CANADA ECONOMICS
ORGANISMS - IMF
IMF. January 8, 2018. IMF COUNTRY FOCUS. Canada's Balancing Act
When the Trudeau government took office in 2015, Canada’s growth was hovering at around 1 percent, largely because lower oil and commodity prices were hurting the country’s trade-dependent economy.
Since then, fiscal and monetary stimulus enacted as part of the government’s inclusive growth agenda has led to a strong economic recovery. With GDP forecast to grow at 3 percent for 2017 and 2.1 percent for 2018, Canada is at or near the top of the G7 countries.
But can the recovery be sustained, particularly in light of the current downside risks to international trade—including the ongoing renegotiation of the North American Free Trade Arrangement (NAFTA)?
We recently spoke with Canada’s Finance Minister Bill Morneau about the challenges and opportunities that lie ahead for the government’s growth agenda, and about his country’s plans for the G7, as it gets ready to take over the 2018 presidency.
Canada has embraced free trade, economic integration, and a relatively open immigration policy. What would you say to those who are skeptical about the benefits of globalization?
Canada is demonstrable proof that being an open trading nation can lead to positive outcomes. Under Prime Minister Trudeau, our focus on openness, equality, and concern for the wellbeing of the middle class in Canada and around the world were quickly rewarded with positive results. We have seen a high level of growth as a result of trade between Canada, the United States and Mexico through NAFTA, for example. We are clearly the beneficiaries of an open approach to the world.
Nevertheless, we face the challenge of remaining competitive in a globalized environment. Recognizing this, we have developed a structural reform agenda to maintain and enhance Canada’s productivity, including by reducing barriers to international trade, promoting infrastructure investment, improving the innovation framework, investing in education and training, promoting high-skilled immigration, and encouraging more women to enter—and stay—in the work force.
It is imperative for us to think about how the benefits of growth are distributed to a broader cross section of the population–what we in Canada describe as the middle class. In my view, a growth policy is only effective if the gains are real to the average person.
If people don’t believe that trade advantages them, then why are they going to buy into it? So, our agenda has been very clearly to show benefits to Canadians from our growth and then to help people understand that trade has been a huge advantage for us from a growth standpoint over time.
Similarly, with NAFTA we think we can achieve a positive outcome only if the people who are affected by this trading relationship buy into the fact that it is good for them and their families. So, we have been active in talking to individual states in the United States about employment gains that result from trade, and spoken extensively about the nine million Americans who are reliant on trade with Canada.
Which policies have helped distribute the benefits of growth?
When we were elected, we recognized that middle class Canadians were anxious that the likelihood of success for the next generation was getting more difficult, as evidenced by a prolonged period of rising income inequality.
We recognized that the only solution was to put in place policies that directly advantage middle class Canadians. A fairer tax system will provide the impetus for people to feel confident and make investments, which will provide that impetus for further growth.
So, we lowered middle class taxes, and to finance the revenue loss, raised taxes on the top one percent. With these measures, we are aiming to reduce income inequality and ensure that more people have more opportunities to succeed.
We have also sought to support families in other ways. For example, we looked at our child care system and means tested it to ensure that it positively impacted families that most needed the assistance. We subsequently increased child care benefits under the Canada Child Benefit plan. Since the new policies went into effect, we have reduced child poverty by forty percent.
Taken together, disposable income of families has improved. As a result, we have seen a big boost in the confidence that families, and their children, have for the future. The unemployment rate has fallen to its lowest level in almost a decade and household spending on durable goods has been robust. In fact, because our economy is growing faster than expected, we were able to tie future increases in the Canada Child Benefit with inflation ahead of schedule, ensuring that it could keep pace with the costs of raising a family.
Canada will shape the agenda of the world’s richest countries as the host of the G7 presidency this year. What’s at the top of your list?
Top of our list is to address the challenges facing the middle classes across all our countries–in particular, ensuring that women get the same opportunities as men. The reality is that the nature of our economies is changing. Digitization and automation present real challenges in getting everyone engaged in growth. But it also presents important opportunities. Digital skills are increasingly relevant—in school, at home and in the workplace. To ensure that Canadians have the digital skills they need to succeed, we plan to invest in developing and supporting the digital skills of younger and older Canadians, and groups that are underrepresented in the digital economy.
