Considering the ghastly events in Paris this past week, it's no surprise that the economic data that were released in Canada and the US received less media coverage than usual. However, the two countries' employment reports for December merit a bit of attention, since they show that the Canadian economy, at least in job creation terms, continues to underperform its southern neighbor to a startling degree. This will have a significant impact on Canadian politics and economic policy during 2015.
First, a quick look at the data. The US ended its best year of job growth since 1999 by adding more than 200,000 jobs in December. In contrast, Canada shed 4300 jobs in the month, the second consecutive monthly decline. Some analysts took consolation from the fact that there were 54,000 full-time positions added in the month, with a more-than-offsetting decline in temporary employment, while others preferred to focus on the falling percentage of the population holding any kind of job.
The Harper government has for years planned to use its stewardship of the economy as its key election plank for the vote expected in October 2015. A couple of months ago it became so excited at the prospect of running a budget surplus this year that it announced a slew of new tax cuts timed to hit voters' bank accounts just before voting day. Largely as a result of plummeting oil prices, it now looks as though the Tories won't just be spending the surplus before it's actually been recorded: they'll be running the deficit back up, because there won't be any surplus to spend. In general, voters have little appreciation of matters fiscal, particularly if they're the recipients of a nice fat cheque, but it's certain that the opposition parties will try to turn the Tories' past bragging against them.
Looking at the broader economy, the employment data are deeply worrisome. Surprisingly, given the oil price collapse, it was Alberta that saw the best job gains in December. However, first signs of layoffs in the oil patch are starting to emerge, and the province's job picture is likely to darken considerably as long as oil prices remain weak. Alberta's provincial finances are already the worst in a generation.
Across the country in Ontario and Quebec, there are (or were) hopes that the fall in the exchange rate caused by lower oil prices could give a boost to the manufacturing sector. It's hard to hold out much hope for this. The huge auto and steel plants in southern Ontario that have been shuttered over the past couple of decades are not going to reopen just because the Canadian dollar is weaker: you only have to drive past one of these hulking relics to realise that the only question about their future is whether they fall down before anyone gets around to demolishing them. With the Harper government bound and determined to conclude more free trade pacts, the long-term direction of Canadian manufacturing employment can only be downward.
This largely unexpected darkening in Canada's near-term economic outlook makes it risky for Harper to pin his re-election campaign on his party's economic management, though it has to be said that the incoherence of the opposition parties on such matters may help him ride out the storm. However, it's no surprise that Harper is talking up his foreign policy credentials in order to provide an alternative story at election time. His main foreign policy moves -- saber-rattling over Ukraine, support for Israel that's so inflexible that it even embarrasses the government there -- are inconsistent with Canada's past dealings with the rest of the world, but play well with large ethnic groups within Canada that Harper is anxious to court.
And what about the Bank of Canada? Governor Stephen Poloz always seems to be looking for reasons to keep policy ultra-accommodative, and the weak employment trend certainly plays into that bias. Falling retail gasoline prices may well drive headline inflation much lower in the first part of the year, giving the Bank further leeway to avoid tightening. And yet....Deutsche Bank released a report this past week warning that the Canadian housing market is overvalued by 63 percent. That was just one of seven reasons why Deutsche believes that the Canadian economy is in "serious trouble" -- and all of those reasons come back in the end to the pernicious effects of ultra-low interest rates. Unlike Stephen Harper, Poloz doesn't have to face the voters this year, but both men have plenty of reasons to keep their fingers and toes crossed that nothing goes badly awry in the next few months.
** Nothing to do with all this doom and gloom, of course, but I will be heading south for a couple of weeks for a respite from winter. Posting should resume at the start of February.
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