We saw a couple of key reports from Statistics Canada last week that put into perspective just how troubled our domestic economy is. The Bank of Canada’s move to lower its overnight interest rate to 0.75% in January felt like an aggressive step to many of us who were surprised by the announcement. That may have been a misread.
First, we learned that the economy added just 121,000 jobs last year. That translates into a job-growth rate of 0.7%, on par with 2013 but well off the 1.8% result posted in 2012. While almost all of the gains in 2014 came in the form of full-time jobs, the labour participation rate fell steadily during the year, to a low of 65.7% in December. (The rate represents the percentage of working-age Canadians who are either employed or actively looking for work.) That’s the worst this country has seen since 2000.
Next came news that gross domestic product fell 0.2% in November. Economists predicted a flat month, but even that consensus proved too positive. The decline was felt in multiple sectors, including manufacturing, mining and oil and gas extraction.
Manufacturing, which is expected to pick up as a result of a strengthening U.S. economy and a weaker Canadian dollar, was off 1.9% during the month. That’s after 0.7% and 0.6% increases in September and October, respectively. Mining, quarrying, and oil and gas extraction fell 1.5% in November. That sector was up 1.9% in September and 1.2% in October.
There is speculation now that the Bank of Canada could cut its overnight rate again, to 0.5%. That could come as early as Mar. 4, its next scheduled interest rate announcement. Perhaps more likely is a move on Apr. 15, assuming another cut is in fact necessary. The Bank of Canada releases its quarterly Monetary Policy Report along with its interest rate announcement on that date, which would allow it to explain its outlook for the Canadian economy more fully.
All of this is to say that we’ve likely shifted from a period in which we could count on something close to 2% annual economic growth to one in which not much of anything is guaranteed. A more conservative approach to your financial affairs — in the form of careful debt management, cautious employment decisions and maybe even an emergency fund top-up — is back in style.