For all our countries, we need to focus on how to create more interesting jobs and optimism about the future. That optimism is necessary to get a virtuous circle going where businesses invest in the digital economy and people invest in training themselves for the jobs of the future, which gives everyone the opportunity to do better.
FULL DOCUMENT: http://www.imf.org/en/News/Articles/2018/01/04/NA01818-canada-balancing-act?utm_medium=email&utm_source=govdelivery
BUSINESS REPORT
BANK OF CANADA. January 8, 2018. Senior Loan Officer Survey - Fourth Quarter of 2017. Results of the Fourth-Quarter Survey | Vol. 10.4 |
This Senior Loan Officer Survey (SLOS) focused on changes to business-lending practices in the fourth quarter of 2017. The survey was conducted between November 6 and December 1, 2017.
- Survey results suggest that overall business-lending conditions eased slightly in the fourth quarter (Chart 1),1 primarily because of easier pricing conditions (that is, lower spreads) on lending to corporate borrowers (Chart 2).2 Non-price conditions were mostly unchanged.
- This marks the first time that lending conditions have eased since the oil price shock of 2014. Price conditions last changed in the second quarter of 2017, with a slight tightening, while non-price conditions have changed little since easing in the fourth quarter of 2016.
- Competition was the main reason cited by respondents for the easing in lending conditions for corporate borrowers this quarter.
- Lending conditions for small business borrowers were unchanged.
- From a regional perspective, both price and non-price conditions eased for commercial borrowers in the Prairies as the economic activity related to the natural resource sector continues to increase.
- Demand for credit increased in the fourth quarter of 2017, after being unchanged in the third quarter.
- Access to capital markets improved for all risk grades of corporate borrowers.
* The balance of opinion is calculated as the weighted percentage of surveyed financial institutions reporting tightened credit conditions minus the weighted percentage reporting eased credit conditions.
Note: Each series is the simple average of the balances of opinion for the small business, commercial and corporate sectors.
- Note that the balance of opinion suggests only the direction of the net change in lending conditions; it does not provide information on the magnitude of the change.
- The pricing of credit is defined as spreads over base rates, rather than as the level of rates.
FULL DOCUMENT: http://www.bankofcanada.ca/2018/01/senior-loan-officer-survey-fourth-quarter-of-2017/
BANK OF CANADA. January 8, 2018. Business Outlook Survey - Winter 2017–18. Results of the Winter 2017–18 Survey | Vol. 14.4 |
Business sentiment in the winter Business Outlook Survey remains positive: the sales outlook is still healthy, despite some moderation. At the same time, capacity and labour pressures are becoming more apparent and are stimulating firms’ employment and investment plans.
Overview
- Expectations for sales activity remain positive but point to some moderation ahead. Following broad-based strength in past sales, many firms expect stable sales growth or a return to a more sustainable pace, particularly in the goods sector and in demand from domestic customers.
- Firms plan to expand operations to accommodate sustained demand, which is evident in a rebound of investment and employment intentions since the autumn survey.
- Reflecting strong demand and tightening labour markets, indicators of capacity pressures and labour shortages picked up. Survey results suggest that economic slack is now largely limited to the energy-producing regions.
- Firms expect growth of input prices to rise, owing to gains in commodity prices. Pass-through of input costs and emerging wage pressures to output prices remains limited due to competitive forces. Inflation expectations are modest and unchanged from the third quarter.
- Apart from higher prime rates, credit conditions are largely unchanged.
- The Business Outlook Survey indicator rebounded almost to its summer peak, consistent with widespread positive sentiment.
Business Activity
On balance, firms saw an acceleration in the pace of past sales (Chart 1), reflecting recent healthy demand growth, which was broad-based across all regions. The balance of opinion on expectations for sales growth over the next 12 months remains positive (Chart 2, blue bars), with businesses pointing to strong real estate markets, sustained foreign demand and tangible support from federal stimulus spending. The balance of opinion has moderated further from its peak in the summer, however, reflecting many firms’ views that sales growth will return to more normal levels following its recent strength, which businesses often qualified as unsustainable.
* Percentage of firms reporting faster growth minus the percentage reporting slower growth
* Percentage of firms expecting faster growth minus the percentage expecting slower growth
** Percentage of firms reporting that indicators have improved minus the percentage reporting that indicators have deteriorated
Several firms also mentioned competition, particularly in the retail sector and related supply chain, and more restrictive regulation as issues dampening their sales outlook. Indicators of future sales have improved compared with 12 months ago (Chart 2, red line), although this view is less prevalent than in previous surveys, as the pickup in demand from domestic customers is losing steam.
