CAMPAIGN DECODER
Economy’s a job machine, so why aren’t the Liberals cashing in?
Among the verities of electoral politics is that the victor is the one with the winds of a strong economy at his back. But try telling that to Paul Martin.
Judging from the remarkable vigour of the Canadian economy, the Liberals should be rolling effortlessly toward forming a majority government Jan. 23. But no such luck. In five recent polls by four polling organizations, the Grits hold only a slender 4.8 per cent lead over the Tories. The Liberals are running on their economic record — albeit among too many other things. And they’re led by a man long hailed as the best finance minister in modern times, whose success in transforming crippling deficits into the longest run of surpluses among the G-8 nations helped lay the foundation for the country’s current prosperity.
Last Friday’s jobs figures for November should be a gift from the Gods for the Grits. The economy generated a strong 30,600 new jobs on top of 69,000 new jobs the previous month, and the unemployment rate dropped to 6.4 per cent — lowest in more than in three decades. One seldom sees this kind of performance. Most of the new jobs are “ good” ones — fulltime positions rather than part-time or seasonal jobs. Every region and most vocations benefited. Even the beleaguered manufacturing sector, beset by a soaring loonie and spiralling energy costs, managed to create 6,800 new jobs. Even better, the average hourly wage last month increased by almost 4 per cent over a year earlier. These are real gains, far outpacing inflation. So why are the Grits struggling? The headlines are not dominated by such cheery economic news, but by periodic reports of significant job losses. General Motors Corp. announced last month it will cut 3,900 Ontario jobs. Ford Motor Co. was reported Friday to be contemplating the shutdown of its engine plant in Windsor. The Canadian Imperial Bank of Commerce said Thursday it will slash 930 jobs. The previous day, Domtar Inc., the leading forest products company, unveiled a massive restructuring that will claim 1,800 jobs — the latest bad news from an industry that has cut thousands of jobs and closed about a dozen mills this year. Note that most of these dismal reports affect workers in the Liberal heartland of Ontario, where the Grits outpolled the Tories by 13 per cent in the last election. In the most recent poll, by Ipsos- Reid, that margin has narrowed to 2 per
( U. S.) by next year. But the U. S. economy may start cooling down so much by the end of next year that the Federal Reserve will cut its funds rate, he added.
“ As soon as they do that, the Bank of Canada is going to say: ‘ We are sitting here with a 90- cent dollar and the Fed is cutting rates, we are going to cut rates.’ ” The Bank of Canada hiked its overnight rate on the past two policy setting dates. The Fed, on the other hand, had raised its funds rate a quarter point following each of the last 12 policy meetings. It’s now 4 per cent. Forecasters predict it could reach 4.75 per cent soon. The European Central Bank is also getting into the act. It raised its benchmark interest rate a quarter point last week, to 2.25 per cent, the first increase in five years. And more are expected.
“ Like the Bank of Canada, the ECB is trying to move ahead of any inflation problem.”
While forecasters, on average, are expecting Canada’s overnight rate to rise to 4 per cent, some are saying the central bank must go to 4.5 per cent in order to get to neutral levels.
Paul Ferley, assistant chief economist at the Bank of Montreal, is forecasting a 4.5 per cent overnight rate by next October. “ The risk to this outlook is that the Bank of Canada may opt for a more rapid pace of tightening.” A 4 per cent overnight rate should be enough to cool economic growth down to a sustainable growth rate, about 2.9 per cent over the next two years, said Dale Orr, managing director of Global Insight ( Canada).
If the loonie rose to 90 cents ( U. S.), a lower overnight rate would be enough to keep inflation pressures at bay, Orr added.
“ Much less tightening would be required because the dollar would be doing some of the work.”