2019-19 Bank of Canada decision on Wednesday

This is the last decision during the course, as the Bank of Canada announces the decisions once every 6 weeks, and we will be done!

Here is an article from the Globe and Mail: Bank of Canada expected to hold line on interest rates again, but how long can it keep diverging from rest of world?
As far as titles go, it is one of the worst in a long time.

What has been happening? Several central banks have been reducing interest rates. Why? Because their economies are weak. 
So why the Bank of Canada is not following? Because the Canadian economy is strong. Citing the article itself:
1. "Canada’s economic indicators have continued to hold up well during that time.[…]

2. The Canadian labour market added a stellar 135,000 jobs in August and September, […]

3. The Canadian housing market has found renewed traction, 

4. […] Bank of Canada’s closely watched quarterly Business Outlook Survey, released the day after the federal election, indicated that Canadian business sentiment has held up relatively well in the face of the global uncertainty, which has badly hurt business confidence in many other parts of the world.

I could finish this by simply paraphrasing Bill Clinton: It is the economy, stupid. As the Canadian economy is strong, there is no need to reduce interest rates, regardless of what others are doing.

But it gets worse. The author writes that: 

"[…] the most positive development may be the tentative trade pact reached between the United States and China earlier this month"

The problem: there is no trade pact. Trump announced one; the Chinese officials said nothing has been agreed to.

2019-18 Automation, AI and job loss

This Globe and Mail article describes the changes in labour demand at financial institutions in Canada. With the help of AI, many routine jobs are being eliminated.

AI and robotics will define job demand in the 21st century. You can find a lot of information here.

I the past there were waves of enormous labour market changes: from agriculture to manufacturing, and then from manufacturing to services. Each time economists worried that the massive job destruction due to technological progress will lead to mass unemployment. This has not happened, for two reasons: new jobs were created at pace sufficient to absorb people who lost their previous employment, and working hours declined.

Is this time different? It is difficult to say, but possibly yes.

AI and robotics are very versatile technologies. They may lead to a great disruption in the labour market, and it is difficult to see what jobs will be created. Creating large numbers of new jobs that cannot be done by computers and robots is a challenge.

In addition, the trend to shorter working hours seems to have stopped.

2019-17 VOTE!

This article has a subtitle: Our democracy today is dominated by the old, and young people are getting a bad deal.
This is an article about the US; in part dictated by the fact that all leading presidential contenders are well over 70. In Canada, the leaders of the three largest parties are all under 50, and two are 40 years old. But the bottom line is the same.
So on Monday vote. And get your friends to vote as well.

2019-16 Slower growth because of US-China trade war

From October 16 news summary by the Economist:
The International Monetary Fund slashed its forecasts for global economic growth, primarily because of the Sino-American trade war. The fund reckons world GDP will grow by just 3% in 2019, 0.3 percentage points less than it forecast six months ago. That will make it the slowest rate of expansion since the great recession of 2009 [sic - should be the Great Recession of 2008-9].

2019-15 Housing bubble index

This entry is just for your enlightenment as we will not be talking about housing or bubbles in this course. The Swiss bank UBS calculated a house bubble index. In a list of 24 "global cities" Toronto is second, Vancouver is sixth. Unfortunately the graph is too small to figure out what the numbers mean.

2019-14 Federal election 2019: Where do the parties stand on taxes and deficits?

The Globe and Mail has an excellent explainer on the fiscal proposals of the four federal parties (Liberals, Conservatives, NDP and Greens).

You should read the article before you go out to vote. And vote you should.

A few comments:

as we mentioned before (in 2019-11) voters are not worried about the deficits. So parties promise higher spending, cutting taxes or both, and do not provide full calculation of the cost of the promises.

A bit of history 

Note that the first two graphs below show expenditure and revenue of the Federal government as percentage of GDP. That is the correct measure. The fact that federal debt is around $700 bln is not very interesting without comparison to the size of the economy.

By historical standards program expenses are not large, but have been trending up. Notice the increase caused by the Great Recession.

Revenues are also low by historical standards but rising.

Deficits are small by historical standards and are declining. Note that except for the period 1996-2007 we have almost always had deficits.

2019-13 The Canadian economy is slowing down

According to the recent report from Statistics Canada, the Canadian economy has unexpectedly slowed down. In July, GDP was the same as in June, while analysts expected 0.1% growth (this is monthly growth, not year-to-year).

8 out of 20 industrial sectors contracted; output of goods-producing industries fell 0.7% and the decline was widespread. Construction also shrunk 0.7%.

As you recall, the definition of a recession includes a widespread decline affecting many industrial sectors and construction. So this reports is in accordance with the definition. But for a recession, the situation has to be protracted, and last several months. This is just a single month.

GDP growth sometime stalls - see the period between mid 2014 and mid 2016.

We are not alone. In the US manufacturing activity fell to the lowest level in 10 years. The report is a bit breathless - see the fragment below. But the bottom line is that our economies are slowing down.

So the current economic situation is worth watching.

The fragment below is from the Institute of Supply Management September 2019 report.
The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management^® (ISM^®) Manufacturing Business Survey Committee: “The September PMI^® registered 47.8 percent, a decrease of 1.3 percentage points from the August reading of 49.1 percent. The New Orders Index registered 47.3 percent, an increase of 0.1 percentage point from the August reading of 47.2 percent. The Production Index registered 47.3 percent, a 2.2-percentage point decrease compared to the August reading of 49.5 percent. The Employment Index registered 46.3 percent, a decrease of 1.1 percentage points from the August reading of 47.4 percent. The Supplier Deliveries Index registered 51.1 percent, a 0.3-percentage point decrease from the August reading of 51.4 percent. The Inventories Index registered 46.9 percent, a decrease of 3 percentage points from the August reading of 49.9 percent. The Prices Index registered 49.7 percent, a 3.7-percentage point increase from the August reading of 46 percent. The New Export Orders Index registered 41 percent, a 2.3-percentage point decrease from the August reading of 43.3 percent. The Imports Index registered 48.1 percent, a 2.1-percentage point increase from the August reading of 46 percent. 

2019-12 Sometimes I am prescient

In the last class I told you about the secret card China has in its trade dispute with the US: rare earth metals (or minerals). Later on Monday it was reported that Canada, U.S. drafting plans to curb China's dominance in critical rare-earth minerals.
The timing is lucky; the issue is serious. Without rare-earth minerals a large part of modern industry will stop.