Strong Output, Weak Payrolls
GDP Halfway Home
Canada’s Gross Domestic Product (GDP) blew past an important milestone in January. Output is now closer to the high-point attained before the crisis than to the low-point reached during the crisis.
Specifically, GDP (in chained 2002 dollars) peaked at $1,241 billion in July 2008 and plummeted to $1,185 billion in May 2009. By January 2010, it recovered to $1,217 billion. We are now $32 billion above the trough, but still $24 billion below the peak.
(As recently as the previous month, those figures were reversed. In December 2009, GDP was $1,209 billion, $24 billion above the trough, but still $32 billion below the peak.)
Manufacturing Roars Back
January’s rapid growth, 0.6% in just one month, was driven by an acceleration of the previous month’s industrial recovery. Manufacturing expanded by an incredible 1.9%. Construction was close behind at 1.7%. GM’s recent announcement that it will ramp up production in Oshawa and Ingersoll provides further evidence of a manufacturing recovery.
But the fastest-growing industry was wholesale trade at 2.9%. It is worth remembering that a similar jump in wholesale trade in November had presaged the start of an industrial recovery in December. Wholesale trade is, of course, the link between production and consumers.
Recovery for Whom?
However, Statistics Canada provided a sobering reminder that a recovery in output does not necessarily mean a parallel recovery in employment. This morning, it also released payroll data for January.
According the Survey of Employment, Payrolls and Hours (SEPH), employment decreased by 5,800 that month. Meanwhile, average weekly earnings edged up by a measly dime from $834.37 to $834.47: an increase of just over a penny a day.
Given that employees worked more hours in total, the implication of flat weekly earnings is that average hourly earnings actually declined. (But Statistics Canada has not yet released Janaury’s SEPH figures on hourly earnings.) Certainly, today’s payroll figures indicate a monthly pay cut relative to inflation.
Combining today’s GDP and SEPH releases suggests that Canadians are working harder and producing more, but getting paid less.
Erin what is your sense of things going forward? What will the impact of provincial austerity measures, higher consumption taxes (including user fees), stagnant wages and the unwinding of Federal stimulus mean for aggregate demand? What are the countervailing positive forces? Sightly decreasing unemployment and increased external demand? Do you see housing as a perpetual motor of growth?
“Combining today’s GDP and SEPH releases suggests that Canadians are working harder and producing more, but getting paid less.”
That’s what economists call “increased productivity.”
Yes and exactly the process economists claim leads to the sweet spot they call a full employment equilibrium. So just sit back and let science do its job:),
Mark, increased productivity is more output per hour worked.
Working more hours or getting paid less do not constitute increased productivity.
On the contrary, increased productivity should allow people to work fewer hours and get paid more.
“On the contrary, increased productivity should allow people to work fewer hours and get paid more.”
Does not compute. You can either get paid more and work the same hours or get paid the same and work less hours. I suppose one could split the difference and do a little of both. But that is not how the labour contract is written. So what you really mean is theoretically a worker should be able to split the difference or choose one of the two extremes. What you now need to fill in is what are the institutional supports necessary for workers to make any of those choices,
@ Travis- I think the next couple of payroll and LFS reports are crucial in signifying where we going to land. I don’t think all of these austerity measures will filter through the matrix for a while.
At this point- deep inside all my history of hanging around labour data and the qualitative, I ave this feeling that I have discounted the true effect of optimism. Really- I must admit, without any clear sign of a recovery in the data, there are signs of life in some of the factories restarting, housing sales climbing and such.
However, is this just the effect of the combined stimulus at some global level. Timing is a huge factor right now- spending programs were ramped up rather quickly, and potentially some were not well thought out (the cost of crisis), but we are most likely a year into many of the stimulus plans that went into the global economy, a bit less for the Chinese.
From all the qualitative it seems as though the stimulus is coming to an end, so we have a few months left for the economy to pick it self up on its own traditional sources of growth.
Kind of like starting a car on a cold day, at first it wouldn’t start, so you try a simple boost and that would not work, so you take the battery out and bring it into the house to warm up. Will this be enough?
We seem to have turned the corner on optimism. Is it enough though, for the old ways to restart the economy., I guess we have to consider this, with the optimism, is there enough out there to fuel spending. Where will it come from? More consumer debt? More speculative bubbles? Where to next is a really good question. Where does the optimism lead us, is it enough for corporate executives to rekindle the idled capacity and expand bring back labour and hiring anew?
These measures of austerity will definitely test the theory out as we will see where optimism can lead us.
I am not one of the optimistic but as stated, maybe that is my error.
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“What will the impact of provincial austerity measures, higher consumption taxes (including user fees), stagnant wages and the unwinding of Federal stimulus mean for aggregate demand?”
He-loooo, Credit!
These measures of austerity will definitely test the theory out as we will see where optimism can lead us.
These measures of austerity will definitely test the theory out as we will see where optimism can lead us.