America’s Improving Labor Market and Ontario’s Provincial Budget

05/03/2013 by Alex Carrick

Slowly but surely. That’s the approach the U.S. economy is taking. The improvement is definitely showing up in labor market conditions, but patience is required.

The number of total jobs in the U.S. increased by 165,000 in April versus March and the unemployment rate dropped by 0.1 percentage points to 7.5%. A year ago, the jobless rate was 8.1%.

The Bureau of Labor Statistics (BLS)’s press release containing the latest data highlights the following. In the latest month, the number of long-term unemployed (i.e., those out of work for a period of 27 weeks or more) declined by 284,000.

At more than a quarter of a million, that’s a big drop.

The sub-sectors where jobs picked up the most in April were: professional and business services (+73,000); leisure and hospitality (+43,000); retail trade (+29,000); and education and health services (+28,000).

Construction employment – somewhat surprisingly, given the recent climb in housing starts – declined by 6,000 positions, while the total number of workers in manufacturing stayed flat.

There were 11,000 fewer employees drawing government pay checks in April than in March.

An improving U.S. labor market, to the extent that it is both a reflection of and contributes to (through incomes and spending) stronger U.S. gross domestic product (GDP) growth, is good news for Canada.

Ontario could sure use the lift from a better-performing U.S. economy.

This segues nicely – okay, maybe “a tad awkwardly” would be a better description, but at least it moves the narrative forward – into a discussion about the provincial budget that was introduced in the Ontario legislature on May 2.

The minority government of Kathleen Wynne is clearly trying to win the support of the New Democratic Party (NDP) in order to lengthen its hold on power. On a number of social policy issues, the Liberals took NDP suggestions and matched or exceeded them.

People receiving government assistance will be allowed to keep more of their disposable income, plus a car. This is a move towards greater tolerance and understanding of the difficult circumstances faced by some down-on-their-luck individuals.

And lowering auto insurance premiums by 15% – most likely a year from now – will provide a welcome cost break for all drivers in the province.

Otherwise, the budget was top-heavy with infrastructure projects. As someone working in the construction industry, I can hardly complain, but there are some glaring omissions nonetheless.

The transit file has hijacked the public agenda – not just at Queen’s Park but also at the municipal level.

Ontario’s provincial government agency, Metrolinx, proposes to spend as much as $50 billion over the next 25 years on at least 10 major transportation initiatives, some of which have already started.  

Included are: the Union Station makeover; a city-centre subway relief line; the railway route from downtown Toronto to Pearson Airport and Georgetown; the Spadina subway extension to York Region; the Yonge subway line’s greater reach to Richmond Hill; the Eglinton-Scarborough Crosstown link; and new light rail or exclusive bus lane systems in Mississauga, Brampton and Hamilton.  

The population of the greater Toronto region is increasing by 100,000 people per year, so there’s no question about the need for such work.

Where there’s a problem, however, is in reaching agreement on how to fund these undertakings. Metrolinx has a menu of options that scrolls through fare hikes, highway tolls, higher property taxes, additional parking fees and several more “revenue tools”.  

The budget sets out a plan for more high-occupancy lanes on the 400 series of highways. Cars without the requisite number of passengers will also be able to use them, but at a price.

Many politicians are adamantly opposed to anything that reeks of a tax increase, either specified or “de facto”. This includes Toronto’s Mayor, Rob Ford. He has already said he’s prepared to run his next campaign on a platform proposing that transit expansion be financed by fees collected from a glitzy new casino and entertainment complex at the waterfront.

Some major issues for the province were largely ignored in the budget.

The high cost of electricity in Ontario has become a burden on both consumers and the business community. If hydroelectric capacity has been maxed out here, we should be able to draw on resources from both Quebec and Manitoba. And what’s happened to our nuclear aspirations? They seem to have been abandoned.

Nor does the budget include much additional help for our manufacturers. The number of Canadians working in the sector has declined by half a million over the past decade. The majority of those job losses have taken place in Ontario.

In particular, the budget failed to provide automakers with exceptional reasons to send future major investment funds in Ontario’s direction.    

The budget sets up the battleground for the next provincial election, which may come at any time. The Liberals have moved slightly to the left, laying claim to some of the “social” territory usually occupied by the NDP.

At the same time, the contrast with the Opposition Conservatives has sharpened. Tim Hudak is proposing cuts to government spending and jobs. If elected premier, he also plans to introduce right-to-work legislation similar to what has recently been passed in Michigan and Indiana.

This will decrease the power and presence of unions and lower wage rates by an estimated 10%.

On the same day as the budget was introduced, the biggest and possibly best news for Ontario’s manufacturers may have been announced in Ottawa rather than Toronto. Mark Carney’s replacement as Governor of the Bank of Canada was revealed, Stephen Poloz.

Mr. Poloz will be moving up from his position as head of the Export Development Corporation (EDC). He’s an expert on selling Canadian products in foreign markets.

This is merely speculation on my part, but Mr. Poloz may be more comfortable with a lower-valued Canadian dollar than his predecessor. A cheaper “loonie” will help Canadian export sales.

This might imply more of a downward bias for Canadian interest rates, or at least less talk about raising them – and a tendency to keep rates lower for longer.