The Canadian economy is on track to regain its full productive capacity sometime early next year, according to the Bank of Canada.
That means plants going at full tilt and the economy soaking up all spare resources.
Wednesday’s quarterly monetary policy report from the central bank acknowledged there’s less “slack” in the economy than it thought just a few months ago as spending by businesses and consumers picks up.
But that doesn’t mean life’s good for all Canadian workers.
The report pointed ominously to a “persistence” of excess supply of labour – in recent months, and for the near future.
And that’s in spite of a monster job creation month in March, when 82,300 jobs were added. Indeed, the economy has now recovered all of the 430,000 jobs lost in the recession and added an additional 180,000.
But Scotia Capital economist Derek Holt said the monthly “body count” of jobs is less important than what’s happening to paycheques. He said Canadians are barely keeping up with inflation.
“People are not making anything beyond putting gas in their car, filling their grocery carts and heating their homes,” he said.
Bank of Canada Governor Mark Carney expects the so-called output gap to close sometime early next year.
But many private-sector economists, including Mr. Holt, aren’t so sure.
“There’s more slack in the economy than the Bank of Canada is estimating, bottom line,” Mr. Holt said. “Add it all up and you have cause to worry about the consumer.”
Part of the problem, Mr. Holt suggested, is that many companies are investing in capital spending, such as plant and equipment, rather than labour.
Mr. Carney said this week that the bank is pondering an eventual move higher in its key interest rate, from its current rock-bottom level of 1 per cent.
But some economists say those rate hikes may be delayed – precisely because the labour market remains weak. Mr. Holt, for example, is calling for rate hikes to begin in the third quarter of next year.
The financial crisis and the deep recession left a profound effect on the Canadian labour market, in spite of the relatively rapid recovery of the jobs lost, pointed out Toronto-Dominion Bank economist Francis Fong.
“A weaker pace of jobs growth isn’t necessarily inconsistent with the output gap closing,” Mr. Fong said. “There’s a lot going on behind those jobs numbers and the output gap.”
Mr. Fong said part of the labour conundrum is a growing skills mismatch in Canada – a problem highlighted by Mr. Carney in a speech earlier this month.
“Workers in declining industries may not have the skills or experience to match immediately the needs of employers in expanding industries,” Mr. Carney said.
So while many Canadian companies are thriving, they sometimes can’t get the skilled workers they need to “go beyond that level, to push past where they are,” TD’s Mr. Fong remarked.