The Canadian economy is roaring forward

Latest employment figures are very good news for Charest and Harper

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The Gazette, Sunday, July 11, 2010

The Canadian economy created nearly 100,000 jobs last month--93,000 to be precise, dropping the unemployment rate to 7.9 per cent, the first time jobless numbers have been below eight per cent since the beginning of last year.

Those are blowout numbers. The consensus forecast by economists was a much more modest 20,000 new jobs.

By comparison, the U.S. economy shed 125,000 jobs last month and unemployment remains dangerously close to double digits at 9.5 per cent. There are no bragging rights for Canada in these numbers, as we are a trading nation exporting one-third of everything we produce, three-quarters of that to the United States.

Still, ca va bien.

Since last July, the economy has created 430,000 new jobs, most of them in Ontario and Quebec. Ontario added a whopping 60,000 new jobs last month, while Quebec created another 30,000. In the last year, the Ontario economy has added 187,000 new jobs, while Quebec has created 117,000.

And here's the new normal--Quebec's unemployment rate of 7.8 per cent remains just below the national average, while Ontario is still above it at 8.3 per cent.

There was a time, in the 1980s and 1990s, when the Quebec unemployment rate coming out of a recession would be anywhere from two to four points above the national average. But the Quebec economy has since diversified into high technology spaces such as aerospace and pharmaceuticals, as well as services, which are less prone to recession than iconic manufacturing sectors.

Quebec construction signs claim federal-provincial stimulus programs are creating 100,000 new jobs, and the StatsCan numbers prove it.

Jean Charest is coming off a very rough session of the legislature, in which he's taken a pounding on ethics and governance issues. But as he retools his message over the summer, he can take comfort in the fact that the fundamentals of the Quebec economy are surprisingly strong.

The Quebec Liberals are seen as the party of economic managers, and Charest should play to his strengths. Let's put it this way: Robert Bourassa once ran on a slogan of creating 100,000 jobs in four years. Under Charest, Quebec has created that many jobs, and 17,000 more, in only a year. Oui, ca va bien.

Notwithstanding the buoyant job creation numbers, inflation remains very much under control at 1.6 per cent, below the Bank of Canada's target rate of two per cent. Inside that number, wage inflation is only 1.7 per cent.

This means that Bank of Canada Governor Mark Carney has the margin of manoeuvre to keep the bank rate at .50 per cent, up only 25 basis points from its historic low of .25 per cent, when the objective was to pump as much liquidity as possible into the economy by way of cheap money.

While some suggest Carney might raise 25 basis points to 0.75 per cent at the bank's next setting later this month, he has to be looking over his shoulder at U.S. Federal Reserve Chairman Ben Bernanke, who is in no hurry to raise the U.S. bank rate of between zero and .25 per cent.

Another increase in the Canadian bank rate, putting it at least 50 basis points above the U.S. rate, would only exert more upward pressure on the loonie, which on yesterday's job numbers soared over 100 basis points to 97 cents.

On at least two occasions in the last year, Carney has tried to talk down the Canadian dollar, with only temporary success. In the face of already weak demand in the U.S., virtual exchange rate parity is obviously not a good thing for Canadian exports. However, as Finance Minister Jim Flaherty has privately acknowledged, "it is the price of success."

For one thing, our dollar has become a petro-currency. For another, Canada has come out of the recession in better shape than any of our G7 partners, in terms of both job creation and fiscal frameworks, not to mention the soundness of the Canadian banking system, ranked best in the world by the World Economic Forum.

For example, the current deficit of $47 billion for the last fiscal year is already below the $54 billion forecast in the budget, on its way to $27 billion this year as Ottawa winds up the emergency stimulus program.

These new numbers mean more personal, corporate and GST tax receipts for the feds, and that in turns means the current deficit could be even lower.

This could be the moment for an old Liberal campaign slogan: The land is strong.

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