have seen substantial employment growth even if recent growth has slowed a bit.  Seasonally unadjusted employment growth results showed an increase between July 2018 and July 2019 of 2.2% for Canada and 2.3 percent for Ontario.  However, as the accompanying figure shows, when the rates are examined by economic region and ranked there is quite a difference in performance across the province.



The highest growth was for Kingston-Pembroke at 8.9% followed by the Ottawa at 4.2%.  It would appear that eastern Ontario as a whole is doing quite well.  The Kingston area is apparently seeing substantial residential and non-residential construction activity - including hospital and bridge construction - as well as an increase in food manufacturing.  Next was Toronto at 3.4% and then nearby Kitcher-Waterloo-Barrie also at 3.4%.  Lagging behind but still positive are Stratford-Bruce at 0.8% and Hamilton-Niagara at 0.6%.  Thus, eastern and central Ontario edging into the Niagara peninsula have seen employment growth.  The remainder - mainly Southwestern and Northern Ontario have not done well - seeing employment declines.  The largest decline was London at -4.5% followed by Northeast Ontario at -2.6% , Muskoka-Kawarthas at -1.8%, the Northwest at -1.7% and then Windsor-Sarnia at -0.2%. 

With respect to Northern Ontario, employment in the Northeast declined from 257,400 to 250,800 between July 2018 and 2019 while the unemployment rate rose from 6% to 6.8%.  In the Northwest, employment fell from 107,800 to 106,000 while the unemployment rate rose from 4.9% to 5.6%.  If there is an economic slowdown or recession in the offing, it would appear that it may already be underway in parts of Ontario.

Crime and the Economy: Are Low Interest Rates a Factor?

The most recent set of crime statistics for Canada revealed that police-reported crime in Canada, as measured by both the crime rate and the Crime Severity Index (CSI), increased for the fourth consecutive year in 2018, rising 2%.  The accompanying figure below further reinforces the fact that after years of decline – a decline that stretches back to the 1990s – crime rates are rising.  Of course, all of this begs the question as to why crime rates are rising again after years of decline.

Explaining the drop in crime rates has been a source of some debate.  The fall in crime rates since the 1990s in Canada as well as the United States has been attributed to a number of factors including new policing strategies, changes in the market for illegal drugs, an aging population, a stronger economy, tougher gun control laws and increases in police numbers. As for the impact of the economy on crime, well that is also a source of debate. 

On the one hand, the intuitive feeling is that a weak economy should cause people to turn to crime.  Yet, many studies of the relationship between the economy and crime have found statistically small relationships between unemployment and property crime and often no relationship between violent crime and unemployment.  It has also been argued that economic downturns may actually reduce criminal opportunities as when unemployment is high more people are at home "protecting" their property and when out and about they carry less cash and possessions.

If the latter is the case, one could make the argument that the strengthening economy of the last couple of years has been a key factor in fueling the recent surge in crime.  Unemployment rates in Canada are at historic lows and to add fuel to the fire – so are interest rates.  Low interest rates mean that even if more employment today is part-time or uncertain, people are still able to consume more and go out more simply by borrowing more.  Indeed, Statistics Canada also noted recently that the seasonally adjusted household credit market debt to disposable income ratio increased to 178.5 percent in the 4^th quarter of 2018. 

More debt to fuel spending on homes and basic consumption frees up resources to spend on more illicit things like illegal drugs and much of the recent crime increase is drug related. 

With unemployment low and cheap money sloshing around both fueling spending and consumption, the opportunities for crime may have mounted. It is certainly a point worth considering.