Part-time solution to full-blown issue

Opinion

Hey there, time traveller!
This article was published 05/11/2016 (3250 days ago), so information in it may no longer be current.

The labour market in Canada continued to lag behind the United States in October, surveys issued in both countries showed Friday. Canadians were still waiting for results from the January tax cut and the child benefit payments to families that began in July.

In the U.S., employment increased by 161,000, continuing the trend of preceding months. Employment growth has averaged 181,000 jobs per month this year, compared with 229,000 per month in 2015. The U.S. unemployment rate in October dropped to 4.9 per cent from 5.0 per cent, a level that has prevailed since August 2015.

In Canada, employment increased by 44,000 jobs from the preceding month, much better than economists had forecast. But compared with the previous year, employment had risen by just 140,000 jobs, and of that total, 124,000 were part-time jobs.

The unemployment rate (which Canada calculates differently than the U.S.) remained at seven per cent, where it has been — with small wobbles up and down — since May 2013.

The U.S. job performance seemed likely to encourage the Federal Reserve to start raising interest rates at its Dec. 14 rate-setting meeting because the economy is showing steady, gradual expansion, and the prevailing administered interest rates are exceptionally low. The U.S. will have a national election and a further labour market report before the Fed makes its December move.

The Canadian experience left two mysteries for the authorities to explain. U.S. economic expansion was supposed to increase Canadian exports to the U.S. and so drag Canada along into a corresponding expansion, though this has not yet been seen.

The government’s huge stimulative measures — the January income tax cut and the Canada child benefit payments that started in July — were supposed to put new money into the pockets of Canadian consumers, strengthen their confidence, lead to expansion of Canadian businesses and create new jobs. This, too, has not yet happened.

The most dramatic economic effect seen in Canada this year has been rising prices for houses and condos. The Canada Mortgage and Housing Corporation, in its latest housing-market assessment, found strong evidence of overvaluation and moderate evidence of price acceleration in the whole of Canada. Toronto and Vancouver housing prices were way out of line with what changes in income, population and mortgage interest rates would suggest. Winnipeg, Montreal and Quebec housing prices were also problematic, the agency found.

This week’s labour-market report showed construction was one of the few industries in which employment grew, with a year-over-year gain of 47,000.

It is possible that Canadian families have taken the extra money from their tax cuts and their child benefits and hidden it in their mattresses or their bank accounts. It is also possible they are about to go on a winter spending spree that will encourage businesses to expand. The evidence so far, however, suggests another solution to the mystery. The extra cash may have disappeared into inflating the housing bubble. If that is the case, it may take a very long time indeed for the stimulative measures to translate into employment growth.

Prime Minister Justin Trudeau and his Liberal government have just completed their first year in office. Mr. Trudeau was clearly pleased, in his self-assessment at the one-year point, with his measures to support, as he says, the middle class. Before the term is up, however, that middle class may look for better job-market performance than is now apparent.