Year-end Review

by P. Cross*

Introduction

The major themes of 2003 revolved around international events. The accelerating integration of China (symbolized by its accession to the World Trade Organization late in 2001¹) and other emerging markets into the world economy continued to rapidly change the economic landscape, especially for trade and direct investment. China’s share of US imports has grown to 12.1%, leapfrogging Mexico into second place behind Canada’s 17.8%. By last year, China had become a major consumer of commodities (its oil imports, for example, rose to second behind the US), helping to boost prices for our metals and energy exports.²

But recent events have also highlighted that increasing global integration also raises our vulnerability to situations over which we have little control. The September 11 attacks marked a new age of global terror. The spread of the SARS virus from China to Canada, on top of the appearance of West Nile virus the year before, showed how easily diseases can follow trade and travel across borders. The discovery of the first case of mad cow disease in Alberta closed most foreign markets to our beef. The outbreak of war in Iraq also brought on a sharp drop in international travel flows in the second quarter. Finally, the power blackout in Ontario originated in the mid-western US grid.

Figure 1

For Canada, the major economic event last year was the turnaround in the Canadian dollar against its US counterpart. The 21.7% increase from 63.39 cents (US) to 77.13 during the year was the largest 12-month movement up or down in our history. With the US current account deficit at a record level, its dollar fell against a number of major currencies. However, several Asian countries (notably China and Japan) resisted an appreciation of their currencies,³ shifting the bulk of the adjustment of the US devaluation to the euro (which hit a record high) and the Australian and Canadian dollars.

Output

Real GDP decelerated from 3.3% to 1.7%, making Canada and Germany the only two G7 countries where growth slowed last year. Still, Canada was in the mid-range of G7 growth, after leading the way in 2002. While it lagged behind the US, the UK and Japan, all of which accelerated to nearly 3%, Canada’s growth remained far ahead of the major continental European nations, which continued to struggle to post even a fractional increase in their second year of a common currency. So far this decade, annual growth in Canada has averaged 2.3%, half the giddy 5% pace set at the height of the boom between 1998 and 2000.

There was much discussion during the year over the seemingly biblical series of negative shocks to the economy— the SARS epidemic in Toronto starting in March, the discovery of a case of mad cow (BSE) disease in Alberta in May, a strike at Inco in June, the power blackout in August in Ontario, followed by Hurricane Juan in Nova Scotia and forest fires in BC. But every year is marked by similar disasters: drought cost grain farmers on the prairies billions of dollars in lost output in the previous two years, time lost to work stoppages in 2002 hit a 5-year high (and 73% more than in 2003) while forest fires in Quebec were so intense the sky was hazy as far south as New York. There is no statistical evidence that the shocks in 2003 were a significant factor in the economy’s slowdown for the year as a whole, although they affected the quarterly distribution of growth. (The Bank of Canada estimates SARS, BSE and the blackout shaved 0.3 percentage points off GDP over the second and third quarters, but 0.2 points were recovered in the fourth).⁴

The small effect of these events on GDP partly just reflects the enormous size of our economy today. Compared with annual GDP of $1.2 trillion, even a major event such as the $1 billion (at annual rates) lost to the Inco strike is barely 0.1% of output, whereas $1 billion represented 1% of GDP in 1972. As well, some of these events had a larger influence on the distribution than the overall level of income. For example, the loss of export markets for cattle producers due to the mad cow scare was partly offset by increased purchasing power for beef consumers as prices fell, as well as gains for producers of substitutes such as poultry and seafood. The largest persistent effect of any of these events appears to have been the loss of tourism in Canada, where annual output fell by the equivalent of 0.1% of GDP.⁵ But not all of this can be attributed to SARS: the slide in tourism began after September 11, and was further compounded by the Iraq war and the appreciation of the Canadian dollar last year.

Still, solid gains in the first and fourth quarters bracketed virtually no growth in the second and third. The lull in real GDP growth over nearly six months inevitably raises questions about how to characterize this period in terms of the business cycle, even suggesting comparisons with recessions such as occurred in 1981-82 or 1990-92.

