NORTHERN ECONOMIST

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9 Posts with tag "gdp"

Recent Economic Indicators for Ontario and the Northwest: A Brief Analysis

There have been several releases of economic news over the last few days, which suggest that the Ontario economy is not doing particularly well.  First, there was the Statistics Canada release of employment numbers for October that show that employment fell in Ontario in October with a decline of 39,000 jobs driving the unemployment rate upwards by 0.5 percentage points to 8.1 percent.  Today, Statistics Canada released the Provincial and Territorial economic accounts, which show that in 2010 Ontario’s economy rebounded with 3 percent growth in GDP.  Nevertheless, this was below the Canadian increase of 3.2 percent.  Moreover, given that the contraction for the Ontario economy was -3.2 percent in 2009, it means that Ontario’s economy has not really grown in two years.  In politics, timing is everything and it would have been interesting to see what impact the release of these numbers would have had on the outcome of the Ontario election if they had been available a month earlier.

An examination of the employment numbers for Ontario regions show that October saw employment declines in seven of the eleven economic regions with Kitchener-Waterloo-Barrie as the hardest hit in percentage terms.  Other regions that were hit almost as hard were Ottawa, London, Northeastern Ontario and the Toronto-GTA area.  What is particularly interesting is that there were small increases in Muskoka-Kawarthas, Hamilton-Niagara and Windsor-Sarnia and a fairly large rebound of 2 percent in employment in Northwestern Ontario.  The rebound in Northwestern Ontario employment is even more pronounced if the October numbers are annualized as they show an increase in employment from October 2010 to 2011 of 6.4 percent.  Yet, the unemployment rate in Thunder Bay apparently went up in October from 6.0 to 6.9 percent. 

Employment in Thunder Bay between September and October 2011 also rose but the labour force expanded even faster. The labour force in Thunder Bay grew from 63,100 to 64,000 (an increase of 1.4 percent) while employment grew from 59,300 to 59,600 (only a 0.5 percent increase).  The more rapid expansion of the labour force has pushed up the unemployment rate but that by itself is relatively good news.  It means that the economy is perceived as buoyant enough to begin attracting entrants back into the labour force.  However, much of this activity appears to have been fueled by road and construction work if observation from driving around Thunder Bay recently is any indication, which suggests it could be relatively short-lived given the approach of winter.  As well, employment in Thunder Bay is still well below its March 2003 peak of 67,400 jobs.  There is still a distance to go when it comes to economic recovery in the city and by extension the region.

 

 

Statistics Canada Data Sources for Figure

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Northern Economist in the Winnipeg Free Press

Manitoba in the muddled middle

Winnipeg Free Press, September 10, 2011, Winnipeg, Manitoba

by Livio Di Matteo

Autumn traditionally sees birds fly south, but this year voters will also be flocking to the polls in five of Canada's provinces. October will see provincial elections in Manitoba, Ontario, Prince Edward Island, and Newfoundland and Labrador. Then come November, Saskatchewan will follow.

While each province has its own unique political culture and issues, one common denominator will be the state of the economy and how their province has done compared with other provinces. Here are some simple indicators for the first decade of the 21st century.

First, consider average monthly employment growth. Over the period from 2000 to 2010, despite the recession, all provinces saw an expansion in employment.

A comparative ranking puts Alberta at the top of the heap with overall employment growth of 27 per cent -- even with the effects of the recession. British Columbia and Quebec were next at 17 per cent and 15 per cent respectively followed by hard-pressed Ontario, which nevertheless saw its employment grow by 14 per cent.

Manitoba ranked sixth at 12 per cent employment growth -- just behind P.E.I. -- followed by Newfoundland, Nova Scotia and finally New Brunswick, which saw its employment level only grow by an anemic seven per cent.

Next, consider the growth in real GDP. Here the results put the three resource-producing provinces on top -- Newfoundland and Labrador saw its real output grow an amazing 40 per cent, followed by 27 per cent growth in Alberta and 21 per cent growth in Saskatchewan. British Columbia and Quebec are next followed by Manitoba in at sixth place with a 10 per cent increase in real GDP. Then come P.E.I., Nova Scotia and Ontario. Ontario comes in second last at only four per cent -- but ahead of New Brunswick, which saw its real GDP shrink by about four per cent.

If one sums the growth rate in employment and the growth rate of real GDP and ranks the provinces from highest to lowest and then sets the highest-ranking province at a score of 100, then one gets a neat little comparative index of provincial growth prosperity over the course of the early 21st century. Alberta ranks first at a score of 100 followed by Newfoundland and Labrador at 92 and then a long drop to British Columbia in third place with a score of 60.

