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A look beneath the surface Tomorrow's employment report from Statistics Canada will highlight the rebound in the jobs market from the depths of the recession. Canada has already gained back all the jobs lost in the slump, a far cry from the experience of the United States.
"Even with no change in employment in December, 2010's tally would still reach 264,000 net new jobs - the strongest turnout since 2007 and enough to break through the pre-recession level of employment by 24,000," Toronto-Dominion Bank economists say in a new report. "The jobless rate fell from 8.3 per cent to an estimated 7.6 per cent."
But is the labour market as strong as it appears at first blush? No, concludes the report from chief economist Derek Burleton and economist Sonya Gulati, which finds that job market conditions are "not as robust as meets the eye," particularly in some parts of Canada.
Some highlights of their report, which illustrates an economic divide on several fronts:
- Alberta, New Brunswick, Nova Scotia and Ontario have yet to see their pre-recession peaks.
- While jobless rates in Newfoundland and Labrador, Alberta and British Columbia fell smartly, those of New Brunswick, PEI and Saskatchewan rose.
- While full-time jobs have been coming back, the share of the overall market held by part-timers is still markedly higher than before the recession, estimated at 19.3 per cent, compared to 18.4 per cent in 2008.
- The jobless rate does not take into account workers who have given up hope and are no longer looking for jobs. Nor do measures fully capture the underemployed.
- There has been a shift to lower-paying jobs, which has held down wages.
- Most of the job creation has come from the public sector and self-employment, with the private sector still down by 106,000 from before the slump.
"Looking ahead to 2011, the news on the job front will likely be mixed in most parts of the country," Mr. Burleton and Ms. Gulati said.
"As December data are likely to attest to, the momentum in job creation heading into the new year suggests that conditions will improve gradually. This reaffirms the notion that employers are continuing to meet moderately growing demand through higher productivity instead of adding to their payrolls."
They project the economy will create 250,000 jobs this year, with the Prairies "doing much of the heavy lifting," and a jobless rate of 7.5 per cent. And as Ottawa cuts back from its recession-fighting measures, they also expect public sector employment to return to more traditional levels.
Fire and brimstone Listening to Timothy Geithner today, you'd think it was Apocalypse Now. And it well may be, but it's the language the U.S. Treasury Secretary uses in a letter to congressional leaders that's fascinating.
Mr. Geithner's apocalyptic warnings came as he urged congressional leaders to hike the government's borrowing limit from $14.3-trillion (U.S.), which he says will be hit between March 31 and May 16.
The Republicans want to rein in government, and have said they will fight an increase. It will all work out in the end, no doubt, as the calf gets even fatter, but Mr. Geithner's comments make for good reading:
"Never in our history has Congress failed to increase the debt limit when necessary. Failure to raise the limit would precipitate a default by the United States. Default would effectively impose a significant and long-lasting tax on all Americans and all American businesses and could lead to the loss of millions of American jobs. Even a very short-term or limited default would have catastrophic economic consequences that would last for decades."
"At several points in past years, Treasury has taken exceptional actions to delay the date by which the limit was reached in order to give Congress additional time to raise the limit ... Treasury would prefer not to have to engage again in any of these extraordinary measures. If we are forced to do so again, these measures could delay the date by which the limit is reached by several weeks. Once these steps have been taken, no remaining legal and prudent measures would be available to create additional headroom under the debt limit, and the United States would begin to default on its obligations."
"The Treasury would be forced to default on legal obligations of the United States, causing catastrophic damage to the economy, potentially much more harmful than the effects of the financial crisis of 2008 and 2009."
"Because Treasuries represent the benchmark borrowing rate for all other sectors, default would raise all borrowing costs. Interest rates for state and local government, corporate and consumer borrowing, including home mortgage interest, would all rise sharply. Equity prices and home values would decline, reducing retirement savings and hurting the economic security of all Americans, leading to reductions in spending and investment, which would cause job losses and business failures on a significant scale."
That's a sample, and of course Mr. Geithner laments the swollen debt levels of his country and stresses that President Barack Obama wants to get the country back on track.
Then there's the other side.
Observers have been pounding away at the government's fiscal standing for some time now, warning the United States is spending its way to oblivion. Most recently, for example, PIMCO's Bill Gross was similarly near-apocalyptic.
"The American hegemon knows no limits, it seems, when it comes to spending other people's money for their own consumption," Mr. Gross, who runs the world's biggest bond fund, wrote on the company's website, warning of higher inflation, a limp dollar and the threat to the country's Triple-A rating.
"Unlike euroland or the United Kingdom, which appear to have gone on an extreme fiscal diet, the American answer to a bulging waistline is always 'mañana.' Debt commission recommendations are tossed in the trash can, tea party election rhetoric eventually focuses on miniscule and merely symbolic earmarks, and both Democrats and Republicans congratulate each other on their ability to reach a bipartisan agreement for the good of the nation."
The Republicans aren't going for it either, not yet anyway.
"The American people will not stand for such an increase unless it is accompanied by meaningful action by the President and Congress to cut spending and end the job-killing spending binge in Washington," House speaker John Boehner said in a statement.
- Geithner wants U.S. debt limit raised
- Read Mr. Geitner's letter
- Bill Gross warns of deficit 'pain aplenty'
Gross recommends Canada While Mr. Gross frowns on his own government's debt, Canada's not looking so bad. The managing director of PIMCO suggests in the article that investors look at Canada other countries "that appear to have their act under control."
For investors looking for stocks, he writes, go where the growth is.