But rather than the classic V-shape of an economy in recession (Figure 2), the slack in mid-2003 was comparable with 1986. Quarterly growth stalled over the first half of that year, including a 0.5% dip in monthly GDP between November 1985 and June 1986. The weakness originated in the energy sector (Figure 3), where oil prices crashed below $10 a barrel, sending oil and gas output down 6% and exploration and development a whopping 63%. These losses depressed GDP, even before taking account of the spin-off effects on industries that supplied the oilpatch or the loss of purchasing power by its workers. In the longer run, the stimulus to other sectors of the economy from lower oil prices through reduced inflation and interest rates boosted growth.

Figure 2

Figure 3

A similar situation appears to have caused the stand-off in growth this year. A significant part of the export sector was sent reeling by a lurch in relative prices due to the rising loonie, whose positive implications for domestic demand unravelled more slowly as prices and interest rates fell (as in 1986). As well, the short-term weakness of the economy was compounded by the events cited above, notably the power blackout in August. The latter was particularly important to the mid-year slump, causing the largest loss of hours worked and the most widespread drop in output on record, just as the economy was beginning to snap out of its second-quarter slump (GDP had jumped 0.5% in July). Without this, third-quarter growth would have been stronger and the fourth weaker, a pattern less likely to raise the question of whether there had been a recession. But it was the weakness in export industries in manufacturing that had slowed the underlying trend of growth close to zero, leaving GDP vulnerable to these negative shocks.

Households

Household spending posted a third straight year of solid growth. Housing again led the way, although it was unable to match the double-digit increases of the previous two years. Consumer spending continued to grow by a little over 3%. But spending on durable goods slowed sharply, from 9% to 2%, due largely to slumping auto sales. Elsewhere, services recorded faster growth, although most of the improvement reflected a sharp increase in travel abroad, of little benefit to retailers in Canada.

Auto demand showed signs of fatigue or saturation, falling 6% after seven years of rising sales. Nevertheless, the number of vehicles sold was the second highest on record. There were important shifts within the auto market. The share of the three North American producers shrank from 59% to 56%, far below the 74% when the current boom in auto sales began in 1995. Moreover, they lost significant ground in the lucrative market for trucks, minivans and SUVs, increasingly their mainstay as their share of passenger car sales dropped from 65% in 1995 to 41% last year.

Personal disposable income growth slowed from 4.7% to 2.8%, barely keeping ahead of price increases. With consumer spending growing steadily and housing still booming, households had to find other means to finance their outlays. They did so by running down their savings rate and borrowing more. The drop in the savings rate, from 4.2% to a record low of 2.0%, freed up $15 billion. Meanwhile, consumers borrowed a record $50 billion, $30 billion in mortgages alone.

At 2.0%, the personal savings rate in Canada was as low as that of the US for the first time since 1971 (in the second half of the year it was even lower, reaching 1.4% versus 2.0% in the US). Since consumer outlays increased at exactly the same pace in the two countries, the difference originated in incomes. While personal income growth was also comparable, the big difference was the much faster growth of disposable income south of the border (4.4% against 2.8%). Over the last two years, US income taxes fell by 20.5% (or $255 billion), almost all federal, transforming slow personal income growth into a solid gain in disposable incomes (but also creating a large budget deficit). Conversely, in Canada the income tax burden on personal income was little changed at 15.2%, after three years of declines from 17% in 1999 to 15.4% in 2002 (Figure 4). Low interest rates and rising household wealth encouraged low personal savings in both countries.

Figure 4

The personal sector balance sheet continued the shift from financial to non-financial assets that began with the stock market crash. Since then, the share of non-financial assets in household portfolios has risen for three consecutive years, from 42.4% to 45.5%, the highest since 1992 (Figure 5). Much of this increase reflected more wealth held in housing. The last time households moved out of financial assets for such a long period was during the peak of the inflationary outbreak in 1973-74, when non-financial assets rose to a record 54% of all assets. Since then, there had been a steady shift towards financial assets until 2000, especially during the stock market boom of the 1990s.

