The Canadian Economy's Strange Success

On Friday, Statscan reported that the Canadian economy added another 22,000 jobs in May and that the unemployment rate fell to 7.4%. The economy grew in the first quarter at a healthy annualized clip of 3.9% and according again to statscan it did so in all the right way. Huge investments made in plants, machinery and equipment points to a growth in manufacturing and other goods producing industries. Service industries like retail trade actually shrank. Growth due to personal spending (an indicator of a possible debt bubble if too large) was negligible in spite of all the stories about Canadians carrying too much debt. This is all remarkably good news. In fact, it's so remarkable, no one seems to believe it. Unemployment in Canada being at 7.4% is actually, historically, pretty darn normal. This is not great recession catastrophic unemployment. In really good times Canadian unemployment is between six and seven percent. GDP growth between 3 and 4% is also pretty darn good. It isn't BRIC double digit expansion or anything but it's enough to keep people working.

Why then, you might ask, has the Bank of Canada not moved interest rates closer to a normal level? There doesn't seem to be the need for big stimulus. Nor it would seem is there cause for governments to delay tackling their recession exacerbated massive deficits. The Canadian economy could actually probably withstand a little austerity right now. I think the short answer may be that Canadian officials both political and bureaucratic can't believe the good times can last. They can't believe it, because they see the carnage that continues to be the US economy. American unemployment, usually a couple of points below Canada in good times, sits a couple points above. The jobs report for May showed only about 50k created (that would translate to about 5-6k in Canada pro-rated to the population) which is not enough to keep up with the growing labour market. The housing market, which continues to boom north of the 49th, is on life support down south. What we are witnessing is complete disconnect between the economic fortunes of Canada and United States. All this and the loonie is worth more than the greenback. Ottawa and Bay St. can't believe it.