The boom that never was
The Canadian jobs market returned to Earth with a thud in January, Statistics Canada reported Friday, shedding 88,000 jobs in its worst month since the depths of the recession in 2009. The January drop shows that gushing reports about Canada’s “booming” economy were wildly overstated, ignoring that GDP has been struggling throughout the second half of 2017. GDP growth has slowed from an annual rate of five per cent to less than two per cent as persistent weakness in exports and business investment spread to the housing market.
Most commentators had wrongly interpreted buoyant employment as representing the underlying trend of the economy when in fact it was an anomaly. Jobs often are an outlier on Statistics Canada’s increasingly cluttered dashboard of economic indicators because monthly employment estimates are volatile. The ease with which Canada’s commentariat was duped into believing the fable of a booming economy reflects its naiveté that more growth only requires higher doses of monetary and fiscal stimulus while ignoring growth’s long- term determinants such as rising business investment, innovation, productivity and competitiveness in world markets (in fact, excessive short-term stimulus subtracts f rom long-term potential growth).
Ontario led the retreat, losing 51,000 jobs. So does the j obs report bear out forecasts that a higher minimum wage would cost jobs? The most credible forecasts, which did indeed call for the loss of about 50,000 jobs, were done by the Ontario’s own Financial Accountability Office and the Bank of Canada, drawing on the consensus in the economics literature ( rather than the cherry- picking of favourable left- wing research by Big Labour organizations). However, the forecasts predicted the full impact would take months or even years to play out. The industrial breakdown of j ob l osses supports that the minimum wage played only a small role in January’s slump, since declines were concentrated in high- wage industries and not accommodation and food, which are the most affected by changes to the minimum wage. This is bad news for the Wynne government as it approaches an election in June since it suggests that employers will continue to adapt to soaring labour costs by trimming their workforce for months to come.
The underpinnings to the Ontario economy have looked increasingly shaky for some time. Despite an improving U. S. economy, exports of manufactured goods have languished all year. Much of Ontario’s growth last year was just the sugar high of skyrocketing Toronto housing prices. A recent CMHC report found that while the fundamentals of job and income growth accounted for 70 per cent of demand growth in Vancouver’s housing market, those fundamentals accounted for only 30 per cent of Toronto’s, suggesting that speculation was driving a lot of the growth. Now, speculative buying in Toronto’s housing market is being deflated by the tax on non- resident buyers and new lending restrictions that took effect Jan. 1, with Toronto house sales falling 22 per cent in January.
Meanwhile, Toronto’s huge financial sector is in turmoil as markets begin to contemplate a future of rising U. S. interest rates. Tax cuts and spending increases recently enacted in the U. S. mean stimulus is expanding rapidly in an economy nearing its capacity limits. The only way to avoid reigniting inflation is for the Federal Reserve Board to tighten monetary policy, a prospect that sent most financial markets reeling, replacing their euphoric reaction to the election triumph of the Republicans.
Ontario is not the only province where a wave of anti- business policies is stifling growth, and jobs in the rest of Canada fell by 37,000. Alberta is following Ontario’s foolhardy embrace of higher minimum wages, higher energy prices and more regulations. This was compounded by the failure of the Notley government to deliver its promised grand bargain that phasing out coal and imposing a carbon tax would appease the environmental movement’s implacable opposition to pipelines delivering output from the oilsands. In B. C., jobs growth has slowed to just 0.7 per cent since the election of an NDP government, from 4.2 per cent in the previous year. How Christy Clark’s Liberals lost an election with such strong job numbers is a mystery, but it’s one that appears about to be duplicated in Quebec where the best labour market in generations has not prevented the Liberal government from lagging badly in the polls behind the right-wing and antiseparatist Coalition Avenir Québec.
That separatist politics in Quebec appear to be historically low is yet a further setback for Ontario. The nation’s financial industry was once centred in Montreal, before the PQ was elected in 1976. And for decades, Ontario could attract large amounts of people and business by simply advertising that, unlike Quebec, it had no intention of ever separating from Canada. Now that huge advantage over Quebec is disappearing, even as the attraction of investing in the U. S. intensifies. Instead of adopting policies to boost Ontario’s competitiveness, the Wynne government deliberately antagonizes the business community at every opportunity. The inevitable results of such ill-considered tactics are becoming increasingly evident in investment, jobs and incomes.