Figure 5

Corporate Canada

Despite a small recovery in business investment, the outstanding feature of the corporate sector remained its massive net saving, which rose from $35 billion (itself a record) in 2002 to $57 billion. The increase in the corporate surplus originated in an 18% hike in undistributed corporate profits, as before-tax profits pulled out of a 2-year slump with a double-digit increase while dividend payments fell.

Non-financial corporations devoted most of their improved finances to the continued restructuring of balance sheets. Firms paid off short-term debt at an accelerating rate of $15 billion, while locking in low interest rates with $18 billion of bond issues. The rally in the stock market supported $31 billion of new equity (although this remains well below its peak of $54 billion in 2000).

The emphasis on raising profits and repairing balance sheets may have its origins partly in the perceived weakness of corporate finances in recent years. Downgrades of corporate debt were at a high level throughout 2001 and 2002 (although less than in the US or the EU). Meanwhile, the risk premium on BBB-rated securities soared from 150 basis points to over 300 late in 2002, when global corporate defaults jumped from a quarterly rate of 20 in 2000 to 100.⁶

All these measures of corporate financial health showed fundamental improvement last year. Downgrades of Canadian credit ratings fell sharply. Lower loan losses played a major role in boosting bank profits. Risk spreads on corporate debt declined to their lowest level since 1997. With interest rates on their bonds falling rapidly, corporate treasurers shifted their debt insurance towards bonds and away from short-term debt, extending the maturity of corporate liabilities.⁷ The conservatism of firms also may have been reinforced by the economy entering the uncharted waters of a record rise against the US dollar.

The results of this restructuring were evident in all the major measures of corporate financial health. The ratio of debt to equity for non-financial firms continued its decade-long decline by tumbling to 0.62 in 2003, its lowest since 1970. The ‘quick’ ratio of current assets to liabilities–a measure of liquidity–rose to 0.89, also a post-1970 record. Meanwhile, the ratio of short- to long-term debt tumbled to a post-1964 low of 9.46. This ratio spent two decades hovering around 20 before starting to decline in the 1990s.

Figure 6

Stock markets around the world snapped out of a 3-year bear market with a 29% gain, their best in seven years, fuelled by the boom in Asia. Emerging markets led the recovery, up 64%. The Toronto market gained 24%, essentially matching the US.

The improved tone of the stock market reflected a number of other factors. Markets began their recovery almost immediately after the initiation and swift end of major combat operations in Iraq. Profit growth resumed after slowing over the previous two years. Corporate scandals continued to emerge, but on a smaller scale than in recent years.⁸ Part of the rally appears to reflect ongoing efforts to restore investor confidence in financial reporting, auditing standards and corporate governance. Canada created a new Public Accountability Board to upgrade and supervise audits⁹. The increase in stock markets also eased concerns about pension funding shortfalls.

Business investment rose 3.4% in volume, pulling out of a 2-year slump. The increase was focused on computers and software, partly because sharply lower prices made them easier to buy. As well, the heightened interest in investment by manufacturers was reflected in a double-digit gain for industrial machinery. The volume of spending in most other areas remained weak, notably for furniture, transportation equipment and telecommunications.

The distribution of investment growth by industry suggests that factors other than lower prices played a larger role. While all 14 major industry groups of the economy could have taken advantage of cheaper prices for imported machinery and equipment by investing more, only five did so. And of these, manufacturing had by far the largest increase, boosting outlays by $1.5 billion (11%) despite lower profits. This strongly suggests that the need to improve productivity, as the competitive pressures from a rising dollar mounted, was a paramount concern.

Manufacturers trimmed spending on structures, reflecting growing unused capacity. Total outlays for structures rose, however, buoyed by spending on conventional oil and gas projects. Investment was sluggish in most other sectors. Rising commodity prices, especially metals, did not stimulate investment at least until 2004, when a 35% hike is planned. The ICT sector experienced deep cuts, especially for telecom operators, Internet service providers and computer and electronics manufacturing. Finance, another industry that invested heavily around the year 2000, continued to retrench at a double-digit rate.

The public sector again stepped up investment, notably for infrastructure at the local level. Utilities also boosted outlays, led by water and sewage where, after years of neglect, investment has doubled since the Walkerton disaster. Health care and universities posted double-digit gains, with the latter boosted by the arrival of the ‘double-cohort’ of graduates from Ontario high schools as Grade 13 disappeared.

