Saturday, February 7, 2009

U.S. manufacturing woes spread to Canada...quickly

Largely unnoticed yesterday by the U.S. media is: that the struggling U.S. manufacturing industry - manufacturing cut a whopping 207,000 jobs in the U.S. January establishment survey - is bringing the Canadian labor market down. Yesterday, 1.5 hours before the U.S. release, Statistics Canada released the following:
Employment fell by 129,000 in January (-0.8%), almost all in full time, pushing the unemployment rate up 0.6 percentage points to 7.2%. This drop in employment exceeds any monthly decline during the previous economic downturns of the 1980s and 1990s.
This is an awful report. As a comparison, the U.S. population is roughly nine times the size of the Canadian population; and therefore, a 129,000 decline in Canadian payroll compares to more than 1,000,000 jobs lost over the month in the U.S. This blows the U.S. decline, 598,000, out of the water.

But on the ever-so-slightly brighter side, the Canadian report was not as broad-based as was the U.S. report. Although the headline number, -129,000 job cuts, is massive, the job loss was concentrated almost entirely in the manufacturing sector, 101,000 jobs slashed. The service sector job loss paled by comparison with 9,000 jobs lost.

While oil was surging in the middle of 2008, Canada resisted the U.S. contraction on strong commodity-based profits, incomes, and employment. But now the commodities markets are declining sharply, and there is no offset to the contraction in manufacturing.

This chart illustrates the sharp increase in the unemployment rate in the U.S. and Canada. Relative to a long-run level, the U.S. unemployment rate is probably slightly higher, but Canada's unemployment rate rose 1.4% since Jan. 2008, or its biggest annual decline since 1992.

The BLS conducts two surveys of the U.S. labor market: the household survey that is used to calculate the unemployment rate, and the establishment survey that is used to calculate the nonfarm payroll by sector. Canada conducts just one survey, the Labour Force Survey (LFS), from which it extracts both industry payroll and employment detail. The illustrations compare the joint employment declines across the U.S. and Canada using the comparable LFS and household survey.

This chart illustrates the sharp decline in annual employment growth in the U.S. and Canada. Note that this is not the payroll number from the establishment survey in the U.S., but the employment number from the household survey.

Canada's employment fell into negative territory in January for the first time since 1992. On the other hand, U.S. annual employment growth has been negative since June 2008 (after revisions), but the 2.88% annual decline is the biggest since 1954 (55 years, over half a century).

The Canadian and the U.S. labor markets are now quickly declining contemporaneously. The strength from the commodity markets that drove employment and earnings in Canada during the first half of 2008 is now gone. The near-term outlook for countries hangs in the balance, but more importantly, tied to the stabilization of the U.S. manufacturing sector.

Rebecca Wilder


  1. Hardly, does this surprise us Rebecca since Canada amounts to the 51st state of the U.S.A.

    Moreover, most do not know about "network effects" and fractal self-similarity of interlinked economies.

    The U.S.A. is the biggest hub in a network of interlinked economies.

    Other hubs resemble the U.S.A. in design but not size.

    At the periphery of these hubs are the nodes -- much smaller economies with less differentiation.

    Canada is both a hub to other economies and a node to the U.S.A. economy.

  2. Mr MacDougal seems to know little about the structure of the Cdn Economy. It *does not* resemble the US economic structure. Both nations are quite unique, but if you are to draw similarities, Australia would be a much closer analogy, save for housing markets.

    You might note, Mr MacDougal, that the Cdn banking system for a start is *distinctly* different from the US.

    Ms Wilder has posted some excellent reports on same to make the point.

    [Other hubs resemble the U.S.A. in design but not size.]

    You know....this is *exactly* one of the US' most severe public problems, seeing the ROW as creations in her own image. The UK has much the same problem. And I'm a Brit citizen, albeit a happy resident in Canada.

    The common factor that has has spread internationally is the *Credit Crunch*, and even that has manifest distinctly differently in many nations.

    Whatever, my reason to post

    But enough of people who think they have all the answers and make fools of themselves telling others the facts of life, while they verge on an hysterical pregnancy themselves, I find the following of great note:

    [Former members of the monetary policy committee will this week call on Mervyn King to tear up the Bank of England's complex mathematical model of the economy, as the Bank is accused of having exacerbated the recession by failing to cut interest rates fast enough when the credit crunch hit.

    As King prepares to issue the Bank's latest economic forecasts this week, three former MPC members, Sushil Wadhwani, Willem Buiter and DeAnne Julius, have agreed to join an extraordinary experiment by number-crunchers at consultancy Fathom to build a rival to the Bank of England Quarterly Model (BEQM), its main forecasting model.