On balance, firms expect an acceleration in export growth, backed by a further improvement in indicators of future sales from foreign customers. Moreover, views on the US economy have strengthened due to expectations of upcoming tax reforms and strong US consumer demand. While respondents are increasingly concerned about the renegotiation of the North American Free Trade Agreement and rising protectionism more generally, most see healthy US growth and the low Canadian dollar benefiting their sales over the next 12 months.
The indicator of investment intentions over the next 12 months bounced back to near-post-recession highs (Chart 3). Plans to increase investment are broad-based across all regions and sectors. Several respondents are seeing favourable demand conditions and higher capacity pressures, and are reporting plans to expand capacity in response. Others are investing as part of multi-year projects or to catch up from a period of low investment. Yet, some factors continue to weigh on firms’ plans: tax and regulatory hurdles are mentioned more often, and a few firms also cited uncertainties around US trade policy, among other factors.
* Percentage of firms expecting higher investment minus the percentage expecting lower investment
The indicator of employment intentions moved up, reflecting widespread plans to increase hiring (Chart 4), particularly in the service sector. Given strong demand and more reports of labour-related capacity constraints, hiring intentions improved most in Central Canada. Meanwhile, plans to expand staff have softened in the Prairies, where firms cited underutilized labour or flat sales expectations. A number of firms also noted that automation and technology are reducing the need to increase employment.
* Percentage of firms expecting higher levels of employment minus the percentage expecting lower levels
Pressures on Production Capacity
The share of firms reporting that they would have some or significant difficulty meeting an unanticipated increase in demand moved up again, to reach its highest level since the 2008–09 recession (Chart 5). Pressures on firms’ capacity are pervasive in British Columbia, but are also becoming more apparent in Central Canada, inducing several firms to bring in flexible capacity, including through subcontracting, outsourcing, immigration and automation. Results suggest that slack remains in the energy-producing regions.
Labour shortages are also becoming more common. The balance of opinion on labour shortage intensity continues to point to the general view among firms that shortages are more intense than they were a year ago (Chart 6, red line), although less so in the energy-producing regions. The number of firms judging that such shortages are limiting their ability to meet demand increased in this survey (Chart 6, blue bars). Shortages are most evident in occupations related to information technology, tourism and hospitality, and construction and real estate—areas that have seen strong demand.
* Percentage of firms reporting more intense labour shortages minus the percentage reporting less intense shortages
Prices and Inflation
On balance, firms in most sectors expect an increase in the pace of input price growth (Chart 7). Firms’ expectations for rising input costs, particularly in the goods sector, commonly reflect the view that higher prices for commodities, from base metals to energy, are pushing up raw material costs. Overall, compared with previous surveys, firms no longer view the weaker domestic currency as further inflating the cost of their imports.
* Percentage of firms expecting greater price increases minus the percentage expecting lesser price increases
Despite the acceleration in input prices, firms anticipate no change in the pace of their sales price growth overall (Chart 8). Several respondents noted that increased competitive pressures are dampening their ability to raise output prices. A number of firms also referred to structural factors, including e-commerce and globalization, as influencing their pricing strategies. Rising labour costs (Box 1), often related to upcoming increases in the minimum wage in several provinces, as well as other non-labour input costs, continue to put upward pressure on output prices.
* Percentage of firms expecting greater price increases minus the percentage expecting lesser price increases
After moving up in the autumn survey, inflation expectations are largely unchanged (Chart 9). A slight majority of firms continue to see inflation hovering in the lower half of the Bank’s inflation-control range, with past inflation trends most frequently shaping their expectations. A number of the firms anticipating somewhat higher inflation cited rising labour costs, particularly minimum wage increases. Taken together, all responses to this survey fall within the Bank’s inflation-control range.
Credit Conditions
The balance of opinion on credit conditions, at just below zero, suggests that terms for obtaining financing remained largely unchanged over the past three months (Chart 10), apart from higher prime rates.1 Most firms across all sectors and regions reported no change in credit conditions, and the vast majority consider access to credit to be relatively easy. When asked about the impact of the Bank’s recent policy rate increases, some firms noted modestly higher borrowing costs, although these were not materially influencing their operations.