Inventory accumulation increased slightly last year. Most of this reflected the replenishing of stocks in the grain distribution system, which had been run down over the previous two years by poor crops. As well, the closing of foreign borders to beef exports forced farmers to hold more cattle. Non-farm inventories rose sharply in the first half of the year, especially when manufacturing shipments slumped, but these were reined in by year end.

Balance of Payments

Trade flow across the border fell in both directions for a third straight year, despite explosive growth with China. Canada’s current account surplus rose $2.4 billion last year to almost $26 billion, recouping most of its drop the year before. The increase originated in a higher surplus for goods and a falling deficit for investment income. The rising exchange rate played a role in both. For goods, the price of imports fell faster than exports, partly because of the exchange rate as well as higher prices for our energy products. The cost of servicing our external debt was reduced by the rising dollar, especially for debt denominated in US dollars.

Travel was the one sector where the trade balance worsened significantly last year, with its deficit more than doubling to a 10-year high of $4.3 billion. Most of this reflected a sharp drop (12.8%) in spending by visitors coming to Canada, the first retreat in 15 years (and the 1987 drop was not surprising given the previous year’s boost from Expo 86 in BC). The decrease was about equally spread between visitors from the US and overseas, suggesting that SARS and the Iraq war played at least as large a role as the US exchange rate. Meanwhile, Canadian travel spending abroad edged up 2%, entirely for trips overseas.

Our trade with China continued to grow rapidly (Figure 7). Imports have doubled since 1999, including a 16% increase last year. China accounted for 5.5% of all imports last year, nearly twice the share from Japan or Britain and close to the other EU nation’s 7.6%. Meanwhile, led by the turnaround in commodity prices, exports rebounded 13% after a dip the year before, and have grown by 75% since 1999; starting from a much lower level, however, exports trailed imports by nearly $14 billion last year (versus $124 billion in the US). The trade deficit with China represents 1.1% of GDP in both countries.

Figure 7

The year solidified some recent trends in the trade balance by sector. The surplus in energy products first edged out forestry in 2001, which historically always had the largest surplus, by less than $1 billion. In 2003, this gap jumped to $10 billion ($41.4 billion versus $31.5). Meanwhile, the deficit in trade in machinery and equipment, the largest of any sector before 1998, declined steadily from $22.4 billion to $9 billion last year (partly because of sharply lower import prices). Instead, consumer goods have become the sector with the largest deficit, reaching $29.1 billion last year, over triple the shortfall for machinery and equipment. This mixture of a relatively small deficit for capital goods and a much larger one for consumer goods parallels the trend in the US trade deficit (of course, their overall trade is in deficit and ours in surplus thanks to the resource sector). Canada’s surpluses in agricultural and automotive products fell slightly last year, due to the closing of key markets to our beef exports and increased import penetration in domestic auto sales.

Foreign direct investment in Canada was the slowest in a decade. In fact, Canadians bought back firms from foreign direct investors in the second half of last year for the first time since 1990, as the rising dollar made firms here more expensive for foreigners to acquire. Meanwhile, the stronger dollar sustained a rapid increase in Canadian direct investment abroad of $30 billion, including a large number of takeovers late in the year.

Equity flows were the mirror image of direct investment. Enticed by the rising stock market in Canada and the rising dollar, foreigners bought almost $13 billion of stocks here, after a sell-off the year before. Conversely, Canadians bought a net of only $4.3 billion in foreign markets, the lowest in 13 years. Some of this reticence may reflect a lower rate of return due to the exchange rate, although this did not stop Canadians from buying a record $8.2 billon of foreign (mostly US) bonds.

Labour Markets

Overall, job growth last year was steady at 2.2%. The most obvious change in employment last year was a slump in manufacturing, its first significant drop since 1993 (a marginal dip in 2001 was related to the crash in the ICT sector). Offsetting this was an upturn in non-manufacturing demand to 2.8%. Strong domestic demand kept services and construction growing steadily, while the beleaguered primary sector posted its first significant increase since the mid-1980s and its largest since the surge in commodity prices in 1972 (Figure 8). This reflected healthy international demand for our key resource products, as well as the recovery of agriculture from drought. Output in the primary sector rebounded 6% last year after back-to-back declines.

