The job report: explaining Canada’s post-recession bounce
We keep hearing about the amazing Canadian economic rebound—some 300,000 new jobs in the past year. Is Bay Street paving the way for a new economic world order?
America’s financial sector makes a tasty carcass, and Bay Street is tucking into the feast, gobbling up staff and tearing off divisions from hobbled U.S. counterparts. CIBC recently purchased Citigroup’s Canadian MasterCard division. RBC has been hiring big guns away from New York’s investment banks. And those two banks aren’t even taking the biggest bites.
TD, the second largest bank in Canada, is on a mission to crack the American market. Earlier this year, it swallowed up three troubled Florida banks, then purchased South Carolina’s South Financial Group, adding 176 branches to its network for the bargain price of $191.6 million—just over $1 million per branch. All told, TD, which has introduced a jolly-eyeballed green foam‑rubber mascot specifically for its American operations, now has 1,300 branches in the States, 200 more than it has in Canada.
The country’s entire economy appears to be working its way up the global food chain. Our GDP grew by 6.1 per cent in the first three months of 2010. Among the 31 market-oriented democracies that make up the Paris-based Organization for Economic Cooperation and Development, only South Korea’s economy grew faster. The United States economy, according to OECD numbers, grew only three per cent, while the median growth within the group stood at approximately two per cent. Canada’s economy has also created 215,000 jobs since the start of the year, 109,000 of them in April alone.
It’s hard to find an economist or an analyst who will admit just how phenomenal Canada’s performance has been. That’s because of their professional culture. Full-time prognosticators—particularly the bank-employed “TV-conomists,” like BMO’s Sherry Cooper and TD’s recently retired Don Drummond—expertly cultivate the perception that they are smarter than any indicator put in front of them. In this crowd, hyperbole is sinful, and astonishment is forbidden—even in hindsight, when the coast is clear and they can’t be accused of lousy predictions. To my knowledge, not a single economist foresaw those April job figures, and even once they were out, it was hard to find anyone who said, “Wow, that’s really impressive” or “I didn’t see that coming.” It got said by other means: in May, the OECD took the unusual step of telling the Bank of Canada governor, Mark Carney, to cool things down by raising interest rates, and when Carney obliged them one week later, Canada became the first country in the G8 to lift its lending rate up off the floor.
That really is impressive, whether the economists acknowledge it or not. But is it a permanent shift or some sort of economic solar flare? Canadians are accustomed to their fortunes following behind those of the United States. Typically, if the American economy is doing well, ours is, too—but never quite as well as theirs. And if America’s economy is tanking, so is ours—worse than theirs. Suddenly neither side is conforming to type. It’s enough to make you believe the doomsayers who, in the wake of the financial crisis, predicted America’s decline as a global economic superpower. Are we the big winners at America’s expense? Is it time for the elephant to salute its mouse overlord?
Nothing shows the extent of the role reversal more vividly than job creation. For years, Canada’s unemployment rate had been chronically higher than America’s. Only three years ago, the U.S. jobless rate was 4.4 per cent, while ours was six per cent. The persistent gap fed eternal hand wringing over the structural weakness and inherent inferiority of the Canadian economy. Three years later, unemployment in the United States has more than doubled to 9.7 per cent, while in Canada it’s at 8.1 per cent. Neither figure is a point of pride, but Canada’s labour market didn’t suffer the same carnage, and now it’s recovering faster, having recouped seven of every 10 jobs lost since the recession began.
The latest parlour game for policy eggheads is to try to figure out how many of these newly created jobs are driven by the private sector and how many are attributable to Ottawa’s $47-billion stimulus package. The answer is hard to decipher. In Statistics Canada’s official monthly tallies, new construction jobs show up as private-sector jobs, even if those new workers are building a stimulus-funded fake lake. The Conference Board of Canada recently said that the stimulus package saved 70,000 jobs in Ontario alone. The Fraser Institute, which has yet to measure a single ounce of good from any measly dollar of public spending, claims the stimulus package accomplished nothing.
The Fraser Institute is obviously not headquartered in my neighbourhood: signs everywhere announce that stimulus dollars are hard at work replacing much of the local water main network. But there is more going on in the economy than stimulus jolts.
