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Cargo containers are stacked up as three cranes used to load and unload them from cargo ships tower above at the Port of Vancouver in Vancouver, B.C. (DARRYL DYCK/Darryl Dyck/The Canadian Press)
Cargo containers are stacked up as three cranes used to load and unload them from cargo ships tower above at the Port of Vancouver in Vancouver, B.C. (DARRYL DYCK/Darryl Dyck/The Canadian Press)

Economy Lab

How economic signals could move the election needle Add to ...

Where the economy is concerned, this campaign comes at a delicate moment. The global recovery is fragile, Europe is grappling with a debt crisis, and the Middle East and North Africa are in the midst of an unprecedented battle for sweeping political in social change.



The backdrop in Canada is one of economic growth, a rebound in the labour market but still high unemployment, and jittery consumers still rattled by the recession and, now, by the personal debts they've built up. Personal wealth has climbed back, driven by the rebound in stock prices and house values, and the recovery is solid, though growth is expected to slow later this year. And interest rates remain low, but are expected to begin rising again.



Stephen Harper called the May 2 election Saturday, saying this campaign was all about the economy, though for his opponents there's also the small matter of ethics. It will be worth watching the major economic signals over the course of the campaign. Here's a primer:



GDP (March 31)



First up is Statistics Canada's reading on how the economy performed in January, the kick-off to the first quarter after growth of 0.5 per cent in December, and, on an annual basis, 3.3 per cent in the fourth quarter of last year and 1.8 per cent in the third.

By most accounts, Thursday's report on gross domestic product should be Tory-friendly. Many economists believe the economy expanded by a solid 0.5 per cent in January, though others expect something slightly below that.

"The Canadian economy started 2011 in style, with real GDP likely rising 0.5 per cent in January, matching the prior month's solid gain," said BMO Nesbitt Burns economist Benjamin Reitzes.

"Our call would put three-month annualized growth at 5.9 per cent, the best reading in a year, and suggests [first quarter]GDP growth could clock in at 4 per cent or better, assuming a decent February and March and barring any revisions to December's increase," he added. "That's well north of the Bank of Canada's latest projection of 2.5 per cent, which will no doubt be upgraded in April."

Jobs (April 8) Statistics Canada's jobs report is the king of indicators.

The Conservatives can cite Canada's enviable record of having reclaimed all jobs lost to the recession. But it's not that simple, and an unemployment rate that remains high will provide ammunition for the other parties who can say more needs to be done.

True, those jobs have come back. But the unemployment rate is still at 7.8 per cent as of the February reading, a far cry from the 6.1 per cent of the last election, and is projected to remain well above 7 per cent this year, and still above that mark in 2012.

For young people, between the ages of 15 and 25, the unemployment rate stands at 14.3 per cent, down only slightly from earlier levels, with about 16,000 jobs gained in February.

Many young people either can't find work, or they're worried about what happens after they graduate, and many will be voting on May 2 for the first or second time.

"At this stage of the economic cycle, it is not abnormal for the labour force to expand in lockstep with or even faster than employment, as previously discouraged Canadians re-enter the job hunt," Pascal Gauthier, senior economist at Toronto-Dominion Bank, said after the last Statistics Canada report, which was a weak showing.

"This is a cyclical headwind to reductions in the unemployment rate that need not alarm unless it is sustained. "We expect labour force growth to ease over the next few quarters, allowing a modest decline in the unemployment rate to 7.5 per cent by year-end."

Bank of Canada (April 12 and 13) The Bank of Canada will be front and centre in mid-April with both its policy setting and the release of its Monetary Policy Report a day later, when it will probably cite better-than-expected economic growth.

Central bank Governor Mark Carney is expected to hold his policy rate at 1 per cent, and not even signal what could lie in store later in the spring given the optics of adjusting interest rates during an election campaign.

Still, the central bank does make a statement along with its rate setting, and the Monetary Policy Report is a hefty document spelling out where things stand and where they're headed. Mr. Carney also holds a news conference with the release of the report, and, thus, will tread cautiously.

It's not just the optics, noted Scotia Capital economists Derek Holt and Gorica Djeric.

"One reason why the BoC has been historically reticent to commence a tightening campaign during an election period relates to the uncertainty over the fiscal regime that will unfold during and after an election," they said.

"Historically, that has been a very legitimate reason for monetary policy to shift to the sidelines in order to digest what transpires on the political scene and in terms of fiscal policy. That's not a central bank that is politically influenced - it's just good policy."

Manufacturing (April 14) Canada's manufacturers have rebounded from the depths of the crisis, though sales are not back at pre-recession levels. It appears, too, that manufacturing has adjusted to the strong Canadian dollar, though economists believe that's still a threat going forward.

Still, in January sales among manufacturers climbed 4.5 per cent, for the best showing since October 2008. This comes despite a strong Canadian dollar that hampers foreign sales of exporters.

Jayson Meyers, the chief of the Canadian Manufacturers & Exporters, is optimistic, though he's worried about what global developments, in the Middle East and Japan, could mean to Canadian industry.

"There's no doubt that, especially in the short-term, the crisis in Japan will have an effect on both the Canadian supply chain and in exports sales," he said earlier this month. "What worries me even more, though, is the impact all these various factors will have on the financial system. Take Libya, for example. You can't freeze $100-billion in assets and have no effect on the economy."

Inflation (April 19) Many observers will tell you that inflation in Canada is a non-issue. That's because they're looking most closely at the so-called core rate of inflation, which factors out volatile items such as energy. The core rate, which in February stood at just 0.9 per cent in February on an annual basis, guides the Bank of Canada.

But it's the overall rate, last at 2.2 per cent, to which voters relate. The core rate is all well and good for the Bank of Canada as an operational guide, but voters look at their monthly bills, not an economic measure that strips out key costs.

Voters will see that prices at the gas pump surged 15.7 per cent in February from a year earlier, or that food prices rose 2.1 per cent. Not that rising oil prices are the fault of though government, but they do feed into a general consumer malaise. (The Conference Board of Canada's latest reading of consumer confidence showed hopes dimming, its index falling sharply in March and people most worried about the state of their finances.)

"Higher gasoline prices are likely beginning to crowd out spending from other retailers," said Adrienne Warren of Bank of Nova Scotia.

"Demand for gasoline is fairly inelastic in the short-term, as most households won't or can't easily adjust their driving behaviour," she added. "... Rising food prices pose another drag on household purchasing power. To date, the pass-through of rising global food commodity prices to Canadian grocery store shelves has been fairly muted. However, anecdotal reports are pointing to more significant price increases by late spring or summer."

Retail sales (April 21) A similar theme. Canadian consumers have been cutting back, and retail sales have declined in the past two readings, December and January.

Economists Derek Holt and Gorica Djeric believe consumers are "tapped out" and "exhausted," spent, if you'll pardon the pun.

"Real consumer spending indexed to the start of 2007 for Canada compared to other major economies shows Canada as being unique in moving on to record highs through the crisis and following, while every other major economy was flat to down."

The bottom line is, we're due for a pullback, and recent evidence suggests that has begun.

"The last two months of slowing momentum in retail spending confirms our view that given high household debt and a low savings rate, the Canadian consumer can no longer be the main engine for economic growth it once was," said economist Diana Petramala of Toronto-Dominion Bank.



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