Figure 8

A more fundamental shift in the labour market was the more equal distribution of jobs and especially unemployment by educational attainment. The 1990s saw employment gains heavily skewed toward people with more education, especially those with university degrees. But since 2000, annual job growth for university graduates slowed from 6% in the 1990s to 4%,¹⁰ just as the supply of graduates accelerated sharply. As a result, the proportion of the university-educated holding a job has fallen from 78.4% in 2000 to 76.1%. While this is still higher than any other group, the 2.3 point drop is in sharp contrast with increases for other groups, especially people holding a postsecondary diploma or certificate, whose employment rate of 73.5% is now only 2.6 points lower than the university-educated, the smallest gap on record.¹¹

Figure 9

The convergence of labour market outcomes was most evident in unemployment rates. University graduates have seen the largest increase of any group since 2000, from 3.9% to 5.5%, their second highest level on record (the peak of 5.9% was set in the aftermath of the recession in the early 1990s). The rising unemployment rate for university graduates reflects supply outstripping demand. Their numbers grew faster than any other sector of society, up 6.4% in 2003 to bring the total gain since 2000 to 15%. Graduates from Canadian universities have been steady at about 175,000 in recent years, equivalent to 5% of the labour force of university graduates. The faster growth of this segment of the population than of recent graduates may reflect an influx of immigrants with university credentials (in 2001, 42% had degrees, up from 19% in 1981)¹². The number of people without a university degree rose only 2% since 2000, almost all of whom had some postsecondary schooling.

The gap in the unemployment rate for people with and without degrees fell to 2.7 percentage points last year, the smallest on record. This differential was as high as 6.7 points in 1992 and averaged 5.5 points for the 1990s. So far this decade, it has shrunk to 3.2 points on average, almost entirely due to higher unemployment for university graduates.

Gains by people with postsecondary degrees or certificates have led this convergence of unemployment in recent years. In the early 1990s, the university-educated had an unemployment rate nearly four percentage points lower than people with a postsecondary certificate or diploma. By 2003, the gap had narrowed to an all-time low of less than half a point (5.5% versus 5.9%). This trend reflects a leveling-off of unemployment for people with a postsecondary certificate and increases for the university educated. For the former, unemployment was steady at about 6% over the last three years, well down from its peak of over 9% in the early 1990s. Unlike university graduates, this occurred despite a steady increase in the labour force participation rate of this group, reflecting strong job growth of 10%. The increase in unemployment for university graduates was dampened by a steady drop in their labour force participation over the last five years, totaling 2.3 points. This contrasts with rising participation rates for all other educational groups since 2000. Again, this reverses the trend in the 1990s, when people with less than high school education left the labour force at a much faster rate than more educated people.¹³

Figure 10

The reasons for this reversal in unemployment of the university-educated and other groups are complex, and could reflect mostly short-term forces such as the bursting of high-tech bubble in 2000. Some of it may originate in the difficulty of recent immigrants in the labour market. Part of the answer also appears to lie in the changing demand for different occupations, with blue-collar growing more than white-collar jobs last year for the first time since 1997.

Moreover, the 2.2% gain in blue-collar jobs occurred despite no contribution from factories, instead relying heavily on a 6-year high in growth for jobs in the primary sector and construction. The upturn in funding for health care in recent years played a part, as demand rose faster for technicians than professionals in this field.

Figure 11

Conversely, white-collar employment slowed from three consecutive years of 3% growth at the peak of the high-tech boom from 1998 to 2000, to 2% over the last three years, including a 1.8% gain in 2003. Most of the slowdown over the last three years originated in managerial jobs and natural and applied sciences, supporting the notion that the boom-bust cycle in high-tech drove these sectors. From 1997 to 2000, science jobs jumped 23% and managerial by 5%; in the three years since, growth in science slowed to 7%, while managerial fell outright by 3% (despite a small recovery last year).

