September 21, 2011
Will Canada follow the lead of the American Jobs Act?
Chief Economist, CanaData
One doesn’t have to look far for proof the Canadian economy is languishing. In the past two months, total employment in the country has been flat.
July recorded a gain of only 7,000 jobs and most of that was taken away again in August when employment fell by 5,000, according to Statistics Canada.
The national unemployment rate in August crept up slightly to 7.3% from 7.2% the month before.
In the latest month, employment in services production rose by 35,000 positions, while work in the goods-producing sector fell by 40,000.
Manufacturing employment held steady, but jobs in construction dropped by 25,000.
Full-time positions increased (+25,000) while part-time work declined (-32,000).
And the public sector was adding staff (+22,000) while the private sector was making cuts (-27,000).
For all that the Canadian labour market has entered a stagnant phase, it is still in vastly better shape than the one south of the border.
Canada’s unemployment rate compares very favorably with the U.S. level of 9.1%.
And Canada’s total employment level stands higher than it was before the recession, while the U.S. is still suffering from a nearly six-million-jobs shortfall.
In recognition that jobs have become the number one priority for Washington, President Obama introduced his jobs initiative program in a speech before a joint session of both Houses of Congress on Wednesday evening, <0x000A>September 8.
Some of the key measures of the President’s American Jobs Act include extending and increasing the cut to the social security tax on employees that is set to expire at the end of this year; a cut to payroll taxes for small businesses; and a $4,000 tax credit for new hires who have been out of work for six months or more.
There will also be a lengthening of unemployment insurance benefits for the long-term unemployed; establishment of an infrastructure funding bank to utilize laid-off construction workers; a national school renovations program; and tax loophole closures and other measures to bring in more revenue from the nation’s wealthiest citizens and largest corporations.
The cost of the jobs jump-start has been estimated at nearly $450 billion. Later this month, Mr. Obama plans to provide details on how the program will be financed. The special committee set up to resolve the deficit-ceiling impasse will also play a role in assuring fiscal neutrality.
The proposals are still likely to run afoul of Tea Party vows to allow no tax increases.
At the very least, the combative Mr. Obama has made it quite clear he’s found a platform he’ll be very comfortable presenting to the people across America in his re-election campaign.
The Canadian labour numbers are consistent with Statistics Canada’s latest national output report. In the second quarter, the “real” (i.e., after-inflation) gross domestic product (GDP) change in the country, month-to-month annualized, was -0.4%.
In the first quarter, it had been a much more robust +3.6%.
What can the public sector do to help out the economy?
The tools at hand come in two forms, monetary and fiscal action.
In recognition of the current uncertain and difficult economic times, the Bank of Canada recently chose to keep its key policy-setting interest rate — the overnight rate — at only 1.00%.
That’s a strong level of stimulus and removes earlier concerns that interest rates in Canada might soon resume an upward march.
As for spending initiatives, however, the public-sector capital projects program in Canada has been winding down this year.
In fact, our federal and provincial governments, as well as many of our municipal governments (e.g., Toronto), have been focusing on tightening their budgets to bring down their deficits.
It remains to be seen whether or not Prime Minister Stephen Harper and Finance Minister Jim Flaherty will decide that a course alteration might be in order.
A stretched-out period of weak economic numbers, as is now being forecast by many leading bank economists, may point in the direction of following President Obama’s lead.
If the need for another round of infrastructure spending becomes a talking point, there is one big difference versus the last time such a program was considered and adopted.
The Conservatives now have a majority government and face three leaderless parties in opposition across the aisle.
The Tories won’t have to temper their plans much to win parliamentary approval.
For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog. His lifestyle blog is at www.alexcarrick.com