"If the U.S. must pay an eventual price for mindless deficit spending, then find countries and currencies that appear to have their act under control: Canada, Brazil and yes even Mexico with its drug-related violence."
His comments come as the Canadian dollar continues to hover around parity with the greenback, buoyed by yesterday's stronger-than-expected reading in a U.S. employment report.
That report from Automatic Data Processing, which showed strong hiring by the U.S. private sector, has boosted optimism on the U.S. economy, particularly that, finally, unemployment may be easing.
But the report, which showed companies created almost 300,000 jobs in December, has also heightened expectations for tomorrow's official measure by the U.S. government.
Investors are now expecting a stronger reading, and a weak showing could dash their hopes.
For now, though, the loonie is riding on the coattails of the U.S. showing as Canada would benefit from a stronger recovery in the United States, its largest trading partner, said Scotia Capital currency strategist Camilla Sutton.
"What's good for the U.S. is good for Canada," Ms. Sutton said.
The Canadian dollar has been gaining, ironically on a generally weaker U.S. dollar, but also on the back of strong commodity prices and a optimistic economic and fiscal outlook.
Jobless claims rise Applications for jobless benefits rose in the U.S. last week, perhaps taking some of the steam out of the ADP numbers, though economists suggest not reading too much into that.
Applications rose by 18,000 to top 400,000, somewhat disappointing given that a week earlier they were at their lowest in over two years and had pumped up hopes.
"Of course a rebound in claims is a negative but after the prior week's 29,000 drop to 391,000 (the first venture below the 400,000 level since July 2008), some reversal was expected," said BMO Nesbitt Burns senior economist Jennifer Lee. "And this is a messy time of year for these data. But here's the main takeaway: the downward trend is still intact."
Jill Brown, vice-president of economics at Credit Suisse Securities in New York, also pointed out that, aside from last, today's reading is still the lowest since July of 2008.
"The smoother four-week average is also the lowest since 2008," she said. "This further supports other reports that suggest the labour market is recuperating."
Floods to hit Australia economy Economists are trying to tally the damage to Australia's economy from the crushing floods that have hit coal mines and crops, dealing a blow to key exports.
A Bloomberg survey of economists projected the damage in the Queensland region may hit growth by about 0.2 of a percentage point this quarter. It could also stop the Reserve Bank of Australia from raising interest rates again.
"Sad news continues to come from Queensland, where the reported flooded areas are bigger than Texas," Carl Weinberg, chief economist at High Frequency Economics, said in a research note today.
"No one can judge yet what the impact of this disaster will be on Australia's economy. It is clear that coal and wheat production will be sharply impacted. Wheat inventories, worldwide, are already quite low and prices are jumping on world grain markets. Nothing good can come of this."
Brazil acts on currency Brazil has introduced new measures to keep a lid on its rising currency, the real, which has climbed almost 40 per cent against the U.S. greenback since the beginning of 2009.
The country's central bank is boosting reserve requirements on currency positions held by local banks. Interest will then not be paid on reserves that are held in cash.
"It's the latest of a confusing set of signals sent by Brazil with respect to its openness to cross border capital flows," Scotia Capital economists Derek Holt and Gorica Djeric said in a research note today.
"It follows liberalizing steps toward allowing more foreign inflows into corporate bond markets to feed massive infrastructure financing requirements in the years ahead, and before that higher taxes on portfolio flows. We want it, we don't want it. One thing we continue to believe is that emerging markets will continue to face a large net inflow of capital being siphoned off from developed countries not because of Fed policy, but simply because they are out-performing on growth compared to developed economies."
Double, double toil and trouble Jim Flaherty, take note. Romania's witches are cursing their government - that's like a spell, not a four-letter word - because the government is changing labour laws to start taxing them.
Sorcery's actually a big deal in Romania, where, according to The Associated Press, President Traian Basescu and his aides wear purple on Thursdays to keep evil spirits away.
So today, reports say, witches are heading to the Danube River to threaten the administration with sorcery. One witch, who goes by just one name as is their custom, told the news agency that several witches will put a hex on the government and throw mandrake into the Danube.
According to the new laws, witches will join the self employed in paying 16 per cent in income tax. That will also take in astrologers and embalmers.
CES kicks off The International Consumer Electronics Show kicks off officially today in Las Vegas as door open to trades people. Wednesday was press day and the Globe's Omar El Akkad and freelance writer Saleem Khan filed several stories to globetechnology.com.
In Your Business today
How can you make your business easier to find online? Keep it relevant, keep it clean, keep it connected.
David Lowenstein, who co-founded Federated Networks in 2005, says he believes the Toronto-based company can compete with bigger cybersecurity hitters based purely on its innovation, including its proprietary security protocol that he claims is more robust than the industry standard.
Face Atelier is found in the kits of makeup artists worldwide and it is worn by celebrities including Lady Gaga and Fergie, as well as the everyday woman. Its products have been featured in many of the major consumer magazines and brand was a sponsor for Madonna's Confession tour. Founder Debbie Bondar is humble and avoids overanalyzing the strategy behind her success. "I did not take a clinical approach to starting my business. I just shot from my hip. I followed my gut."
In Personal Finance today
What, exactly, does it mean to save "enough" for retirement? Rob Carrick says we need to clarify this "before we set off on yet another instalment of the Canadians Aren't Saving Enough For Retirement drama."
Tax Matters columnist Tim Cestnick explains why there are better ways to set aside retirement savings for a spouse than giving him or her money to contribute to an RRSP.
From today's Report on Business