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Sometimes its de denominator that counts!

Last week StatsCan announced that jobs were down 29,000 in Canada for the month of April!  That's not good news with Quebec and the Atlantic province suffering the most.  In  fact, Quebec accounts for 110% of all job losses in Canada -- the province actually lost 32,000 jobs -- but the rest of Canada made up the difference. This is not good, and in fact, will probably probably cause the Loonie to drop some more over the next few days (which it did).

Sometime not only is the Nominator in the equation an issue, sometime its the denominator that has an impact.  As an example, Europe has seen no real changes to its economic fundamentals, France's government budget deficit is going to be huge, again!  Greece has seen no reduction in its overall debt burden, in fact it continues to worsen.  Italy that has a new government (and seem to want to tackle some hard issues), the market has given an unusual sign of confidence with historical low borrowing rates, but there too the overall debt burden -- that was apparently unsustainable 48 months ago, is no longer an issue.    

The reality is that the debt level of Europe's PIIGS are still as high as they were in 2010 when the European crisis started, in fact, in most of these economies there has been economic contraction, so that the debt burden is now a greater percentage of GDP!  Still all is well, the Euro is trading around 1.40 to the dollar.

By 2060 Japan's population (128 million today) will have shrunk to about 78 million.  There is a high degree of certitude as to this outcome, since Japan is a near perfect model of a closed economy (with regards to immigration).  It is virtually impossible for non-Japanese to emigrate to the country.  The reality of Birth/Death statistics (even taking into consideration advance in medical science) leads to an absolute decline in Japan's population.

The above table shows that by 2100, japan's population will be back to the level it was prior to 1900.  However, the make-up of this population will be very different.  In 1940, almost 40% of Japan's population was below the age of 14 and nearly 95% of the population was below the age of 65. In 2010, 25% of the population was above the age of 65, and only 13% of the population was bellow the age of 14.  By 2060, nearly 35% of that country's population will be over 65.  The turning point occurred in 2007 where Japan's population shrank for the first time.  In 2013 population contracted by 255,000.  The change in the denominator is important, while you can have a near stagnant economy (as in Japan) the number of participants are dropping -- notionally everyone else in Japan is a little better off!

Greece faces the same kind of problem, while its debt burden is unchanged (the biggest change is the creditor -- which has moved from pension funds and banks to the ECB) the reality is that Greece's economy is now nearly 25% smaller than it was in 2010.  Making it that much harder to find a solution that doesn't involve either exit from the Euro (very non-optimal) or some form of debt forgiveness (I'm sure Portugal, Spain, Ireland and Italy are watching that closely).  The only other option is either transfer payment from Europe to Greece, so that it can repay its loan or wage/cost deflation to make Greece more competitive.

Population shift has lead to a drop in the unemployment because the labor force has declined -- some would say, especially in the US, that ACA (a.k.a. ObamaCare) has had a huge impact on people's work need perception.  Some have dropped from the labor force because the only reason they kept working was to receive medical benefits.  Shifting demographics means that last year while unemployment rolls dropped off more quickly because people simply left the labor force.  The trend that is evident in Japan now, is slowly emerging in post babyboomer America (its important to note that America has probably the best worker/retiree numbers in the OECD -- Italy is the worse and only second to Japan...).

The same is true for Canada, while jobs were lost, the number of workers looking for work dropped even more, which means despite job losses Canada showed improved unemployment numbers.

Now you know


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