At the Bank of Canada’s quarterly economic-update press conference last week, a reporter asked the bank’s second-in-command, senior deputy Governor Carolyn Wilkins, if the central bank was worried about Canada’s job market.
It might seem an odd thing to worry about. Employment rose by nearly a quarter-million jobs in the first six months of the year. Jobs have increased in eight of the past 10 months. Unemployment is hovering near four-decade lows.
But the issue for the questioner wasn’t whether the job market is strong – it undeniably is – but why it is so strong. With this kind of job growth, you’d expect to see an economy that is booming; it’s not. Over the last quarter of 2018 and the first quarter of this year, the country added 280,000 jobs while the economy barely grew at all.
If there isn’t economic growth to support all that hiring, is the job market floating on hot air – and, maybe, doomed for a fall?
“The labour market is very healthy,” Ms. Wilkins responded. “What companies have on their minds is that they need to hire to be ready for the growth they tell us they expect to see. I think that, from a business-planning point of view, you can imagine that’s part of what’s going on, and how you would square the circle.”
Perhaps. Employment isn’t historically much of a leading indicator of future economic activity, although it has been known on occasion to anticipate an economic upswing. But while the economy did bounce back in the just-ended second quarter (the Bank of Canada estimates that gross domestic product grew at a 2.3-per-cent annualized pace), the central bank predicted last week that growth will moderate again in the second half of the year, to the 1.5-per-cent range. For the full year, the bank forecasts growth of just 1.3 per cent – which would make it the second-slowest year since the Great Recession.
That hardly looks like a year that can sustain this flurry of hiring. Unless employers are foreseeing an economic surge that has eluded the predictive powers of the Bank of Canada, the job market may soon get slapped back to reality.
Unless, of course, there is some other explanation for this unusual disconnect between employment growth and economic growth. And it is unusual. Jobs and economic growth isn’t a one-way relationship, it’s more of a virtuous circle. Not only does a stronger economy fuel job creation, but that job growth in turn feeds economic activity, as more workers produce more goods and services, and consumers have more wages to spend. You expect the two of them to feed off each other, to grow together. When they don’t, you have to wonder if something else is going on.
One factor that may be at play is the elevated sense of risk and uncertainty that the business community continues to confront, most notably on the trade front. With businesses uncertain about the future reliability of their key markets, many companies continue to resist making capital investments to expand their capacity. Given that many industries are operating near full capacity, it would appear that many businesses have opted to invest in more labour to meet their capacity needs, viewing it as a lower-risk option than investing more heavily in capital. That not only helps to explain the elevated levels of hiring, but the relatively modest corresponding economic boost – there’s a shortage of capital investment contributing to the equation.
Labour shortages may also be behind businesses’ appetite for hiring. Historically low unemployment has meant slim pickings for workers in many industries, especially higher-skilled workers. It may be that businesses are securing skilled workers before they actually need them, rather than running the risk that those skill sets simply won’t be available when their needs become pressing. But if you’re hiring workers for whom you don’t have enough productive work, they aren’t going to add a lot to output.
Canadian Imperial Bank of Commerce economist Benjamin Tal recently raised an intriguing theory about the growth versus jobs disconnect. In a research report this month, Mr. Tal noted that even as Canada’s employment has surged this year, the “employment quality” has declined. He said the composition of job creation over the past 12 months has tilted toward low-paying sectors of the labour market, while higher-paying industries have actually hired very little.
The thin labour supply might be a key reason for this – the pool of workers still available is tilted toward the lower-skilled, lower-paid end. Nevertheless, the lower-end jobs that are dominating the hiring are not the kind of value-adding, productivity-enhancing positions that contribute strongly to economic growth – particularly at the current relatively late stages of the economic expansion.
“It appears those new jobs do not add much to the nation’s overall productive capacity,” Mr. Tal wrote. “We need relatively more workers to generate the same increase in income.”
EU incoming economy chief calls for less restrictive budget policies
By Gavin Jones
ROME (Reuters) – The European Union needs looser budgetary policies and an overhaul of its fiscal rulebook, the bloc’s designated economics commissioner said in an article published on Sunday.
Writing in Italian financial daily Il Sole 24 Ore, Paolo Gentiloni said that while the EU’s deficit and debt rules must not be ignored, they needed to be “reviewed and updated”.
“It’s time for countries which have fiscal space to use it, in an overall context of less restrictive budgetary policies,” Gentiloni, due to replace Pierre Moscovici as economic and financial affairs commissioner on Nov. 1, said.
The former Italian prime minister warned that with the EU economy slowing, “the risks of a prolonged period of low growth must not be overlooked” and the task of stimulating the economy “cannot be left to monetary policy alone”.
Gentiloni will have an important role in scrutinizing Italy’s draft 2020 budget which was submitted to the Commission last week.
The budget plan raises next year’s structural deficit — which excludes the effect of GDP growth fluctuations — by 0.1% of gross domestic product, reversing a previous commitment by Rome to lower it by 0.6%.
EU Commission Vice President Valdis Dombrovskis told Reuters on Friday that Brussels would ask Italy for “clarifications” over its budget intentions.
However, even though the budget seems to flout EU rules, many analysts expect the Commission to take a lenient approach and avoid a prolonged dispute with Rome like the one that broke out last year when Italy had a less EU-friendly government.