    Interest rates have now been slashed to an unprecedented low of 1% to cushion the economy against the worsening downturn; but they were left on hold for much of last year, as MPC members fretted about the risk that rising oil prices would affect the public's "inflation expectations", which would in turn lead to surging wages. Critics say using BEQM to guide its decisions had blinded King and his colleagues to warning signs in the outside world.

    Using information gleaned from publicly available documents and Bank insiders, Fathom's number-crunchers have constructed a replica of BEQM. It shows that the model actually stops working when interest rates hit zero - an increasingly pressing possibility - and fails to allow for the impact of a credit shortage on the economy.

    Fathom's director, Danny Gabay, himself a former Bank economist, argues that interest rates would have been cut earlier and faster, and the recession might have been less severe, if Mervyn King and his colleagues had relied less rigidly on mathematical models, and taken more notice of what independent MPC member David Blanchflower has called "the economics of walking about".
    [...] ]

    To any of you who follow int'l economics and finance, you'll be very familiar with the odd Doomster movement in the UK as that pertains to housing, albeit I read much the same gist in Ozzie, Kiwi, Canuk and US forums, but the Brits have a specialty in slashing themselves with razor blades as a national pastime.

    The UK is doomed almost by attitude alone. They also seem to have a real lead in incompetence at the top, but don't get me started. Fortunately in Canada, due to the exceptionally well run banking system, no thanks to the present bunch of bungling incompetents, there is a much-greater margin for deficit investment by the Gov.

    The irony is that the Neo-Cons now in power are almost completely oblivious to the need to doing so. Even with the latest unemployment figures (still far from the US ones, even before the different methodologies of computation are taken into account) Canada is in the best position of any G7 nation to run a deficit to do 'bailouts' ( a very misleading term at the best of times, let alone the worst).

    Canada has run triple surpluses for the last decade, and some provinces are still in surplus.

    Whatever, Blanchflower, who is a US academic, had taken a lot of flak, *especially from UK Doomsters*...for his commendable foresight in calling for IRs to be reduced in the UK before the worst occurred.

    A note on the Cdn economy: There is a chance that the Cdn economy will actually recover *before* the US *if* the Third World demand is able to be ramped up again. There are actually some promising signs of this, as the report from the WSJ that Ms Wilder posted a few days back shows. There is reason to believe (albeit there's always room for skepticism until an event comes to pass) that China is now ready to start increasing her rate of expansion again. If that comes to pass, then the need for commodities will bode well for Australia and Canada both.

    Time will tell.

    I do recommend accessing and reading the entire Guardian article. One of the noted economists and former BofE MPC members, Buiter, of course runs an excellent blog at the Financial Times.

    I do question some of his thinking sometimes, but without doubt, he is well qualified to state what he does.

    Interesting times....

  3. By his own words, Stephen Saines lacks knowledge about networks, network effects, self-similarity and fractals.

    All economies of Western Europe and North America resemble each other, the difference being degrees in size of output, population.

    You'd be hard pressed to not find a steel maker in Canada, not one in France and not one in the USA.

    Stephen Saines attempts a lame ad hominem attack using innuendo.

    This guy follows me everywhere from Daily Reckoning Australia to Rebecca's great blog.

    You ought to seek professional psychiatric help Stephen Saines.

    The rest of us debate expressed beliefs about others. None of us stoop so low as to wage an innuendo -based, low life ad hominem attack against others.

  4. I really don't wish to turn this into a flame war, and I can't be bothered countering Mr MacDougal's truly silly claims, but suffice to add to his own comment:
    [All economies of Western Europe and North America resemble each other, the difference being degrees in size of output, population.

    You'd be hard pressed to not find a steel maker in Canada, not one in France and not one in the USA.]
    All humans resemble each other, you'd be hard pressed to not find one with a nose, but where exactly does it follow that all then have personalities that resemble each other?

    Mr MacDougal unintentionally makes a profound point:

    Very few of us are like him.

    Canada, although a highly industrialized nation (like Australia, both are *more* industrialized as a per-centage of GDP than the US), and yet both are also more dependent on commodities than the US.

    This is especially apparent from the currencies of both.

    In Canada's case, oil plays a large part of that.

  5. Stephen Saines cannot seem to contain himself with a second ad hominem post.

    The WWW and blogs seem to attract all the crazies.

    Stephen's silly claims leap out on the comment section like a bad rip-off of a Monty Python sketch.

    Does this guy ever plan on giving up or getting help?


Note: Only a member of this blog may post a comment.