Toronto’s job market is a bit of a ruse on this score. The local unemployment rate is above nine per cent, which is higher than most other places in the country, but since early 2010, the GTA has been creating more jobs than it’s been shedding—especially professional jobs for lawyers, accountants, designers, consultants and the like.
Edward Jones, the financial planning firm, keeps opening branches and expects to hire 440 people in the next three years. NCP Northland Capital Partners, which didn’t exist 18 months ago and now claims to be the fastest growing boutique brokerage firm in Canada, has hired more than 40 people since Christmas and will add another 20 by the end of September. KPMG, which just moved into its swanky new digs in the Bay Adelaide Centre, posted 44 Toronto positions on its Web site in the month of June alone. Manufacturing is also on the recovery: Siemens, the engineering conglomerate, is entering the solar energy market and adding 50 employees to its operations in Burlington.
One of the hottest sectors to watch right now is information and communications technology, which has created roughly 16,000 jobs in the Toronto area since May of 2009. In addition to the big guys like RIM and IBM, many small firms are making their presence felt. The Toronto-based digital marketing firm Klick has added 10 employees to its operations since the start of the year and will hire another 10 in the next three months. Then there’s Ubisoft, the French video game developer whose arrival in Toronto was announced at a splashy news conference last summer. It plans to create 800 jobs and is currently hiring by the handful, including signing on recruiters to do the hiring and recruitment managers to oversee the recruiters.
The biggest post-recession rebound to date has been in the auto sector. No, that’s not a misprint. General Motors, which we’d all left for dead, has repaid $1.4 billion worth of federal bailout loans and is now spending $500 million to expand its engine manufacturing plant in St. Catharines. That expansion will not only create construction jobs but also secure 800 automotive manufacturing jobs.
None of this is evidence that Canada stands atop a new economic world order—at least not yet. We are, it’s safe to say, enjoying some payback for those “better fundamentals” everyone is always crediting us with. We have less government debt, better regulated (and solvent) banks, fewer junk mortgages, and so on. As a result, when the financial crisis wreaked its havoc, our banks withstood the shock, our housing market proved relatively buoyant, our GDP has been generally less battered than that of other countries, and our labour market is rebounding faster than most.
I would even argue that our strong fundamentals made our stimulus package more effective than its American counterpart. A fat slice of Obama’s $787-billion stimulus plan went directly to state governments, many of which needed to shore up their own decimated balance sheets. So instead of creating new jobs, states often used the cash to meet existing payroll. That’s not stimulus spending; that’s status quo spending.
In Canada, most governments at all levels had comparatively healthy balance sheets, which made it easier for stimulus dollars to hit the street in the form of new public works. (The federal government was pretty good at blocking status quo spending. Last summer, when David Miller attempted to use the stimulus cash to buy streetcars—a pre-recession commitment—the feds said no, and loudly. Transport Minister John Baird’s notoriously indelicate response: “Toronto should fuck off.”)
The best thing about our better fundamentals is that they are still intact, and as long as they’re intact they’ll keep paying dividends. Forecasters are now fretting about the possibility of a global “double-dip” recession, which looks increasingly likely. My guess is that we will weather the second dip much as we did the first: we’ll take a hit, but we’ll do better—maybe even a lot better—than other countries. This is our new normal.
Which brings us back to our banks’ predatory behaviour. It’s tempting to merely view better fundamentals as a soft cushion against the worst blows of a dog-eat-dog world. The financial sector sees them as something more: a springboard for greater growth and clout. That’s what strong fundamentals ought to be, and the rest of the private sector should follow their lead.
Mark Carney has been particularly blunt on this point, urging corporate executives to take some calculated risks and invest in their own growth. Some are obviously heeding his advice, but many are not. It’s a long-standing, deeply rooted problem in our business culture. We are so risk-averse, we won’t even bet on ourselves.
No one is going to ask Canada to take a more prominent role in the global economy or vault Toronto into the ranks of the world’s top banking centres alongside New York, London and Tokyo. We’re going to have to want those things for ourselves, and take them while they are there for the taking. If that seems un-Canadian or un-Torontonian to you, just tear a page from TD’s playbook. Those guys are on the hunt and eating what they kill, as ruthless a player in global capitalism as you can find out there, but they’ve got that ridiculous mascot to make it all seem friendly.