* Percentage of firms reporting tightened minus the percentage reporting eased. For this question, the balance of opinion excludes firms that responded “not applicable.”
Business Outlook Survey Indicator
The Business Outlook Survey (BOS) indicator, which summarizes the main survey responses, has almost returned to its summer peak (Chart 11). In particular, strong expected input price growth and investment intentions pushed up the indicator, but responses to nearly all the BOS survey questions are holding above their historical averages and thus contributing positively. The result signals that positive business sentiment is widespread.
Box 1: Wage pressures are not yet widespread, but they are picking up due to minimum wage increases
There is a broadly held view among firms that capacity pressures have intensified over the past year and will continue to do so over the next 12 months. Labour-related capacity constraints are the most commonly cited reasons, followed by lack of physical capacity. However, in most regions, these pressures are not yet translating into generalized wage pressures.
Firms in the Business Outlook Survey are asked whether they expect increases in their labour costs (hourly wages) to be higher, lower or about the same over the next 12 months as they were in the previous 12 months. Although the balance of opinion on firms’ expectations for wage growth is an imprecise indicator of official wage statistics, the series shows a strong forward-looking correlation with growth in business sector employment (Chart 1-A). This could be because firms’ wage outlooks reflect their assessment of the current and expected strength in the general labour market. For example, if hiring conditions are tight, firms tend to expect they will need to offer higher wages to attract and retain workers. In this sense, firm‐level wage expectations capture information about broader employment conditions. Furthermore, previous Bank of Canada research has revealed that the market wage rate is indeed the most important factor used by Canadian firms when setting employees’ wages.2
Recent results show that pressures on wage growth have edged up and are widespread in British Columbia, where firms cited difficulty recruiting and retaining staff due to hiring competition as the key determinant, followed by minimum wage increases. In contrast, firms in Central Canada cited minimum wage increases as the principal driver of their wage growth expectations, followed by hiring competition. Firms in the energy-producing regions, where wage growth expectations are more modest, emphasize wage catch-up after a period of weakness.
* Percentage of firms expecting higher wage growth minus percentage of firms expecting lower wage growth
Notes: SEPH stands for Survey of Employment, Payrolls and Hours. Growth is in year-over-year terms.
Regional results rely on a small sample size.
- As in the Senior Loan Officer Survey, firms are asked about the cost of credit, expressed as spreads over base rates rather than as the level of rates. Thus, if borrowing costs increase by no more than the recent increase in the policy rate (meaning that the spread over the prime rate is unchanged), credit conditions as reported in the survey are unchanged.
- D. Amirault, P. Fenton and T. Laflèche, “Asking About Wages: Results from the Bank of Canada’s Wage Setting Survey of Canadian Companies,” Bank of Canada Staff Discussion Paper No. 2013-1 (February 2013).
The Business Outlook Survey summarizes interviews conducted by the Bank’s regional offices with the senior management of about 100 firms selected in accordance with the composition of the gross domestic product of Canada’s business sector. This survey was conducted from November 14 to December 8, 2017. The balance of opinion can vary between +100 and -100. Percentages may not add to 100 because of rounding. Additional information on the survey and its content is available on the Bank of Canada’s website. The survey results summarize opinions expressed by the respondents and do not necessarily reflect the views of the Bank of Canada.
FULL DOCUMENT: http://www.bankofcanada.ca/2018/01/business-outlook-survey-winter-2017-18/#chartA
THE GLOBE AND MAIL. JANUARY 8, 2018. ECONOMY. Canadian businesses face tight capacity as case for rate hike grows: BoC
DAVID PARKINSON, ECONOMICS REPORTER
The Bank of Canada's closely watched quarterly survey of business sentiment shows that the country's businesses are under the tightest capacity pressures since before the Great Recession, perhaps giving the central bank's policy makers the last piece of evidence they need to raise interest rates again next week.
In the central bank's fourth-quarter Business Outlook Survey, released Monday, 56 per cent of participants said they would have "some" or "significant" difficulty meeting an unanticipated increase in demand, up from 47 per cent in the third-quarter survey, and the highest reading since the 2007 fourth quarter. Businesses also reported increasingly intense labour shortages that are restricting their ability to meet demand.
Companies reported that they are increasing hiring and capital investment to address these tight capacity conditions, in the face of what they say is still-growing demand, although they did say that they expect the pace of sales growth to moderate in the next 12 months.
