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The slowing world economy and concern for jobs in the U.S. and Canada

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Alex Carrick

Positions:
Alex Carrick is Chief Economist for Reed Construction Data. He specializes in economic forecasting and statistical services.

Economists

It’s come down to jobs. President Obama plans a speech in September that will outline an action plan to stimulate employment in the U.S. He knows his re-election chances depend very much on the degree to which significant progress can be made in putting Americans back to work.

It’s come down to jobs. President Obama plans a speech in September that will outline an action plan to stimulate employment in the U.S. He knows his re-election chances depend very much on the degree to which significant progress can be made in putting Americans back to work. Lately, the President has highlighted in his speeches how severely the housing crisis has cut into construction jobs. And that overall employment in the country continues to suffer from the lack of work available in the home-building sector. He says he’d like to find other projects for laid off residential-sector workers to build. Roads and highways and other needed infrastructure projects are obvious alternatives. To be suitable, however, such projects must allow a certain degree of substitutability between construction skills. How such an initiative will fit in with budget tightening efforts in the House of Representatives is anybody’s guess. I think many people figured the wave of Washington’s stimulus spending on infrastructure projects was already in the past. In Canada, pent-up demand for public sector projects is being facilitated by new financing alternatives. P3 projects (public-private partnerships) have proven very popular in moving work from the proposal stage to shovels in the ground. The cost, most often budgeted to be recovered by user fees, is largely offloaded to the private sector. In many parts of the world, Canada included, large engineering firms in partnership with financial institutions are familiar and comfortable with assuming the risk, knowing the returns can be high. Temporarily, at least, the U.S. employment numbers have been picking up. In July, 117,000 jobs were created across the country, according to The Employment Situation report from the Bureau of Labor Statistics. The unemployment rate fell marginally to 9.1% from 9.2% the month before. The initial jobless claims figure has been down around 400,000 in five of the past six weeks. (422,000 was the anomaly in the week ending July 16). That’s a relatively encouraging number. It’s well below the half-million benchmark figure that signals as many workers are being laid off as newly hired. The year-over-year percentage change in total U.S. employment has been positive for nearly a year. In July, the gain was +1.0%. That compares with Canada’s +1.5%. In the past, when either economy has been chugging along with “a song in its heart”, the year-over-year jobs growth has been +2.0% or higher. Progress is being made in restoring that rate of increase. In the key services-providing category which accounts for nearly 70% of all U.S. jobs the year-over-year gain in July was +1.4%. That was higher than Canada’s +1.2%. Where Canada is continuing to outshine the U.S. is in construction jobs. Whereas the U.S. construction employment level has fallen nearly 30% between 2006 and the present, Canada has set a new record high. In July, the figure was just below 1.3 million. A proportionally higher number of government-backed stimulus projects in Canada has helped. But more important, the residential sector has held up so much better. Canada suffered a minor contraction in housing starts in the depths of the recession. But home ground-breakings have come roaring back, climbing above 200,000 units, seasonally adjusted and annualized, in the latest month. Adjusting for the population difference between the two countries, Canada’s 200,000 unit starts would be the equivalent of nearly 2.0 million unit starts in the U.S. The actual U.S. figure has been mainly stuck between 500,000 and 600,000 units for two-and-a-half years. In both countries, employment in manufacturing has recorded year-over-year increases going back nearly a year. Prior to mid-2010 and throughout the 00s, jobs in the manufacturing sectors of both the U.S. and Canada did almost nothing but decline. In recognition of slowing growth prospects and the continuing jobs dilemma, the Federal Reserve recently committed to keeping its policy-setting federal funds rate at a nominal level close to 0.00% out to 2013. Given that the latest (July 2011) inflation number for the U.S. economy was +3.6%, that means “real” interest rates are currently negative. Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News. Mr. Carrick also has a lifestyle blog that can be reached by clicking here.

by Alex Carrick

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