Tuesday, July 17, 2012

Jobs an indicator of healthy economy

Canadians have heard it often during the past four years – the economy has weathered the global financial crisis and came through it with flying colours. The economy has grown and thrived without the disasters that befell other countries. The dollar is strong, the housing market hasn’t busted up despite warnings of bubbles. The GDP is growing, the rate of inflation is slow and interest rates are low. Although low rates have fuelled the economy to some extent, consumers have been reining in the pace of its debt accumulation after warnings from government of the potential dangers of  servicing high household debt.

One of the main indicators that point to a continued healthy economy is the job numbers. Without jobs, household budgets get tighter, consumer purchases slow down, manufacturers scramble to reduce inventory, which could lead to lay-offs, and bankruptcies rise. Job loss is also the leading cause of mortgage default.

Three reports this month – one on manufacturing, the other two on jobs -- show that Canada is still on track to continue its growth – albeit at a slower pace. This is happening despite the continuing crisis globally. Interstingly, Canada is benefitting from an increase in U.S consumer demand, especially for autos.

Bucking the global trend, in June, factory orders rose, according to an RBC survey. The RBC Purchasing Managers Index – considered a leading indicator of manufacturing business conditions — inched up to 54.8 last month in Canada, its highest level since last September. A figure above 50 indicates manufacturing is expanding, while a figure below 50 indicates the sector is contracting.

Then, CIBC released its Employment Quality Index, which found the Canadian economy created 155,000 new jobs in the first six months of 2012 and these were high quality jobs. Another good sign was that full-time employment rose by 1.1% during the first half of the year -- ten times faster than growth in part-time employment. And the number of jobs in high-paying sectors rose 1.6% -- more than double the pace of low-paying sectors.

Statistics Canada’s release saw an increase in jobs in the public sector – 7,300 more people were working in June, much stronger than the 5,000 number forecasted by analysts. That number is not quite as high as the number of new jobs created in previous months, but still, it's not bad.

The report also showed the public sector gained 38,900 jobs in June and full-time employment rose by more than 29,000.

While these are good numbers and show a healthy, growing economy, there have been cuts in information, culture and recreation. The agricultural sector lost 20,000 jobs and manufacturing declined by 800.

Consumer spending accounts for approximately 60% of the economy. So far, even with the anticipated softening, as longs as job numbers continue to increase, the economy will continue to weather the storms and is well-positioned to improve when global economies turn around.

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