MRO Magazine

Economic recovery slows but remains on track, says Conference Board of Canada

Ottawa, ON -- Canada's labour market rebounded last month from a slight pause, adding 35,800 jobs in August 20...


September 13, 2010
By MRO Magazine


Ottawa, ON — Canada’s labour market rebounded last month from a slight pause, adding 35,800 jobs in August 2010. However, despite the gains, the unemployment rate actually rose 0.1 percentage points to 8.1%, according to the Conference Board of Canada.

The service sector was the primary driver of employment growth, as nearly all of the education jobs lost in August were regained. (This has been a growing trend in the past few years; however, because Statistics Canada measures seasonal variation over a long period of time, the expected blip in education employment has not yet been accounted for in the seasonally adjusted data.) The rest of the service sector did not fare as well. The only other industries to add jobs were public administration, and professional, scientific, and other services.

The goods-producing sector shed 8,200 jobs in August, with all the losses coming in the agriculture and manufacturing industries. Employment growth in manufacturing has yet to gain any traction, as it shed 25,600 jobs in August, wiping out almost all of the gains it had posted in July.

While manufacturing output grew by a robust 10% from June 2009 to June 2010, employment actually fell 1.3%. This is due largely to the high Canadian dollar and the recession, which pushed out inefficient firms and caused others, such as the troubled North American automakers, to completely revamp their structure, making them substantially more efficient. In the other goods-producing industries, employment grew as the economic recovery continued — although at a slower pace, at home and abroad.


Canada’s employment and GDP levels have almost returned to where they were before the recession struck, and the economic recovery remains well ahead of that of the US, which continues to experience modest economic growth and high unemployment.

Real GDP in Canada advanced 0.2% in June 2010. The goods-producing sector continued to lead the way as all industries, with the exception of mining and oil and gas extraction, posted gains. Forestry and logging rose by a solid 10.5% as foreign demand for lumber products rebounded. Manufacturing — a key economic driver — rose by 1.3%. However, the gains there were concentrated in only a few select manufacturing industries: chemicals, machinery, petroleum and coal products, computer and electronic products, and furniture.

Retail trade — which grew by 0.7%, thanks to large increases in sales of new vehicles, electronics, and furniture and home furnishings — bolstered Canada’s service sector GDP by 0.1%. Although most service sector industries gained ground, weak existing home sales depressed output in the finance, insurance, real estate, and leasing industry, which slid 0.2%. Public administration, as well as accommodation and food services, also retreated in June.

Due to the high loonie, import growth outpaced export growth in the second quarter, putting a damper on GDP growth.

Overall, real GDP grew at a 2% (annualized) pace in the second quarter of 2010 — a far more modest showing than the blazing 5.8% recorded in the first quarter. Government current expenditures on goods and services increased by only 0.4%, as the federal and provincial governments took advantage of the economic recovery to reel in spending.

The strong loonie led to a surge in imports, thereby dampening second-quarter economic growth. However, there was some positive news. Personal disposable income shot up 3.6%, mostly as a result of higher income tax refunds for the 2009 tax year, which should provide some support for retail sales over the near term.

As expected, the introduction of harmonized sales taxes (HST) in British Columbia and Ontario, combined with an increase in the sales tax in Nova Scotia, boosted the national annual inflation rate. The rate rose to 1.8% in July, up from 1% in June. The introduction of the HST in Ontario had a particularly strong effect on gasoline prices, which rose 4.8%. Taxes per litre of gasoline sold in Canada increased 8.8% in July following the introduction of the new taxes, yet the cost of other inputs in the price of gasoline, such as retailing costs and the wholesale cost, actually fell 1.6%. (The boost in the HST rate in Nova Scotia caused a small increase in gas prices there as well. But because Nova Scotia’s economy is relatively small, and because the change involved only a two percentage point increase rather than the introduction of a new 8% levy on gas as in Ontario, Nova Scotia’s increase had little effect on national prices.)

The seasonally adjusted core CPI, which excludes the effect of changes in indirect taxes as well as eight of the most volatile items (as identified by the Bank of Canada) grew at a modest 1.6% annualized rate in July 2010, slightly below the 1.7% pace recorded in June.

Most service industries are growing. Weak home sales, however, are dragging down the finance, insurance, real estate, and leasing industry.

On September 8, the Bank of Canada elected to raise its overnight rate by another 25 basis points, bringing the rate to 1%. However, the Bank added a note of caution to its policy statement, saying that “any further reduction in monetary policy stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook.” Although rates are now at their highest level in over a year and a half, the Bank still considers a 1% rate to be “exceptionally stimulative.”

Eric Thomson is an economist with the Forecasting and Analysis division of the Conference Board of Canada.