What does Bay Street know? Those nattering nabobs of negativity bet Canada’s battered-and-bruised economy would create only 1,000 jobs in February, a number so small that it would have been statistically insignificant.
Employers showed them: some 60,000 Canadians found jobs last month, the fourth sizeable gain in the past six months, according tonew data released by Statistics Canadaon March 8. The positive result was out of step with recent data, a fact the federal finance minister was keen to highlight. “Another month of strong job growth,” Bill Morneautweeted. “When we invest in the middle class, Canadians see positive results.”
That probably has something to do with it. Tax cuts and the enhanced child-benefit program juiced household spending in 2017, generating momentum into 2018. Morneau’s deficits are controversial, but they helped offset slumps in export revenue and business investment last year. Government spending might be the only thing keeping Canada from a recession, according to StatCan’slatest reading of gross domestic product
Still,as I’ve said before, Morneau and the rest of Team Trudeau really should control their urge to congratulate themselves every time high-frequency data wiggle their way. Bay Street was wrong this month, but the pessimistic outlook of most of its forecasters probably is closer to the current reality than Morneau’s tweet.
Canada’s economy has pockets of strength that likely will prevent a downturn. Exports of services surged in the fourth quarter, suggesting that technology companies are finding markets, despite weaker global growth. That’s good news for Toronto, Montreal, Vancouver, Quebec City and a handful of other places where such companies thrive.
But overall,the near term looks bleak. A steady stream of important indicators over the past couple of weeks has chased the optimists off the field. Total hours worked declined for a third consecutive month in February, causing the Bank of Nova Scotia’s real-time forecasting model to predict that GDP will contract 0.3 per cent this quarter. There’s not going to be a lot for Prime Minister Justin Trudeau and his ministers to tweet about in the months ahead.
“Given the available data, the Canadian economy appears more likely to have shrunk in the first quarter of the year than shown any meaningful growth,”saidJames Marple, an economist at Toronto-Dominion Bank.
Morneau’s spending has helped to buoy GDP, but there isn’t much evidence in the latest jobs numbers that current hiring is the result of the federal government’s decision to “invest in the middle class.” There’s something more fundamental going on.
Morneau and the rest of Team Trudeau really should control their urge to congratulate themselves every time high-frequency data wiggle their way
Sometimes you have to go below the surface to figure out what the Labour Force Survey is telling you, but this month, StatCan came right out and said it: Ontario was the sole province with a notable employment gain in February, and the number of people employed in professional, scientific and technical services increased “notably” for the third time in three months.
That’s an important observation. Canada is two economies right now. One revolves around the energy industry. It relies on selling tangible stuff to the United States, residential construction and household consumption.
Alas, this economy is notoriously uncompetitive because tax rates are too high, regulation is too heavy, and executives are too complacent. It thrives only in good times, as it lacks the mojo to push through heavy weather. And for the past couple of years, this economy has been contending with a perfect storm: Alberta’s oil production surpassed its pipeline capacity, crushing Canadian prices; U.S. President Donald Trump upended trade policy; and Canada’s heavily indebted households decided to finally retreat after years of unsustainable spending. This economy posted few jobs in February.
The other economy revolves around revolutionary technology such as artificial intelligence and the relatively small pool of elite talent that knows how to maximize and commercialize these breakthroughs. It sells services and generates wealth from intangible capital such as intellectual property and innovation. To a certain extent, it is oblivious to cyclical turbulence because it is part of a structural shift around the world to economies built on data and the tech required to collect and process that information.
Nothing, not even Trump, will disrupt the demand for what this other economy is selling. But in terms of GDP, the tech and services industries remain relatively small, so the struggles of the economy based on tangible goods will dictate the aggregate figures. And in terms of hiring, this newer economy remains concentrated in urban centres with famous universities. So people unconnected to these places will look at Morneau’s tweet and wonder what he is talking about.
The jobless rates in Vancouver and Montreal are 4.7 per cent and 5.5 per cent, respectively, compared with the national rate of 5.8 per cent. Total employment in Calgary was 1 per cent higher in February than a year earlier, compared with an increase of almost two per cent in Toronto over the same period. Employment in Manitoba actually declined last month.
So in a way, Morneau is right: there is strong job growth. It’s just that all of it is taking place in his hometown of Toronto and the other big cities that the Liberal caucus disproportionately represents. Unfortunately, it’s the other economy, where the Liberals have little representation, that requires the most attention.