Since mid-2009, Canada has held bragging rights on coming out of the Great Recession in better shape than any other G7 country, particularly the U.S. Doing better than the Americans has been part of the Canadian economic and political narrative for nearly five years.
Not any more. Not after last week’s jobs reports in Canada and the U.S.
The Canadian economy, forecast to grow by a modest 14,000 jobs, instead lost 46,000. Unemployment spiked from 6.9 per cent to 7.2 per cent. That’s a big miss. There’s a psychological barrier about unemployment rising above seven per cent, and Canada just crossed it.
Meanwhile, the U.S. economy, expected to create nearly 200,000 jobs in December, added 74,000. But unemployment fell from seven per cent in November to 6.7 per cent in December, a five-year low. Over the previous four months, the U.S. economy grew by an average of 214,000 jobs per month.
So the good news for Canada is not in our own job numbers, but in theirs — the economy of our largest customer is growing again, meaning increased demand for our exports, also stimulated by the decline of the loonie, making Canadian goods cheaper in the U.S.
Over the past year, the Canadian economy grew by only 102,000 jobs, or 0.6 per cent, the slowest growth since 2009, the first half of which saw the bottom of the recession.
This is not the storyline Finance Minister Jim Flaherty wants to take into his budget. He must be hoping the December numbers are an anomaly, a one-time occurrence. Should there be no turnaround in the January numbers, or should they worsen, he would be looking at a fiscal framework that calls for stimulus rather than restraint on the road to a balanced budget next year.
Then there’s the change to the economic narrative of Canada’s being a kick-ass country, especially compared with the U.S.
Since the fourth quarter of 2007, Canada has had the highest job-creation rate in the G7. The U.S. ranks fifth after Germany, the U.K. and France. Between 2006 and 2012, Canada’s employment growth of 8.5 per cent also led the G7, while U.S. employment growth was zero per cent. Over the same period, Canada led the G7 in per-capita income growth of 12 per cent compared with four per cent for Germany and minus-one per cent for the U.S. The numbers are out of Flaherty’s fall fiscal update.
They also go with other elements of the Canadian success story, including being ranked by Forbes magazine as the best country in the world in which to do business. That has something to do with a 15 per cent tax rate on large corporations. Not to mention Canada’s banking system being ranked strongest in the world the last six years in a row by the World Economic Forum.
The December jobs report pushes the success narrative off to the margins.
And then there’s the fall, rather than the flight, of the loonie, which lost three cents last week alone compared to the greenback. After spending most of the previous two years near or above exchange-rate parity, the loonie tumbled to the mid-90s in 2013, and plummeted last week to below 92 cents US.
When the loonie was above par, it was considered a petro currency, its value linked to our exports of oil and gas, more than 99 per cent of which go to the U.S. The loonie’s fall may be somewhat due to the U.S. moving toward self-sufficiency in energy, with Canada thus far unable to diversify its markets to Asia by building pipelines to Atlantic and Pacific ports, to say nothing of the Keystone XL project to the Gulf Coast of the U.S. There’s no doubt that a weaker dollar is good for Canadian exports to the U.S., as well as for inbound tourism in Canada. But exchange-rate parity also meant the world liked the fundamentals of the Canadian economy.
For the Harper government, beset by the Senate expense scandal, the economy was to be the channel-changer in 2014. Until now, at least, it has been their signature issue as competent stewards of the economy.
L. Ian MacDonald is editor of Policy magazine.
