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Canadian economy added 41,000 jobs in April: StatCan

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OTTAWA –

The labour market is showing no signs of the slowdown the Bank of Canada is hoping for to get inflation down to two per cent, something economists say could force the central bank to get off the sidelines and raise rates again.

Statistics Canada’s latest labour force survey revealed Friday the economy continued to add jobs in April while wage growth outpaced inflation.

Employment rose by 41,000 jobs in April, but with all the gains made in part-time work.

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Meanwhile, the unemployment rate held steady at 5.0 per cent for the fifth consecutive month. That’s just above the all-time low of 4.9 per cent reached last summer.

In a client note sent out Friday morning, BMO chief economist Douglas Porter said the latest jobs report once again shows “no evidence that the labour market is softening at all.”

“If this persists through the spring, the Bank of Canada may yet be forced to rethink its rate pause, especially with the housing market showing signs of reviving.”

The Bank of Canada paused its interest rate hiking cycle earlier this year, encouraged by slowing inflation. With its key interest rate sitting at 4.5 per cent, higher borrowing costs should force people and businesses to pull back on spending, and employers to rethink their hiring plans.

But so far, the labour market has remained resilient, despite previous forecasts for the economy predicting a slowdown to start the year.

The central bank has been warning that a tight labour market will make it more difficult to get inflation back to its target of two per cent, as higher wages could put upward pressure on prices.

TD director of economics James Orlando said the details in the jobs report are “mixed.” The economy continued to add jobs, but only part-time work. Moreover, population growth has been propping up employment numbers for months as Canada welcomes more immigrants.

And although the unemployment rate hasn’t budged, Orlando said there are signs that hiring isn’t happening as broadly in the economy.

“In the last three months, we went from almost 90 per cent of sectors hiring to 69 per cent of sectors hiring right now,” he said.

The job gains in April were led by the wholesale and retail trade industry, while the largest losses occurred in business, building and other support services.

The tight labour market is also putting upward pressure on wages. Average hourly wages were up 5.2 per cent on a year-over-year basis, growing faster than inflation.

The annual inflation rate in March was 4.3 per cent and is expected to fall to about three per cent by mid-year.

High wage growth is pushing the Bank of Canada to remain hawkish in its communications on monetary policy, even as it holds its key interest rate steady.

During a speech on Thursday at the Toronto Region Board of Trade, Bank of Canada governor Tiff Macklem addressed the labour market tightness.

“Most wage growth measures remain around the four to five per cent range. Unless productivity growth surprises us with a strong increase, persistent wage growth in that range will make it difficult to achieve the two per cent inflation target,” Macklem said.

Last month, the Bank of Canada’ governing council discussed raising rates again, but opted to remain on hold.

Orlando said if the economy continues to resist the slowdown the Bank of Canada is trying to engineer, interest rates may not be high enough.

“Maybe the Bank of Canada has to reassess what the proper level or the policy rate is to actually bring the economy to the economic slowdown that’s needed to get inflation back (down),” Orlando said.

This report by The Canadian Press was first published May 5, 2023.

 

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U.S. economy and new incentives put Canada at disadvantage in Stellantis negotiations, professor says

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Two weeks of negotiations between the federal and provincial governments and Stellantis have failed to produce a new deal for the NextStar EV battery plant in Windsor, Ont. Ian Lee, an associate professor at Carleton University’s Sprott School of Business, says the economic might of the U.S., coupled with the incentives offered in recent legislation, make it extremely challenging for Canada to compete.

 

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Watch Moody's Analytics' Ell on Asia Economy – Bloomberg

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Watch Moody’s Analytics’ Ell on Asia Economy  Bloomberg

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Theo Argitis and Robert Asselin: Trudeau can't keep juicing the economy with more spending – Financial Post

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World entering period of scarcity, meaning Canada won’t be able to spend its way to prosperity

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The unexpected pick up in Canadian inflation last month — even if it turns out to be a blip — is a fresh reminder that Prime Minister Justin Trudeau’s government is facing a more perilous economic policy landscape going forward, with difficult trade-offs on the horizon.

