BENEATH THE SURFACE
LATEST FIGURES FROM STATCAN SHOW CANADA EDGING CLOSER TO THEORETICAL VERSION OF ECONOMIC NIRVANA. BUT LET’S TEMPER ANY EXCITEMENT.
Amonth ago, I wrote that Canada was close to full employment, or the state at which everyone who wants a job has one.
I only was echoing the central bank governor, and all Stephen Poloz had done was remark that the lowest unemployment rate in at least four decades — 5.8 per cent — suggested there probably weren’t many jobs left.
Statistics Canada confirmed Friday that Canada continues to edge closer to the theoretical version of economic nirvana. The jobless rate was 5.8 per cent for the fourth time in five months in April, cementing Canada’s recent hiring bonanza as one of the most impressive in the country’s history. Before this year, the unemployment rate had touched its current level only once, in October 2007.
But let’s temper any excitement.
My suggestion that Canada was at full employment prompted some angry emails from readers who said they didn’t recognize the economy I was describing. One writer, an engineer from Edmonton, said he had been seeking a job for two years and that his unemployment benefits soon would expire. The Financial Post’s Geoffrey Morgan reinforced that view, documenting how the rebound from the oil-price collapse in 2014 and 2015 had so far left thousands of younger Alberta men behind. And then Carolyn Stewart-Olsen, a Conservative senator from New Brunswick, took exception to Poloz’s “fairly rosy picture of how the Canadian economy is doing” when he appeared at the Senate banking committee on April 25.
“I need to share with you that that’s not really my impression, if you live in New Brunswick and you see stores closed and mall after mall at half capacity and people not doing well in the jobs market,” she said.
The mind plays tricks, and we humans often make the mistake of projecting our own circumstances onto the whole. So just because your neighbour is unemployed despite sterling credentials, or your hard-luck corner of the planet bares no resemblance to the national economy you read about in the business pages, doesn’t mean the numbers are phoney or the people interpreting them are idiots.
The most recent data, including the latest job figures, show that Canada’s economy is in decent shape and that the central bank will be raising interest rates over the months and years ahead. The only debate will be over how far, and how fast.
Economic growth has slowed from the pace that led to an impressive increase of 3 per cent last year; the economy added more than 700,000 jobs between the start of 2015 to the end of 2017, but has surrendered a net 41,000 positions so far this year, according to StatCan. But all that growth has left economic output at a level that will put upward pressure on inflation. Unless Finance Minister Bill Morneau tells the central bank that it no longer has to worry about keeping the Consumer Price Index around 2 per cent, the central bank will have to cool things down.
“On the surface, the latest jobs numbers look weak,” Aubrey Basdeo, managing director at BlackRock Canada, said from Toronto. “But underneath, it looks like the economy is chugging along.”
An economy that’s still chugging after a couple of years of speeding warrants a higher benchmark interest rate than the current 1.25 per cent, according to some economists. That setting is closer to the emergency rates of the Great Recession than the levels typically associated with record-low unemployment. Poloz’s critics worry that he is fuelling asset-price bubbles that will pop and trigger the next recession.
The central bank agrees that’s a risk. But it has decided a bigger threat to the long-term health of the economy would be allowing thousands of employable Canadians to languish on the margins. Stewart-Olsen’s need to share with Poloz her observations about the depressed state of N.B. suggests she hadn’t been listening closely to what governor had been saying fairly clearly since the end of last year. Like the senator, the Bank of Canada also is unconvinced the economy is as strong as the headline numbers suggest. That’s why policymakers passed on opportunities to raise interest rates in March and April, and why they likely will do so again at its next policy announcement on May 30.
For the time being, the most important numbers in StatCan’s monthly Labour Force Survey are the data on duration of unemployment.
Poloz has stated explicitly a number of times this year that he thinks long-term unemployment is too high. In April, the number of Canadians that had been seeking a job for more than six months jumped to 226,000 (19 per cent of the total unemployed) from 210,000 (17 per cent of all job seekers) the previous month. Hiring data are jumpy, so it would be rash to suggest economic conditions suddenly worsened, but the result does imply that things could be much better. The monthly average this year is about 209,000. The monthly average in 2007, before the financial crisis changed everything: 133,000.
“There still are pockets of labour that could be utilized,” said Basdeo, who predicts the Bank of Canada will raise interest rates only one more time in 2018.
Another “pocket” is younger workers; about 57 per cent of Canadians aged 15 to 24 are working today compared with about 59 per cent before the crisis. Kids could be deciding to stay in school longer, but Poloz insists that lack of job opportunities also explains the difference. He thinks he can get away with raising interest rates slowly because all those marginalized workers suggest there still is slack in the economy.
It’s worth the risk. Economists have known of decades that the longer someone languishes without work, the harder it is for that person to get a job that matches his or her qualifications. In other words, high rates of long-term unemployment represent lost potential and a wider income-and-happiness gap between those fortunate enough to find rewarding work in this fast-changing economy and those who don’t.
And if you don’t think that’s a threat to economic stability, you haven’t been paying attention to what’s happening in the United States.