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Canadian economy added 22000 jobs in February, unemployment rate steady at 5% – The Globe and Mail

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Bank towers are shown from Bay Street in Toronto’s financial district on June 16, 2010.Adrien Veczan/The Canadian Press

Canadian wage growth picked up in February and surpassed 5 per cent, a potential setback for the Bank of Canada as it tries to subdue inflation and a rollicking labour market.

On an annual basis, average hourly wages rose 5.4 per cent to $33.16, an acceleration from the 4.5-per-cent pace in January, Statistics Canada said Friday in a report. Financial analysts were expecting wage growth of 5.1 per cent. To an extent, the numbers were influenced by the comparison to February, 2022, when lower-paid service workers were rehired after COVID-19 lockdowns, pushing down average pay that month.

While workers are benefiting from tight labour market conditions, Bank of Canada officials have repeatedly said that wage growth will need to subside and unemployment will need to rise for the central bank to tamp down inflation, last measured at a 5.9-per-cent annual rate.

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Thus far in 2023, the labour market is forging ahead. Employers added around 22,000 positions in February, according to Friday’s report, after a blockbuster gain of 150,000 jobs in January. The unemployment rate held steady at 5 per cent, close to an all-time low.

“Arriving on the heels of the January jobs jamboree, this result is far too strong for the BoC’s comfort,” Bank of Montreal BMO-T chief economist Doug Porter said in a client note. “There simply is no sign that the labour market is succumbing whatsoever to the rapid-fire tightening of the past year.”

Earlier this week, the Bank of Canada held its policy rate at 4.5 per cent, a pause that it had telegraphed after eight consecutive rate hikes that began in March, 2022. Still, the central bank has kept the door open to additional rate increases if inflation doesn’t ease as expected.

The bank’s latest Monetary Policy Report, published in January, said that wage growth “appears to have plateaued” at between 4 per cent and 5 per cent and was no longer rising.

There are several ways of measuring wage growth across multiple Statscan reports. They generally show that wages are rising at more than 4 per cent on an annual basis.

Bank of Canada officials have argued that the current pace of wage growth is not compatible with bringing inflation back to the 2-per-cent target, unless there is strong pickup in productivity.

However, labour productivity – as measured by real gross domestic product per hour worked – has fallen for three consecutive quarters. Put another way, employees are producing fewer goods and services per hour of work. To compensate for less output and rising labour costs, many companies will charge their customers higher prices.

“Productivity growth is a good thing for the economy because it allows businesses to pay for higher wages,” Carolyn Rogers, senior deputy governor at the central bank, explained on Thursday in a speech. “If we continue to see the above-average wage growth that we’ve been seeing in Canada without stronger growth in productivity, it will be difficult to bring inflation all the way down to 2 per cent.”

Ms. Rogers later added: “Productivity isn’t trending in the right direction so far.”

The central bank has said it will need to see an “accumulation of evidence” of an overheating economy before it raises rates again. Economists and investors generally don’t think that threshold has been met.

Interest rate swaps, which capture market expectations of future rate decisions, are indicating that the benchmark interest rate will remain at 4.5 per cent through the end of the year. Traders are placing slimmer odds on rate hikes than they were on Thursday. BMO’s Mr. Porter tied the shift in interest-rate expectations to the collapse of Silicon Valley Bank and broader fears that have swept through financial markets this week.

Also on Friday, the U.S. reported a gain of 311,000 jobs in February, which was higher than analyst estimates. Wage growth slowed on a monthly basis.

In Canada, full-time employment rose by around 31,000 positions in February, helping to boost the number of hours worked that month by 0.6 per cent. The labour data suggest Canada is heading for positive economic growth in the first quarter; last year, many analysts on Bay Street had predicted a recession would be under way by now.

“It’s still a question of whether we have a formal recession or not,” said Toronto-Dominion Bank TD-T chief economist Beata Caranci. She noted, however, that “it’s really hard to imagine a situation where you can get inflation floating back down to 2 per cent with the unemployment rate being this low.”

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Economy

Yellen Sounds Alarm on China ‘Global Domination’ Industrial Push – Bloomberg

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US Treasury Secretary Janet Yellen slammed China’s use of subsidies to give its manufacturers in key new industries a competitive advantage, at the cost of distorting the global economy, and said she plans to press China on the issue in an upcoming visit.

“There is no country in the world that subsidizes its preferred, or priority, industries as heavily as China does,” Yellen said in an interview with MSNBC Wednesday — highlighting “massive” aid to electric-car, battery and solar producers. “China’s desire is to really have global domination of these industries.”

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Opinion: The future economy will suffer if Canada axes the carbon tax – The Globe and Mail

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Open this photo in gallery:

Poilievre holds a press conference regarding his “Axe the Tax” message from the roof a parking garage in St. John’s on Oct.27, 2023.Paul Daly/The Canadian Press

Kevin Yin is a contributing columnist for The Globe and Mail and an economics doctoral student at the University of California, Berkeley.

The carbon tax is the single most effective climate policy that Canada has. But the tax is also an important industrial strategy, one that bets correctly on the growing need for greener energy globally and the fact that upstart Canadian companies must rise to meet these needs.

That is why it is such a shame our leaders are sacrificing it for political gains.