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The natural economic instinct of this government has been generous budget spending and open international migration.

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Yet, Trudeau doesn’t need to look much further than Statistics Canada’s inflation numbers or last week’s call from the G7 for global “de-risking” to see how things are changing.

With the world entering a period of scarcity — from more expensive money to supply constraints — the rationale to juice the nation’s economy is weakening.

The housing crisis is a manifestation of that, as are broader price pressures and the Bank of Canada’s historically aggressive run of interest rate hikes.

Trudeau came to power in 2015 on an anti-austerity platform to reverse his Conservative predecessor’s sluggish growth record which, as the Liberals were quick to remind Canadians at the time, was the weakest since R.B. Bennet was prime minister in the 1930s.

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The economics were sound at the time, even if the growth dividend didn’t pay off.

Canada’s economy was demand deficient early in Trudeau’s mandate as commodity prices slumped, while the extra spending helped ease financial stability risks by taking some pressure off the Bank of Canada to stoke growth.

Higher international migration drove gains in labour income and provided support to a housing market that was still largely within reach of affordability. Inflation wasn’t a worry. In fact, the concern for policymakers was it may not have been high enough.

New social programs, meanwhile, allowed the government to make significant strides on equality and redistribution — particularly with respect to lowering poverty.

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The Trudeau administration’s weighty policy objectives were synergetic to the economic environment. Policies were rowing more or less in the same direction.

The current post-pandemic environment, though, is no longer as accommodating.

While many policymakers and economists still buy into a moderately optimistic outlook, with continued growth and inflation brought into check, less favourable outcomes are increasingly plausible.

There is a real possibility that inflation and interest rates will remain well above pre-pandemic levels, growth becomes more anemic, budget dynamics worsen and the climate transition proves costly.

Instead of working in concert, the government’s three core economic policy objectives — growth, equity and price stability — could become increasingly in conflict.

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For example, increasing immigration is a long-term positive for an economy threatened by aging demographics. And more social spending is typically associated with less inequality.

But higher borrowing costs stoked by large increases in population and government spending will impact disproportionately lower income Canadians and young families, potentially creating divisions and threatening new sorts of inequality.

Add energy transition to the mix and national security issues and the landscape becomes a minefield.

The policy arena will be more ambiguous and the government pulled in multiple directions. Policy paralysis, wasted effort and poor allocation of resources are real risks.

There are certain fundamentals and policy guardrails, however, that can help the government navigate this challenge.

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A construction worker frames a new home in London, Ont.
Temporarily slowing the pace of entrants to allow housing supply to catch up could be a good solution to the current housing crisis. Photo by Mike Hensen/The London Free Press/Postmedia Network

First, policymakers should prioritize growing GDP on a per capita basis and increasing productivity over expanding the overall aggregate economy. Both are important, but the former is where true prosperity lies and where Canada is failing. Masking underlying weakness with gains in national income is just a recipe for stagnant wages. Enhanced productivity also helps dampen inflationary pressures.

Second, toolkits and policy precision matter.

For example, supply side solutions are critical to productivity, but policymakers also need to be cognizant of short-term impacts in an inflationary world. Focusing more on economic migration and temporarily slowing the pace of new entrants to allow housing supply to catch up appears a reasonable solution to the current housing crisis.

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Another example is industrial policy, which needs to become more sophisticated. Advanced economies will compete in advanced industries, where there is a concentration of R&D and skilled workers. Quick fixes through corporate subsidies, however, are not the answer. Canada needs a modern science and technology architecture that translates ideas into economic outputs, higher wages and better living standards.

The third guardrail is the most Canadian: be reasonable and pragmatic.

This seems obvious but we should not take this principle for granted, particularly as we rush (rightly) to meet ambitious climate targets. Canada remains a resource economy. The sector pays a lot of bills, keeps our currency stable and government finances flush with cash.

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It’s also where any global power we may have as a nation lies. That makes an orderly climate transition paramount.

Theo Argitis is managing partner at Compass Rose Group. Robert Asselin is senior vice-president, policy at the Business Council of Canada.

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