 

 

Saskatchewan and Quebec are close behind with scores of 58 and 50 respectively and then Manitoba -- again in sixth place -- with a score of 40. Prince Edward Island follows with 38, Ontario is next tied with Nova Scotia at 32 and finally New Brunswick ends it off with a score of seven.

Saskatchewan and British Columbia are in the top half of the prosperity index and that should bode well for their governing parties though the HST issue dogging British Columbia means any talk of an early fall 2011 election has ended.

Newfoundland and Labrador does well in this prosperity index but its high rank results mainly from GDP rather than employment growth. This may be an issue if the electorate feels the benefits of growth and prosperity have not translated into enough jobs.

As for Prince Edward Island, it will be able to boast it is doing better than Nova Scotia and New Brunswick as well as Ontario.

As for Ontario, its performance over the course of the decade has generally been dismal putting it in the same league as New Brunswick and Nova Scotia.

It is no coincidence the same decade also saw Ontario start receiving equalization payments. Ontario is afflicted by productivity problems as it managed to increase employment faster than real GDP. Ontario voters are used to seeing themselves as the economic engine of Confederation and their diminished status will leave them looking for policies that promise to restore their imperial grandeur.

Manitobans will be in a bit of a dilemma when it comes to making their political choices. Manitoba is almost in the middle of these rankings -- the proverbial Goldilocks province with an economy that seems never too hot nor too cold.

Manitobans can look west and lament they lag Saskatchewan and Alberta or they can look east and thank their lucky stars they are not Ontario or New Brunswick. Manitobans can rationalize their performance with respect to their western neighbours by noting there is no oil or potash driving their economy.

As for their eastern neighbours, they should not get too smug. Over the period 2000 to 2010, Manitoba's real GDP did not manage to grow that much faster than either P.E.I. or Nova Scotia. Like Ontario, Manitoba also faces some economic productivity issues.

Livio Di Matteo is professor of economics at Lakehead University. He is also a contributor to the economics blog Worthwhile Canadian Initiative.

Is The Dreaded Double-Dip Near?

Statistics Canada has released the Canadian economic accounts with GDP estimates for the second quarter of 2011.   Overall, real gross domestic product or GDP declined by 0.1 percent in the second quarter following a 0.9 percent increase in the previous quarter.  The big driver of the drop was the decline in exports as domestic demand was up.  While business investment in plant and equipment was up and consumer spending on goods and services was also up, exports declined 2.1 percent and oil and gas extraction decreased 3.6 percent (due mainly to maintenance shutdowns and Alberta wildfires). (See the accompanying figures from Statistics Canada).  Businesses are piling up inventories which means that demand is slowing (or if you are an optimist they are piling things up to meet the anticipated coming boom in demand.  Not likely given the tight inventory management most companies follow today).  When converted to an annual rate, real GDP in the second quarter declined 0.4 percent while it was up 3.6 percent in the first quarter. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This decline in the second quarter of 2011 comes before the economic turmoil and trauma of the summer in terms of sovereign debt and the stock market drop.  The burning question is whether this signals the start of another recession.  If the third quarter of 2011 shows another decline then we will technically be in another recession as recessions are traditionally defined as two consecutive quarters of negative growth.  What are the odds of this happening?  Pretty good actually given that the big driver of the second quarter real GDP decline was the drop in exports. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exports make up a third of our GDP and the weak performance of the American and European economies over the course of the summer does not bode well for a pick-up in exports in the third quarter.  The third quarter will also be marked by a slowdown in U.S. output due to the impact of Hurricane Irene on the U.S. eastern seaboard though that might be balanced by reconstruction activity in the fourth quarter.

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A Historical Perspective on the United States Public Debt

With the August 2nd deadline for raising the United States public debt ceiling looming, it might be useful to take a longer-term view on exactly how bad the US debt situation is at least with respect to the past.  I got U.S. public debt figures from 1790 to 2010 from the U.S. Treasury site.  I got CPI (1982-84=100) and GDP for the same period from Economic History Services (EH.net) and combined with population data constructed two graphs: the debt to GDP ratio and  real per capita public debt. 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The results are interesting.  At 92.5 percent of GDP, the US public debt is currently at its second highest point in history exceeded only by the Second World War period when the debt to GDP ratio hit 121 percent.  However, the Second World War is a unique period and if one removes it from the picture, the current the debt to GDP ratio is the highest it has ever been.  Aside from the Second World War and the immediate post-war era, the US public debt to GDP ratio was rarely above 40 percent.  When real per capita debt is examined, the US public debt is now the highest it has ever been at about 20,000 dollars per capita in 1982-84 dollars.  The current incline is part of increases that began in the mid-1980s reversing nearly 40 years of declining real per capita public debt after the Second World War. 

