Our overheated economy will force us to manage success
Unemployment is at 30-year low; jobs go begging in Alberta
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by L. IAN MacDONALD
The Gazette, Wednesday, June 14, 2006
Canada's economy is on a spectacular roll. Few can ever recall seeing a labour market report like the one last Friday, which put unemployment at a 30-year low. The national unemployment rate was 6.1 per cent - and many economists regard six per cent as the benchmark of a full -employment economy, a job for everyone who wants one.
Even Quebec's unemployment rate of 7.9 per cent, while nearly two points above the national average, is at its lowest rate in 30 years. If Robert Bourassa were heading into an election cycle, as Premier Jean Charest is, with numbers like that, he would be rubbing his hands with gleeful anticipation of the outcome.
In the month of May alone, the Canadian economy created 150,000 new full-time jobs, against the loss of 53,000 part- time jobs for a net gain of 97,000 new jobs. That's three times the market of jobs created last month as in the U.S., an economy 10 times larger than our own. And this is with a loss of 21,000 jobs in the central Canadian manufacturing sector, whose key U.S. markets are being squeezed by the 90-cent dollar.
Where are all those new full- time jobs? About 31,000 are in the services sector in finance, insurance and real estate. New university graduates typically join the work force in May, but not all those jobs are being filled by kids fresh out of college.
In Alberta, some of them are being filled by kids fresh out of high school. The youth employment rate in Alberta jumped 5.4 per cent last month. Todd Hirsh, chief economist of the Canada West Foundation, attributes a rising high school dropout rate to teens making $60,000 a year driving trucks in the oil patch. That's about what an MBA makes entering the job in his mid-20s, with a big student debt to pay off.
In Alberta, unemployment is now 3.4 per cent. Labour markets don't get any tighter than that. The only remaining source of domestic supply is the Atlantic provinces and Quebec. Thousands of Newfoundlanders are already sending money home from Fort McMurray. Migrant Cape Breton workers are doing the same. It has been this way since my Cape Breton grandmother used to say that Nova Scotia's biggest export was brains. The Maritimes will always be home, but the jobs are always away.
And if there's a shortage of construction workers in Montreal, it's because so many of them are building houses in Alberta. In the booming Calgary housing market, the price of homes has gone up 35 per cent in the last year, and they can't build them fast enough. But even Ontario, which has been bemoaning job losses in the manufacturing heartland, saw its unemployment fall from 6.2 to 5.9 per cent last month.
The Canadian economy is white hot, close to overheating. And that, says the BMO Financial Group's chief economist Rick Egleton, "is a problem for David Dodge," as the governor of the Bank of Canada decides whether he needs to take some steam out of the economy by raising interest rates again.
The overnight central bank rate currently sits at 4.25 per cent, and the commercial banks' prime rate is six per cent. Egleton says interest rates are still slightly below historical norms, and that Dodge has a bit of room to move them up.
The problem is the dollar, which in only four years has moved from 63 cents to 90 cents. Last Friday alone, it jumped 1.33 cents on the labour report, so that news is already priced in. But an increase in the bank rate, at a time when markets thought Dodge was done for a while, would put further upward pressure on the dollar, and further squeeze operating margins in the manufacturing sector. Mind you, a stronger loonie also forces industry to make productivity enhancements, as opposed to freeloading off a weak currency.
The good news for Dodge while he massages monetary policy is that there are still no worrisome signs of inflation, at least on the consumption side. That again, as the BMO's chief economist points out, is thanks to a strong dollar in an economy that imports "a third of what it consumes."
In other words, because we're paying less for Florida oranges, inflation is being kept in check, even if rising wages are becoming a concern in a full employment economy.
But an economy which needs no stimulation is about to get some on July 1 when the one-per- centage-point GST cut takes effect. One automaker, Mercedes Benz, is already giving the reduction to its customers. Buy a $100,000 car, get $1,000 off.
We are living with the problems of managing success.