The survey, involving senior managers of about 100 firms, was conducted from Nov. 14 to Dec. 8.
The report solidifies the case that has been building for the Bank of Canada to raise interest rates by another one-quarter of a percentage point, to 1.25 per cent from the current 1 per cent, when it issues its first rate decision of the new year on Jan. 17, after taking a pause on rate hikes following two increases last summer. The survey confirms recent indications from economic data that the economy is running full-out, with little or no spare capacity left to meet strong demand – a classic recipe for rate increases.
"The Bank of Canada's business outlook survey was the last key piece of the puzzle for a rate hike this month," said Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, in a research note. "A majority now see either some or significant difficulty in meeting a demand increase, and indicate that the economy is near full capacity."
"Canadian businesses essentially just told the Bank of Canada to hike," said Bank of Nova Scotia economist Derek Holt.
In its December rate decision as well as in a speech from governor Stephen Poloz last month, the central bank said it would be "cautious" in raising rates, and that its decision on further hikes would be "guided by incoming data." Those data have recently been flashing the green light for the central bank to go ahead with further rate hikes, as they point to fast-tightening capacity and growing inflationary pressures.
Expectations for a rate hike surged last week after Statistics Canada reported that the economy turned in another gangbuster month for employment in December, adding 79,000 net new jobs and lowering the unemployment rate to 5.7 per cent, the lowest since the statistical agency began collecting comparable data in 1976. That suggested that slack in the labour market – something the Bank of Canada has repeatedly expressed concern about, even as measures of spare production capacity have shrivelled to nothing – is quickly tightening. Recent economic indicators have also shown a significant pickup in inflation to slightly above the central bank's 2 per cent target, and an encouraging recovery in export growth.
The Business Outlook Survey confirms that view that any remaining slack in the economy is disappearing, both in terms of labour and capital.
"Pressures on firms' capacity are pervasive in British Columbia, but are also becoming more apparent in central Canada," the Bank of Canada's report said. "Survey results suggest that economic slack is now largely limited to the energy-producing regions."
And notably, businesses don't seem to be letting concerns over the NAFTA trade negotiations darken their optimism – something the central bank has been watching for as it gauges how this key uncertainty might discourage investment and business expansion.
"While respondents are increasingly concerned about the renegotiation of the North American Free Trade Agreement and rising protectionism more generally, most see healthy U.S. growth and the low Canadian dollar benefiting their sales over the next 12 months," the report said. "Views on the U.S. economy have strengthened due to expectations of upcoming tax reforms and strong US consumer demand."
"On balance, firms expect an acceleration in export growth," the central bank said.
"Firms remain generally upbeat on the outlook, despite concerns surrounding NAFTA and minimum wage hikes," said Bank of Montreal chief economist Douglas Porter in a research report. "The Bank of Canada will take this as a loud hawkish signal."
Financial-market indicators also signalled that the results of the survey have all but cemented a hike at next week's rate decision. At midday, the bond market was pricing in an 86-per-cent likelihood of a quarter-point hike, up from 81 per cent an hour before the survey was released. Before last week's employment report, the market was pricing in only about a 40-per-cent chance of a hike.
REUTERS. JANUARY 8, 2018. Bank of Canada sees capacity pressure, setting up another rate hike
Andrea Hopkins
OTTAWA (Reuters) - Canadian companies remain optimistic about future sales despite some moderation from highs, and signs of capacity pressures and labor shortages have picked up, the Bank of Canada said on Monday, reinforcing expectations for an interest rate hike.
Little economic slack remains, with companies expected to expand operations to accommodate demand as the job market tightens and expectations for U.S. demand remain firm, the central bank said in its quarterly Business Outlook Survey.
“The (survey) was the last key piece of the puzzle for a rate hike this month, with the focus on diminished excess capacity,” CIBC Economics chief economist Avery Shenfeld wrote in a note to clients.
The business survey added to evidence of a tightening job market after back-to-back employment reports showed strong hiring, boosting expectations the bank will continue to raise interest rates to head off inflation after two hikes in 2017.
The chance of a rate hike on Jan. 17 jumped to 86 percent after the report while the two-year yield pushed to its highest since June 2011 at 1.795 percent. Expectations for a hike hit nearly 80 percent on Friday after data showed the economy added almost 80,000 jobs in December
Pressure on production capacity continued, with the share of firms reporting they would have some or significant difficulty meeting an unanticipated increase in demand hitting its highest level since the 2008-2009 recession, the bank said.
