It wasn’t a surprise that the Bank of England wanted Mark Carney for its top job. Earlier this year, there were media reports from Britain suggesting someone at a senior level was making a play for our much-admired Bank of Canada Governor. At the time, it felt like a move designed to twist Carney’s arm as visibly as possible. Clearly, it worked. His exit is scheduled for the middle of next year.
The news came amidst a slew of weak economic reports here at home. We lost more than a central banker last week. Our slow-motion recovery lost a bit more momentum. Three things:
- Gross domestic product (GDP) growth is waning. It was up just 0.1% in the third quarter. Q2 growth wasn’t much better; it came in at 0.4%. Weak business investment was part of the story. After a string of positive quarterly results stretching back to the second half of 2009, business investment in non-residential structures dropped 1.1% in the last quarter. Investment in machinery and equipment rose just 0.1%.
- The poor GDP result was also driven by weak export numbers. Exports to the U.S. fell $2.4 billion, which was enough to lower our trade surplus with the U.S. to $600 million. Globally, exports fell $3.7 billion to $112.7 billion. It was the third straight quarter in which the value of our total exports fell.
- Payroll employment fell in September. Non-farm payroll employment dropped by 52,500 in September, relative to the previous month. The worst numbers came out of the manufacturing, accommodation and food services, administrative and support services and other services sectors. This negative report followed six months of improving numbers. So year-over-year, payroll employment is up 1.6%.
None of this amounts to a significant negative turn for the Canadian economy. There was good news on the consumer spending front, even if it wasn’t particularly robust. Spending was up 0.9% in Q3, the best result since 2010. But the household saving rate is down, from 4.2% in Q2 to 3.9% in Q3. Canada’s household debt service ratio (calculated by dividing the interest paid on household mortgage and non-mortgage debt by disposable income) is at 7.4%. It’s been stuck at about that level all year.
On the whole, last week’s numbers reflect a kind of drift sideways. Our recovery continues to limp along weakly.
Tomorrow, the Bank of Canada is expected to announce that the overnight rate will remain at 1%. The consensus opinion is that our domestic economy will not be strong enough to tolerate a rise in interest rates until the second half of next year. So as work gets under way to replace Carney, we are in a holding pattern.
I think we can make two assumptions safely, barring a fiscal cliff-sized disaster in the U.S. First, Carney will in fact hold the overnight rate at 1% throughout the remainder of his term. And second, his replacement will continue to manage Canadian monetary policy and its financial system in much the same way he has. We can stomach a change in leadership, but probably not a change in direction.
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