Figure 12

The end result was to lower the unemployment rate for blue-collar workers from 8.1% to 7.7% last year, while nudging white-collar unemployment up to 4.5%. The 3.2 percentage point gap in the unemployment rate between white- and blue-collar workers was the lowest since 1989: it peaked at 6.4 points in 1991 (when recession sent blue- collar unemployment to 12.8%) and hovered around 4% over the last decade.

While jobs continued to fall overall for people with high school education or less, there were also some subtle shifts of interest. In particular, people with no high school training saw jobs edge up for the second year in a row, reflecting the upturn in the primary sector (notably farming) and construction.

Job security appeared to improve last year. All of the increase in jobs originated in a gain of 300,000 permanent positions, their best since 2000. Meanwhile, temporary jobs suffered their first setback (-32,000) on record back to 1997. Casual and seasonal jobs fell, while the upward trend in term employment was at least temporarily interrupted.

Workers were also less threatened by layoffs. Both permanent and temporary layoffs were unchanged after a total increase of 152,000 over the previous two years. With overall employment up, this implies a lower layoff rate (another indication that the mid-year slump in growth should not be compared with the recession of the early 1990s, when nearly 1.5 million workers lost their job every year).

The number of people who left (rather than losing) their job continued to rise steadily. This marks a sharp reversal from the 1990s, when job leavers fell steadily from 1990 to 1999. Since then, their numbers have risen 21% despite the weaker labour market. There seems to be no one reason for this trend, with sharp increases for reasons ranging from illness and family responsibilities to going to school to dissatisfaction with their job (the latter group grew every year since 1995 to become the most common reason for leaving, other than returning to school).

Despite a slight rise in their unemployment rate in recent years, an increasing number of youths quit their jobs and dropped out of the labour force because they were dissatisfied with their last job. Since 1995, youths in this group have risen from 32,000 to an all-time high of 85,000 to account for just over half the increase in this category (there were increases of 24,000 each for both men and women over 25). Going back to school did not appear to be a large factor.

Wages and Prices

Before 2002, Canada had posted a lower inflation rate than the US for eight straight years. Then, in 2002, our inflation rate surpassed the US. This continued in 2003, despite the sharp increase in the Canadian dollar against its US counterpart, which should have dampened prices here relative to the US.

That it did not reflects a number of factors. The US dollar was not allowed to devalue against a number of Asian currencies: as a result, the trade-weighted US dollar fell only 8.5% last year, raising the price of imports by just 2.7%. In turn, imports account for a relatively small 14% in the US economy.

The CPI in Canada rose 2.8%, up from 2.2% the year before largely because of the cost of energy. Retailers also recovered profit margins squeezed by the dollar’s depreciation before last year, with both margins and the dollar reaching post-1994 highs. As well, cigarette prices jumped 16% after tax hikes. The cost of most other goods fell, partly reflecting the lower price of imports. Durable goods prices fell for the fourth year in a row, as intense competition in the auto market accompanied continued rapid declines in the price of computing power. Semi-durables prices also dipped, with clothing down for a second straight year. The cost of food was held in check by falling beef prices due to the mad cow case, the rapid spread of the ‘carb-free’ diet fad (reflected in declines for pasta and rice) and the lower cost of imported fruits and vegetables.

Conversely, the cost of services increased 3.6%, despite sharp price cuts by the slumping travel industry. Auto insurance premiums jumped at a double-digit rate, while the housing boom pushed up the cost of shelter.

Commodity prices rallied for the second straight year. The upturn in commodity prices coincided almost exactly with the December 2001 admission of China into the World Trade Organisation. China’s rapid industrialisation has made it a major consumer of oil and industrial materials.

Industrial materials led the increase, after two years of falling behind food and energy prices. Metals spearheaded the increase, notably gold, nickel and zinc, which hit their highest levels in years. Energy prices slowed after rapid gains in 2002, but remained twice as high as they were just after September 2001.

Wage settlements were quick to reflect the sudden shift in sectoral fortunes. After leading the way in 2002, wage increases in manufacturing fell to a 6-year low of 2.4% as demand decelerated sharply. Conversely, the public sector and primary industries posted the largest increases at about 3%, after lagging through most of the previous decade. Construction saw the largest acceleration, with the housing boom creating shortages in some trades.