Still, the survey noted increasing concern about the renegotiation of NAFTA, which U.S. President Donald Trump has threatened to terminate. Negotiations are ongoing.
“While respondents are increasingly concerned about the renegotiation of the North American Free Trade Agreement and rising protectionism more generally, most see healthy U.S. growth and the low Canadian dollar benefiting their sales over the next 12 months,” the bank said.
Inflation expectations were modest and unchanged from the third quarter, the survey showed, suggesting corporate Canada has not been able to raise prices despite economic strength.
“One notable feature in the survey is that despite the capacity constraints and growing labor shortages, inflation expectations are still quite muted,” said Doug Porter, chief economist at BMO Capital Markets.
Bank of Canada Governor Stephen Poloz has said the bank needs to tighten monetary policy gradually before inflation bubbles up, rather than slam on the brakes when it appears.
Firms said competitive pressures dampen their ability to raise output prices despite the acceleration in input prices, the survey showed.
Reporting by Andrea Hopkins and Dale Smith; Editing by Jonathan Oatis and Tom Brown
The Globe and Mail. 8 Jan 2018. A BoC research paper from December made for great headlines, but perspective on the numbers is needed
DAVID PARKINSON
Canadians in the 21st century can be pretty self-congratulatory about our social progressiveness. But on the issue of the minimum wage, maybe our parents and grandparents could teach us a thing or two.
Fifty years ago, when Ontario’s Progressive Conservative government passed legislation to raise the minimum hourly wage by a whopping 30 per cent – to $1.30 an hour from $1 – the opposition parties were up in arms. Not because of the potential cost to the economy, or the unfair burden on struggling business owners, or the damage it might do to the province’s competitiveness. No, the opposition’s biggest complaint was that the increase was far too small.
Contrast that with the dramatic headlines and audible collective gasps generated by a research paper released by the Bank of Canada on Dec. 29 – the last business day before Ontario’s substantial minimum-wage increase took effect. The study projected, among other things, that planned minimum-wage increases in this country would reduce employment in Canada by about 60,000 jobs over the next two years. (It mainly addresses the two big minimum wage hikes in the pipeline – Ontario, whose minimum rose to $14 from $11.60 effective Jan. 1, and will rise to $15 at the start of 2019; and Alberta, which raised it to $13.60 an hour from $12.20 last October, and will raise it to $15 next October. The two provinces together account for more than half of Canada’s labour force. The research paper also incorporates much smaller cost-of-living increases planned in other provinces.)
The study said other things, too, but almost no one heard them.
The report was seized upon – not just by long-standing critics, but in the broader public discourse – as damning evidence, from an official source in high places, that the policy is a job killer. (Never mind that it was essentially a discussion paper from Bank of Canada economic staff, not the central bank’s official position.) Bottom line, the knee-jerk reaction went, the increase of minimum wages in Alberta and Ontario is about to hurt the very people it’s supposed to help. It’s about to leave them unemployed.
Perhaps the 60,000 figure made good headlines and fit nicely into tweets, but let’s stop yelling that the sky is falling and grasp some perspective.
First, the Bank of Canada study isn’t predicting that total employment in the country would decline by 60,000 over the next two years, only that the effects of the minimumwage hikes imply 60,000 fewer jobs than the economy might have had without the hikes. That means a slowing of net annual job creation of 30,000 a year – in an economy that has added an average of about 210,000 jobs a year since the Great Recession. It’s not going to make or break job growth in this country.
More to the point, a 30,000 annual hit amounts to just 0.1 per cent of Canada’s workingage population (those 15 and over). That’s a tiny sliver being shaved off the labour market over each of the next two years.
Of course, if you’re one of those 60,000 people unemployed who would otherwise have had a job, it’s obviously not a small thing at all. But it’s also no small thing to the roughly 1.6 million Ontarians and Albertans who earn less than $15 an hour, and are in line for a raise.
Indeed, lost in the handwringing was the other key conclusion of the Bank of Canada paper: That total real wages will climb about 0.7 per cent in the next two years as a result of the minimum-wage increases. Canadian workers, as a whole, will have more money in their pockets.
And the people who will specifically have more are at the low end of the income spectrum – who are generally more likely to spend most of their income increase – largely out of necessity. The working poor aren’t big savers. The result, in theory, is a bump in consumer spending – from which business owners and the broader economy would benefit.
