Unemployment Surge

My take on today’s Labour Force Survey follows:

Unemployment

Although November’s 42,600 increase in employment is striking, the 25,100 increase in unemployment deserves as much attention. While the number of workers employed grew by 0.3%, the number unemployed grew by 2.4%. Proportionally, unemployment growth in the last month nearly equals employment growth over the past year (2.7%).

The higher unemployment rate contradicts the conventional wisdom of a tight job market and labour shortages. Canada now officially recognizes 1.1 million people as looking for work, but being unable to find it. Of course, many more Canadians remain underemployed or outside the labour force altogether.

Manufacturing

A further 16,400 manufacturing jobs disappeared in November, pushing total losses to 314,600 since manufacturing employment peaked in November 2002. These severe losses are likely to continue as long as the Canadian dollar remains near parity with the American dollar.

Earlier this week, the Bank of Canada took a small step in the right direction in cutting interest rates by 0.25%. However, the US Federal Reserve has recently reduced interest rates by 0.75% and seems poised to cut them further. The Bank of Canada needs to continue lowering interest rates to moderate the exchange rate so that Canadian-made products can be competitive in foreign markets.

Investment

On Wednesday, Statistics Canada revealed that the value of Canada’s fixed assets rose by only 2% per year from 1997 through 2007. Half of this growth occurred in Alberta. Investment barely exceeded depreciation in the rest of Canada.

This anemic business investment bodes poorly for the future of Canada’s labour market. Alberta’s investment boom created relatively few jobs because it is concentrated in the oil and gas industry, which is extremely capital-intensive as opposed to labour-intensive. More real investment in a wider range of industries is needed to create and sustain large numbers of high-productivity jobs.