Conclusion

So far in the new millennium, several long-standing trends in our economy have been reversed. The personal savings rate in Canada has dipped below that of the US, while households increasingly relied on debt to finance their spending, especially on housing. Partly because of increased investment in housing, the long-run shift in the mix of household assets to financial assets has been reversed since the stock market crash in 2000. The mirror image of the deterioration of household balance sheets was an improvement in the corporate sector. The decade began with two years of declining investment after the high-tech boom. Now, record financial surpluses and sharply improved balance sheets leave firms well-positioned to continue the tentative recovery of investment that began last year and they intend to continue into 2004.

Our relation with the rest of the world also is changing rapidly, shaped in part by the turnaround in our dollar. Trade in goods across the border has slumped for three straight years, despite rapid growth with China, while travelers to Canada fell for the first time in 15 years. Foreign direct investment in Canada was the lowest in a decade, dampened by the rising dollar. The exchange rate also largely explains the wedge between job losses in manufacturing and increases elsewhere.

Some of the most entrenched trends in the labour market in the 1990s have also changed in recent years. Demand for people with university degrees slowed just as supply accelerated. Meanwhile, jobs picked up for other workers, partly because of robust growth in construction and the primary sector (which enjoyed its best year in two decades as commodity prices soared). As a result, the gap in the unemployment rate for people with and without a degree shrank to a record low. The convergence of labour market outcomes was also reflected in the smallest gap between blue-collar and white-collar jobs in over a decade.

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Notes

* Current Analysis (613) 951-9162 or ceo@statcan.ca.

¹. See China-competing in the Global Economy, Ed. by W. Tseng and M. Rodlauer, IMF, 2003.
². See “The Hungry Dragon”, p. 59-60 in The Economist, Feb. 21, 2004.
³. Dollar assets held by Asian central banks rose by almost $240 billion (US), with China’s foreign exchange reserves reaching $420 billion in November and Japan’s $650 billion in December, according to “Remarks by Chairman Alan Greenspan” to the Economic Club of New York, March 2, 2004. This also allowed the US to finance its current account deficit relatively painlessly.
⁴. p. 11, Bank of Canada, Monetary Policy Report, Oct. 2003.
⁵. An increase in domestic tourism cushioned a 12% drop in spending by non-residents, according to National Tourism Indicators, Fourth quarter 2003, Catalogue no. 13-009.
⁶. p. 5, Bank of Canada, Financial Systems Review, June 2003.
⁷. p. 11, ibid.
⁸. p. 21, US Federal Reserve Board, Monetary Policy Report to the Congress, February, 2004.
⁹. p. 29, OECD Economic Outlook, December 2002.
¹⁰. Interestingly, the slowdown was most pronounced for people with graduate degrees, the group that led the way with a 61% gain in the 1990s.
¹¹. The drop in the employment rate for people with degrees was confined to people 25 and over, with roughly equal declines for both men (-3.5 percentage points) and women (-2.7 points). But there were contradictory movements within this age group. For men, the drop was equally evident for both those aged 25 to 44 (-2.9 points) and 45 and over (-2.3). But for women, the decrease was heavily concentrated in the 25 to 44 group (-2.9 points), as those 45 and over saw a drop of only 0.4 points in their employment rate.
¹². From p. 1, G. Picot “The Deteriorating Economic Welfare of Immigrants, and Possible Causes.” Unpublished paper, Analytical Studies Branch, Statistics Canada, 2004. He finds (p. 17) their earnings have fallen and low-income rates have risen for this group, partly because of the rapid increase in education among Canadians.
¹³. A more detailed examination shows the withdrawal from the most educated labour force was led by women between 25 and 44, whose labour force participation fell 1.5 points over the last five years. This was in marked contrast with rising participation for women in all other education groups, totaling nearly 2 points. The drop was especially marked for women with a graduate degree. The withdrawal from the labour force in this group also was evident for older women and men over 25 (although this does not stand out as much for men, whose attachment to the labour force has been declining slowly for years for most education groups).