All of this is a reminder that the debate surrounding minimum wages is about acceptable trade-offs.
Few would argue that minimum wages haven’t been a good thing for Canada’s economic and social well-being; we have a hundred years of history with minimum-wage laws that have proved their value. Nevertheless, it would be delusional to say that the benefits don’t come at a cost – to business owners and, yes, to the hiring of low-paid, low-skilled workers. It’s a matter of finding the balance point, where you maximize the benefits relative to the costs. And as minimum wages climb rapidly, as they are doing in Ontario and Alberta, there’s a question of going beyond that point, pushing the costs up while eroding the benefits. How much is too much?
The answer isn’t the same for the two provinces – even if their minimum-wage target of $15 an hour is identical.
A critical metric for minimum wages is their ratio to average earnings. While it’s hard to pinpoint the exact optimal ratio, some research suggests it might be in the 50-per-cent area – i.e. a minimum wage approaching 50 per cent of average earnings. Creep too much above that, and you may erode the net benefits of your benevolence. (Nationally, Canada’s ratio has hovered in the mid-40s for the past decade.)
Alberta’s average hourly earnings were $30.78 an hour in December, the highest in the country. So for Alberta, a $15-anhour minimum wage will mean about a 48-per-cent minimumto-average-wage ratio (assuming some modest wage growth over the next 10 months). But Ontario’s average hourly earnings last month were $26.98 an hour; its $15 minimum wage a year from now (assuming average wage growth in line with inflation) will be close to 55 per cent.
In a report last fall, economists at National Bank of Canada noted that in the mid-1970s, Quebec raised its minimum wage to 54 per cent of its average hourly earnings. Within two years, unemployment among youth (age 15-24, who make up roughly 60 per cent of Canada’s minimum-wage earners) had soared by six percentage points, to nearly 20 per cent, at the same time as neighbouring Ontario’s youth unemployment had held stable. A study commissioned by the Quebec government concluded the province needed to ratchet back its minimum-to-average wage ratio to below 50 per cent.
Ontario’s youth unemployment rate, at 11.1 per cent, is already above the national average of 10.3 per cent. Does giving these workers a better living wage outweigh the risks to their overall employment prospects?
If the Bank of Canada study’s projections prove accurate, maybe the trade-off is a reasonable one. But in Ontario, more so than in Alberta, the risk is there that they’ll push that trade-off too far.
NAFTA
Agriculture and Agri-Food Canada. January 8, 2018. Minister MacAulay promotes agricultural trade and NAFTA at the American Farm Bureau Federation's Annual Convention and IDEAg Trade Show
Ottawa, Canada – Canada and the United States share deeply integrated economies and enjoy the largest bilateral trade and investment relationship in the world. As negotiations on a modernized North American Free Trade Agreement (NAFTA) continue to progress, the Government of Canada is working hard to strengthen the Canada-U.S. trade relationship and create new opportunities for producers and food processors on both sides of the border.
As part of these efforts, Minister MacAulay travelled this week to Nashville, Tennessee, where he delivered a keynote address to the American Farm Bureau Federation's (AFBF) annual convention. Minister MacAulay reiterated the importance of NAFTA as an engine of growth and prosperity for Canada, the United States and Mexico.
While in Nashville, Minister MacAulay participated in a roundtable with key U.S. agricultural producer and business groups to discuss opportunities for cooperation, hosted a breakfast for all State Farm Bureau Presidents, met with Zippy Duvall, President of the AFBF, with Kevin Paap, Minnesota State Farm Bureau President, and with Jai Templeton, Commissioner of Agriculture for Tennessee, to discuss bilateral trade opportunities. He also met with AFBF Young Farmers and Ranchers.
Quotes
"The Canada-US relationship is strong, balanced and beneficial to both of our great nations. The Government of Canada is committed to continue working with the United States to strengthen our partnership for the good of our businesses, our jobs, our citizens and our economies."
- The Honourable Lawrence MacAulay, Minister of Agriculture and Agri-Food
Quick Facts
- Canada and the United States are each other's largest trade partners for agriculture and agri-food, with bilateral agriculture trade reaching $62 billion (CAD) ($47 billion (USD)) in 2016.
- Canada is the top agriculture and agri-food export market for 29 states.
- Canada-United States trade supports millions of middle class jobs on both sides of the border.