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The fact that carbon taxes address a key market failure in the energy industry – polluters are not incentivized to consider the broader societal costs of their pollution – is so well understood by economists that an undergraduate could explain its merits. Experts agree on the effectiveness of the policy for reducing emissions almost as much as they agree on climate change itself.

It is not just that pollution is bad for us. That a patchwork of policies supporting clean industries is proliferating across the United States, China and the European Union means that Canada needs its own hospitable ecosystem for clean-energy companies to set up shop and eventually compete abroad. The earlier we nurture such industries, the more benefits our energy and adjacent sectors can reap down the line.

But with high fixed costs of entry and non-negligible technological hurdles, domestic clean energy is still at a significant disadvantage relative to fossil fuels.

A nuclear energy company considering a reactor project in Canada, for example, must contend with the fact that the upfront investments are enormous, and they may not pay off for years, while incumbent oil and gas firms benefit from low fixed costs, faster economies of scale and established technology.

The carbon tax cannot address these problems on its own, but it does help level the playing field by encouraging demand and capital to flow toward where we need it most. Comparable policies like green subsidies are also useful, but second-best; they weaken the government’s balance sheet and in certain cases can even make emissions worse.

Unfortunately, these arguments hold little sway for Pierre Poilievre’s Conservatives, who called for a vote of no-confidence on the dubious basis that the carbon tax is driving the cost-of-living crisis. Nor is it of much consequence to provincial leaders, who have fought the federal government hard on implementing the tax.

Not only is this attack a misleading characterization of the tax’s impact, it is also a deeply political gambit. Most expected the vote to fail. Yet by centering the next election on the carbon tax debate, Mr. Poilievre is hedging against the possibility of a new Liberal candidate, one who lacks the Trudeau baggage but still holds the line on the tax.

With the reality of inflation, a housing crisis and a general atmosphere of Trudeau-exhaustion, Mr. Poilievre has plenty of ammunition for an election campaign that does not leave our climate and our clean industries at risk. The temptation to do what is popular is ever-present in politics. Leadership is knowing when not to.

Nor are the Liberals innocent on this front. The Trudeau government deserves credit for pushing the tax through in the first place, and for structuring it as revenue-neutral. But the government’s attempt to woo Atlantic voters with the heating oil exemption has eroded its credibility and opened a vulnerable flank for Conservative attacks.

Thus, Canadian businesses are faced with the possibility of a Conservative government which has promised to eliminate the tax altogether. This kind of uncertainty is a treacherous environment for nascent companies and existing companies on the precipice of investing billions of dollars in clean tech and processes, under the expectation that demand for their fossil fuel counterparts are being kept at bay.

The tax alone is not enough; the government and opposition need to show the private sector that it can be consistent about this new policy regime long enough for these green investments to pay off. Otherwise, innovation in these much-needed technologies will remain stagnant in Canada, and markets for clean energy will be dominated by our more forward-thinking competitors.

A carbon tax is not a panacea for our climate woes, but it is central to any attempt to protect a rapidly warming planet and to develop the right businesses for that future. We can only hope that the next generation of Canadian leaders will have a little more vision.

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Business leaders say housing biggest risk to economy: KPMG survey – BNN Bloomberg

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Business leaders see the housing crisis as the biggest risk to the economy, a new survey from KPMG Canada shows.

It found 94 per cent of respondents agreed that high housing costs and a lack of supply are the top risk, and that housing should be a main focus in the upcoming federal budget. The survey questioned 534 businesses.

Housing issues are forcing businesses to boost pay to better attract talent and budget for higher labour costs, agreed 87 per cent of respondents. 

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“What we’re seeing in the survey is that the businesses are needing to pay more to enable their workers to absorb these higher costs of living,” said Caroline Charest, an economist and Montreal-based partner at KPMG.

The need to pay more not only directly affects business finances, but is also making it harder to tamp down the inflation that is keeping interest rates high, said Charest.

High housing costs and interest rates are straining households that are already struggling under high debt, she said.

“It leaves household balance sheets more vulnerable, in particular, in a period of economic slowdown. So it creates areas of vulnerability in the economy.”

Higher housing costs are themselves a big contributor to inflation, also making it harder to get the measure down to allow for lower rates ahead, she said. 

Businesses have been raising the alarm for some time. 

A report out last year from the Ontario Chamber of Commerce also emphasized how much the housing crisis is affecting how well businesses can attract talent. 

Almost 90 per cent of businesses want to see more public-private collaboration to help solve the crisis, the KPMG survey found.

“How can we work bringing all stakeholders, that being governments, not-for-profit organizations and the community and the private sector together, to find solutions to develop new models to deliver housing,” said Charest.

“That came out pretty strong from our survey of businesses.”

The federal government has been working to roll out more funding supports for other levels of government, and introduced measures like a GST rebate for rental housing construction, but it only has limited direct control on the file. 

Part of the federal funding has been to link funding to measures provinces and municipalities adopt that could help boost supply. 

The vast majority of respondents to the KPMG survey supported tax measures to make housing payments more affordable, such as making mortgage interest tax deductible, but also want to maintain the capital gains tax exemption for a primary residence.

The survey of companies was conducted in February using Sago’s Methodify online research platform. Respondents were business owners or executive-level decision makers.

About a third of the leaders are at companies with revenue over $500 million, about half have revenue between $100 million and $500 million, with the rest below. 

This report by The Canadian Press was first published March 27, 2024.

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