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You’re not the only one confused about where the economy is going — the experts are too

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Should Twitter employees turfed from their jobs by their new boss come looking for work in Canada? Friday’s stunning jobs numbers might make you think that was a good idea.

While the U.S. economy, where employment numbers were also released on Friday, created 261,000 jobs, Canada cranked out 108,000 — despite having only one tenth the U.S. population.

As the company’s self-designated “Chief Twit”, Elon Musk was engineering Twitter-wide employment devastation just as Canada was creating jobs.

Expect the unexpected

Musk wasn’t alone. Tech darlings including Amazon, Apple, Lyft and Stripe have announced layoffs and hiring freezes to prepare for a coming recession. In Canada, Hootsuite and Dapper Labs cut staff.

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In her economic statement last week, Deputy Prime Minister Chrystia Freeland, this time wearing her finance minister’s hat, repeated her recent warnings that Canada must prepare for recession.

“Canada cannot avoid the global slowdown,” said Freeland, “but we will be ready.”

She also declared that Canada was strong and would get through any economic troubles in good shape; echoing former prime minister Wilfrid Laurier’s 1904 declaration the 20th century belonged to Canada, Freeland put dibs on the 21st.

 

Fall economic update promises support for struggling Canadians

 

Ottawa’s recently unveiled fall economic update promises new relief for some of the hardest-hit Canadians, as people across the country struggle with the rising cost of living.

Contradictory signals have become the rule rather than the exception as economists, businesses and political leaders struggle — and sometimes fail — to winkle out a pattern in today’s data to tell us a true story about the future. No wonder the rest of us have trouble doing it.

Friday’s huge job numbers showed how difficult predictions are, even for specialists. Not one of the economists polled by Bloomberg came close. Unemployment data is notoriously variable, and Tu Nguyen, who forecast that jobs would actually shrink, was not the only person to be shocked.

“Wow, we certainly did not expect this,” said Nguyen, an economist with the financial firm RSM Canada. “Despite all the talk about recession … we are certainly not in a recession right now if you look at the jobs numbers.”

Good for some bad for others

So are we getting a recession or not? People who are supposed to be in the know are still debating. The word stagflation keeps popping up, and last week U.S. billionaire Paul Singer warned of hyperinflation, a kind of price-growth-on-steroids that knocks an economy flat.

At more moderate ranges, a preference for inflation or rising interest rates, depends, like Freeland, on which hat you are wearing. Borrowers dislike rate hikes, while workers, shoppers and savers dislike inflation. But since many Canadians are all of those things, it is hard to choose.

For employers considering the need for layoffs, workers desperately trying to catch up with rising prices, for homeowners and market traders, the lack of clarity makes everything harder.

More jobs is generally good news for workers, and the Statistics Canada data showed wages were rising faster — now at a pace of 5.6 per cent. However, that’s still below current inflation, which is running at 6.9 per cent.

But the persistently strong economy signalled by employment data in both Canada and the U.S. seems to be warning us that inflation is not yet sinking back down to the two per cent target range.

CUPE members and supporters rally outside Queen’s Park in Toronto on Friday. If you predict inflation will stay high, expect more labour disputes as wage-earners struggle to catch up. (Carlos Osorio/CBC)

Canada’s next inflation data is still just more than a week away, but last month’s surge in gasoline prices after previous monthly declines could push the consumer price index higher. In the U.S., the most recent inflation number — core inflation, the type with volatile things like gas taken out — has continued to rise.

If prices are going to remain on the upswing, it may not be surprising that on Friday Ontario education workers stood up to a provincial government that had ordered them back to work. Thirty years of tame inflation left employees complacent at first, but more are now grasping the economic principle that a wage increase below the rate of inflation is equivalent to repeated cuts in pay.

When the Bank of Canada’s Tiff Macklem hiked interest rates by “only” half a percentage point last time, some borrowers breathed a sigh of relief, hoping rate increases were coming to a halt.

But borrowers got a rude surprise when Jerome Powell at the U.S. Federal Reserve hiked rates by three quarters of per cent, a rate rise that will inevitably affect Canadian borrowers, too.

The difficulty of making predictions based on economic signals got a real-time demonstration last Wednesday as Federal Reserve chair Powell was speaking to reporters at his monetary policy news conference.

“I notice stocks and bonds are reacting positively to your announcement,” said one reporter. “Is that something you would have wanted to see?”

Powell responded that his intent was not to influence markets, but the world’s most influential central banker then made it clear that anyone who thought the Fed was about to take a break in hiking rates was mistaken.

“There is no sense that inflation is coming down,” he told the assembled reporters as well as the many market players who were listening in on the public feed. “It’s premature to discuss pausing, and it is not something we are thinking about.”

Markets retreated accordingly.

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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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