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The October 2007 Composite Leading Indicator (CLI) from the Organization for Economic Cooperation and Development points to a continued weak outlook for the economies of the major OECD member countries. According to the OECD, the recent pattern of leading indicators suggests that most major developed countries are likely to experience slower economic growth in 2008. The particular deterioration in the U.S. outlook means that the risk of a North American recession has increased significantly.
The crisis in financial markets, which arose as an offshoot of subprime mortgage foreclosures in the U.S., is now having an impact on equities. Major stock market indexes are down by double digit percentages versus their peaks. Strains in the U.S. economy have become evident in several other sectors as well, beyond housing. Weaker labor markets are a prime concern. There is little doubt that the Federal Reserve will lower interest rates, maybe by as much as 50 basis points, at the end of January.
Government-funded projects dominate on the east coast, while wind power projects take centre stage in Alberta and seniors housing and resort communities dominate on the west coast.
Much to the surprise of many economy-watchers, the Conference Board of Canada was generally upbeat in its forecast for Canada’s economy in 2008.
As La Belle Province enters 2008, it is operating closer to full capacity than ever before. The employment rate in the province is at a record high and the unemployment rate is close to its lowest level in more than 30 years. Recent strength in three key areas — employment, income and government spending on infrastructure — will help domestic spending in early 2008. Further along, however, the outlook is less certain given that the U.S., which imports 25% of Québec’s total output, is now facing increasing risk of recession.
In October 2007, Canada’s merchandise trade balance improved slightly to $39.8 billion (annualized) from $33.7 billion in September. The September figure was the lowest since the beginning of this cyclical recovery and expansion in early 2002. The surplus with the U.S. continued a pattern of decline in the latest month. Canada’s trade balance is likely to continue being eroded through early 2008.
Although the key indicators of commercial construction for the country as a whole continue to flash green heading into 2008, Reed Construction Data is seeing some signs that the market may have peaked. For example, growth of office-based employment over the past three months (+3.2%) has slowed compared to the same period in 2006 (+4.3%). Calgary and Edmonton have the tightest office markets in the country; Vancouver has an acute space shortage downtown; and Toronto’s vacancy rate is its Lowest in six years.
Interesting changes in the nature of Canada’s work force are apparent in the accompanying graphs. Full-time employment in Canada increased strongly throughout 2007. However, the proportionally greater increase in jobs has come in part-time work. Another interesting trend concerns private versus public sector employment. Private sector jobs increased in 2007, but the actual gain was considerably less than in 2006. The most remarkable increase in jobs over the last four months has been in the public sector.
The Canadian economy has been growing robustly for the past six years. Over that time, there has been an increase in total employment of 2.1 million new jobs. In the latest year (i.e., through November 2007), the jobs increase is approaching 400,000, which is double the long-term annual average. The one problem area has been manufacturing. The number of manufacturing jobs in the country has dropped by 300,000 over the past five years.
In western Canada and in the country as a whole, Alberta still shines. It is the leader among all the provinces in almost every economic category. However, all the other provinces in the west are also benefiting from the resource sector boom. In eastern Canada, Ontario’s financial sector and large population base carry their own economic momentum and Québec has come roaring back this year, better late than never in this cycle. The Atlantic region is counting on energy projects longer term.