What is interesting is that when you look at the annual growth rates of real per capita public debt, they were much higher in the nineteenth century. The average annual growth rate of real per capita public debt was 21 percent from 1790 to 1899 and about 5 percent from 1900 to 2010.  The last five years however have seen some double digit increases in real per capita debt suggesting a shift in growth trends.  Higher per capita debt growth is not unexpected in the 19th century given the United States was a young country with a vast frontier and lots of infrastructure to build.  Road and railway building take a lot of money and the United States like many other countries provided government assistance for transportation and communication infrastructure. 

However, accumulating large amounts of debt when your economy is rapidly expanding is quite a different situation from doing it when your economy is stagnating.  That is the crux of the problem in the United States.  The last three years in particular have seen a stagnant economy which has made the accumulation of large amounts of debt a more serious burden to the economy. In the short term, the US dilemma is dealing with the politics of raising the debt ceiling to avoid what could be a default on its debt.  In the medium term, the United States has to raise government revenues as well as reduce spending to close the fiscal gap that is fueling the debt.  In the longer term and most importantly, the United States has to start growing its economy again.  This is its challenge for the 21st century.

Northern Economist on Manitoba's Economy

From the Winnipeg Free Press - PRINT EDITION-May 17th, 2011, p.A10.

Manitoba lagging in recovery, earnings

Last year, when the provincial GDP growth numbers were released for 2009, Manitobans basked in the news that despite the storm of the great recession, Manitoba was Canada's economic growth leader. Of course, the Manitoba economy did not grow at all in 2009 but then everyone else's economy shrank.

When it comes to economic performance, everything is relative. Statistics Canada has released the preliminary provincial growth numbers for 2010 but the news has been buried by the fascination with royal wedding as well as the federal election.

It is probably just as well. The results are not as favourable for Manitoba this year.

While Manitoba led the country during the economic downturn, it is lagging the country when it comes to the recovery's upturn. While Canada's real GDP growth for 2010 is estimated to be about 3.3 per cent, Manitoba's comes in at two per cent, which places it at the bottom tied with Prince Edward Island -- also at two per cent -- and just behind Nova Scotia at 2.1 per cent.

While Manitoba's performance is steady, the fact is being a leader when times are bad and growth low but a follower when times are good and growth high is not the best recipe for long-run economic performance.

The explanations for this performance vary. One explanation, as put forward by the Manitoba Bureau of Statistics, is the number is simply an underestimate and when the final numbers are in, the growth rate will be revised upwards.

Indeed, the Manitoba government forecasts the economy in 2011 is expected to grow at a more respectable 2.7 per cent and 2010 should come in at 2.5 per cent.

If that is the case, however, Manitoba will still rank at the bottom because every province's numbers are going to be revised. This explanation only works if there is something systematically different about how Statistics Canada estimates Manitoba's GDP and that is not likely.

Is there something different about Manitoba's economy? Manitoba and Saskatchewan are still highly dependent on agriculture. One of the reasons both their performances were weaker in 2010 was due to a fall in crop production as a result of bad weather.

This in turn can also especially affect manufacturing in Manitoba as much of the manufacturing sector is tied to food processing and agricultural equipment.

The weather has also affected economic growth in the United States recently as the winter storms in the first quarter of 2011 helped slow economic growth there to 1.8 per cent.

If one compares Manitoba's economic growth in 2010 with that of nearby North Dakota, however, one finds North Dakota grew at 3.5 per cent, more than twice the rate of Manitoba's economy.

One can point to the fact that despite the lower GDP growth rate, Manitoba's employment is up and employment and labour-force growth is ranked fifth- and second-best among the provinces respectively.

Weekly earnings in 2010, however, were up only two per cent and below Canada's increase of 3.6 per cent. Having superior growth in employment but not in earnings suggests the labour force may be lagging in terms of its productivity.

So what is happening in Manitoba? Several things.

First, productivity in Manitoba is lagging other parts of the country and while more jobs are being created, their productivity contribution is not robust. This is a long-term problem best dealt with over the long run with improved investment in human capital and training.

Second, Manitoba's economy is still very dependent on agriculture both as a primary production sector as well as an input into manufacturing. Bad weather in 2010 helped slow that sector down and with the flooding of 2011, the new crop year is probably not getting off to the best start.

The economic impact of weather is more problematic as government policy cannot change the weather. One solution may be to encourage more agricultural production in products that are less affected by the weather. Apparently, wheat has not done as well recently whereas receipts for hog production are up.

Another solution is to further diversify the manufacturing sector into non-agriculturally related production and further diversify the economy into service and knowledge-sector activities.

This, however, is where the private sector also needs to take a leadership role as wealth creation is ultimately a private-sector activity and government incentives can only follow where the private sector sees opportunity.

Livio Di Matteo is a professor of economics at Lakehead University.