Skip to main content

Deceleration in earnings growth

Over the past 18 months, Canadian inflation has been rather higher than in the U.S., although both Canada (1%) and the U.S. (0.25%) have each very low director rates have been substantially below headline inflation -- around 3% for Canada and 2% for the U.S.

Of course, and I have said this on a number of occasions, Canada's economy is fundamentally different to that of the U.S.  Services are a much larger percentage of US economic activity than in Canada, but still both economies are dominated by services.  The most important component of cost growth in a service economy is wages -- and whereas America has a huge (but slowly resorbing) unemployment problem (U3 at 9% and U6 at 16%), Canada has a much lower level of unemployment (on a like for like basis about 6% -- high still at this stage of the recovery but hedging closer to the BoC's "full employment" target range of 3%).

As an economy moves closer to full employment labor market tightness causes wages to rise, and this has been the case in Canada -- as demonstrated by the rising national income.  This rise has been dramatic over the past few years, substantially higher than inflation.  Now however (and the data is as of September 2011) the rate of growth in earnings is tampering as can be seen below:

Year-to-year change in average weekly hours and average weekly earnings

of course, after the 2008/09 recession it was only normal that some correction would occur, but now it appears that wage growth are slowing dramatically, a reflection of our export market -- not only have wages tempered but so have the number of hours worked.  What is remarkable, is that Canada is now in a position where wages have tempered while hours worked have not decline that much.  A strange situation.

On a geographical basis the changes in wages is also very interesting -- while wages in Western Canada continue to rise dramatically, they are stagnant in Quebec and have dropped by 2% in Ontario -- these two province account for almost 3/4 of Canada's entire population -- so Saskatchewan's 8% YoY wage growth (population 1 million) is insignificant.

BTW that may explain why the Ontario government is in "freak out" mode this morning -- stagnant or falling wages impact tax revenues -- and Ontario's got a problem there!

Comments

Popular posts from this blog

Ok so I lied...a little (revised)

When we began looking at farming in 2013/14 as something we both wanted to do as a "second career" we invested time and money to understand what sector of farming was profitable.  A few things emerged, First, high-quality, source-proven, organic farm products consistently have much higher profit margins.  Secondly, transformation accounted for nearly 80% of total profits, and production and distribution accounted for 20% of profits: Farmers and retailers have low profit margins and the middle bits make all the money. A profitable farm operation needs to be involved in the transformation of its produce.  The low-hanging fruits: cheese and butter.  Milk, generates a profit margin of 5% to 8%, depending on milk quality.  Transformed into cheese and butter, and the profit margin rises to 40% (Taking into account all costs).  Second:  20% of a steer carcass is ground beef quality.  The price is low, because (a) a high percentage of the carcass, and (b)...

Spray painting Taylor Swift G650 aircraft (updated)

 First, a bit of paint will not harm anyone.  These climate activities are going to learn two things in the next few days:  (1) Trespassing at an airport is a felony almost anywhere in the world.  That means criminal prosecution.   (2) removing paint from an aircraft is expensive.   So these climate activists are about to find out the reach of the British criminal system and it will not be pleasant, the UK has very strict laws about that, I would be surprised if cleaning the aircraft of all the paint will cost less than $100,000.     I am sure that when they planned (premeditation) this little show they had a very valid logic to doing this.  Tonight, they are probably realizing the depth of their troubles.   I understand that in the UK it's a minimum one-year jail sentence.    Also, good luck travelling with a criminal trespass charge against you.  I am relatively certain that the airline industry will ...

Janet Yellen from China supporter to Hawk...

There is rarely serious news in the world these days, it seems that most newspapers are filled with headlines and little else, and then Ms Yellen went to China.  Secretary Yellen has long been known in the Biden administration as the voice of moderation when dealing with China, yet as her trip which concluded yesterday a hawk was born:  She warned the Chinese against dumping goods in the United States.    fighting words! The American administration is very concerned about the lack of Chinese domestic consumption.   Even before the COVID-19 epidemic, there were already the beginning signs of a slowdown, automobile sales were off.   China is facing domestic deflation (a clear sign of collapsing demand) China imports few consumer goods, they import raw materials and intermediary goods.   It seems that the American administration is concerned that the Chinese administration will dump consumer goods abroad to keep its manufacturing machinery ...