- The AFBF is a non-partisan, non-sectarian national organization that represents farm and ranch families at all levels.
- The AFBF convention is a gathering of more than 5,000 delegates bringing together agricultural producers from all levels and sectors representatives from the local, state and national levels.
FULL DOCUMENT: https://www.canada.ca/en/agriculture-agri-food/news/2018/01/minister_macaulaypromotesagriculturaltradeandnaftaattheamericanf.html
The Globe and Mail. 8 Jan 2018. The uncertainty surrounding NAFTA poses a big risk to CN and CP Rail, industry observers say. NAFTA uncertainty puts railways at risk: analysts
The potential dismantling of the North American free-trade agreement poses the biggest risk to Canada’s railways not benefiting this year from healthy economies and higher demand to move crude oil, industry observers say.
“What keeps us up at night?” asked CIBC World Markets analyst Kevin Chiang. “NAFTA renegotiations.”
Mr. Chiang said the earnings implications of the U.S. government’s move to disband the continental free-trade agreement are unknown, but an almost immediate 10-per-cent drop in values in the aftermath of the Brexit vote in Britain could be a guide post for Canada’s industrial and transportation sectors.
“We would not be surprised to see a similar immediate reaction in the Canadian industrial/transportation complex, especially for those companies tied to North American trade,” he wrote in a report this week.
Fadi Chamoun of BMO Nesbitt Burns says a repeal of the 24-year-old NAFTA could create significant uncertainty and potentially weigh on the valuations of Canadian National Railway Co. and Canadian Pacific Railway Ltd.
About 30 per cent of the railways’ revenues are derived from cross-border trade, with 60 per cent to 70 per cent of that being Canadian exports to the United States, Mr. Chamoun wrote in a report.
The overall impact on the Canadian economy would be almost a 1-percentage-point decrease in gross domestic product and a likely 5-per-cent depreciation in the value of the Canadian dollar, said a Bank of Montreal study released in November.
The depreciation of the loonie would bolster Canadian export competitiveness and, over time, offset half the decline in GDP resulting from about a 1.7-per-cent increase in tariffs.
BMO chief economist Douglas Porter has described the impact as a serious, but manageable, risk.
ENERGY
REUTERS. JANUARY 7, 2018. Oil approaches 2015 highs on fewer U.S. rigs, OPEC
Henning Gloystein, Dmitry Zhdannikov
SINGAPORE/LONDON (Reuters) - Oil prices rose on Monday, coming close to three-year highs on a slight decline in the number of U.S. rigs drilling for new production and sustained OPEC output cuts.
U.S. West Texas Intermediate (WTI) crude futures CLc1 had risen to $61.67 a barrel by 1422 GMT, 23 cents above their last settlement. WTI last week reached $62.21, the highest since May 2015.
Brent crude futures LCOc1 were at $67.78 a barrel, 16 cents above their last close. Brent hit $68.27 last week, the highest since May 2015.
Traders said the gains were due to a slight decline in the number of U.S. rigs drilling for new production. The rig count eased by five in the week to Jan. 5 to 742, according to data from oil services firm Baker Hughes.
Despite this, U.S. production C-OUT-T-EIA is expected soon to rise above 10 million barrels per day, largely thanks to soaring output from shale drillers. Only Russia and Saudi Arabia produce more.
“The U.S. oil price is now into a range that is anticipated to attract increased shale oil production,” said Ric Spooner, chief market analyst at CMC Markets in Sydney.
“Traders may decide that discretion is the better part of valor while markets wait on evidence of what happens to the rig count and production levels over the next couple of months.”
Rising U.S. production is the main factor countering output cuts led by the Middle East-dominated Organization of the Petroleum Exporting Countries and by Russia, which began in January last year and are set to last through 2018.
A senior OPEC source from a major Middle Eastern oil producer said on Monday that OPEC was monitoring unrest in Iran as well as Venezuela’s economic crisis, but will boost output only if there are significant and sustained production disruptions from those countries.
Stephen Innes, head of trading for Asia/Pacific at futures brokerage Oanda in Singapore, said “the OPEC vs shale debate will rage” this year, being a key price-driving factor.
However, Innes added that Middle East turmoil would remain a key focus for oil markets and had the potential to “send oil prices rocketing higher”.
Reporting by Henning Gloystein, Florence Tan and Dmitry Zhdannikov; Editing by Dale Hudson
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