Gentiloni, who comes from the pro-Europe Democratic Party which now governs with the anti-establishment 5-Star Movement, said it was crucial that the budget plan comes from a government that has a constructive approach toward the EU.
Among what he termed new instruments needed help growth and stability, Gentiloni cited an EU-wide unemployment insurance scheme, without going into details.
(Reporting by Gavin Jones; Editing by Canada News Media)
Lebanese continue protests, demand government to fix economy
Demonstrators, who have been on the streets since Thursday, have pledged to continue marching despite the resignations late on Saturday of four government members from the key political party, Lebanese Forces.
Labour Minister Camille Abousleiman, one of the four to quit the government, told Al Jazeera shortly after the decision that they had “lost faith in the government’s ability to effect change and address the problem”.
Lebanese citizens have been suffering from tax hikes and dire economic conditions in the heavily indebted country.
Lebanon’s public debt stands at around $86bn – more than 150 percent of gross domestic product, according to the finance ministry.
The grievances and anger at the government’s lack of solutions erupted into protests on Thursday, sparked by hikes in taxes including a proposed $0.2 tax on calls via messaging apps such as WhatsApp.
Such calls are the main method of communication for many Lebanese and, despite the government’s swift abandonment of the tax, the demonstrations quickly swelled into the largest in years.
“It is day four and protesters are back on the street. It’s not just in the capital Beirut, but across the country. The message they [protesters] are giving is of defiance and that they will continue to demand the resignation of the government,” said Al Jazeera’s Zeina Khodr, reporting from Beirut.
“While there are tens of thousands on the street protesting, there are still people who are backing the political parties, so it is not going to be easy to bring a change. These people out there want a nationalist leader whose loyalty is to Lebanon and not a political party.”
In an attempt to appease demonstrators, Lebanon’s finance minister, following a meeting with Prime Minister Saad Hariri, announced that they had agreed on a final budget that did not include any additional taxes or fees.
“We want everybody to join us on Sunday and also Monday to topple the government,” one protester said.
On Friday, Hariri gave a 72-hour deadline to his partners in government to agree on a solution to the country’s economic woes without imposing new taxes.
Hezbollah chief Hassan Nasrallah, whose movement is part of the government, warned on Saturday that a change in government would only worsen the situation.
The army on Saturday called on protesters to “express themselves peacefully without harming public and private property”.
|What is the solution to Lebanon’s economic and political crisis?|
On Saturday evening, thousands were packed for a third straight night into the Riyadh al-Solh square in central Beirut, despite security forces having used tear gas and water cannon to disperse similar crowds a day before.
Amnesty International said the security forces’ reaction was excessive, pointing out that the vast majority of protesters were peaceful.
“The intention was clearly to prevent protesters gathering – in a clear violation of the right to peaceful assembly,” it said.
Small groups of protesters have also damaged shop fronts and blocked roads by burning tyres and other obstacles.
The Internal Security Forces said 70 arrests were made on Friday on accusations of theft and arson.
But all of those held at the main police barracks were released on Saturday, the National News Agency (NNA) said.
Al Jazeera and news agencies
Finance Officials Focus on Economy
The IMF managing director, Kristalina Georgieva, said the threat from trade wars was a chief point of discussion for finance officials.
She said the IMF has estimated that the tariffs already imposed or threatened could shave 0.8% off global growth by the end of next year. Much of that stems from the fallout on business confidence.
In trade wars, “everybody loses,” she said. “Policymakers ought to take very seriously their obligations to international cooperation in trade.”
The World Bank’s president, David Malpass, said this week’s finance discussions had focused on how to address multiple challenges.
“Growth is slowing, investment is sluggish, manufacturing activity is soft and trade is weakening,” he said. “Climate change and fragility are making poor countries more vulnerable.”
He said the World Bank was committed to helping to address these challenges to provide a better life for the 700 million people in the world living in extreme poverty.
The IMF, in an updated economic outlook, projected the global economy would expand by 3% this year, the weakest in a decade, and said 90 percent of the world was experiencing a downshift in growth. But the IMF forecast growth will accelerate slightly to 3.4% in 2020, still below the 3.6% rate in 2018.
Jubilee USA, a religious organization fighting global poverty, said in a statement that while the IMF outlined a number of serious threats, the recommendations for dealing with them fell short.
“Risky investing, trade tensions and developing countries borrowing too much are serious concerns for financial stability,” said Eric LeCompte, the group’s executive director.
While Trump’s trade policies were a prime topic of discussion at the meetings, finance officials for the most part avoided direct criticism of the American president.
Christine Lagarde, who dealt with the Trump administration during her last three years as head of the IMF, was a bit more direct in an interview to be broadcast Sunday on CBS’s “60 Minutes.”
Asked about Trump’s trade war with China, she said it would give the world’s economy “a big haircut” and should be resolved by having all parties “sit down like big men, many men in those rooms and put everything on the table, and try to deal bit by bit, piece by piece, so that we have certainty.”
On Trump’s frequent Twitter attacks on Federal Reserve Chairman Jerome Powell, Lagarde said central bankers need to be independent to do their jobs well.
“Market stability should not be the subject of a tweet here or a tweet there. It requires consideration, thinking, quiet and measured and rational decisions,” she said.
Lagarde is scheduled to take over on Nov. 1 as the head of the European Central Bank, which manages monetary policy for the 19 countries who use the euro currency.
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