Canadians have spent a fair bit of time patting themselves on the back about the country’s economic performance coming out of the Great Recession of 2008-2009, but did Canada really fare better than the U.S. on that count?
Maybe not. The U.S. recently revised its GDP figures, and a new comparison from BMO Capital Markets shows Canada actually performed only slightly better than the U.S. — and has been underperforming its southern neighbour for the past two years.
The notion is so shocking to some that BMO economist Douglas Porter, who compiled the data, is actually questioning the value of GDP as a measure of the economy.
The U.S. Commerce Department recently revised that country’s GDP figures going back as far as 1929, and the new measure shows the U.S. economy’s plunge during the financial crisis wasn’t as sharp as previously thought. The peak-to-trough decline in the U.S. economy during the recession was 4.3 per cent, compared to a drop of 4.2 per cent in Canada.
The new figures also show the U.S. economy grew 2.8 per cent last year — an increase over the previous number of 0.6 percentage points. That places the U.S.’s economic performance ahead of Canada for 2012.
And according to BMO’s Porter, the numbers show Canada lagged U.S. economic growth for much of the past two and a half years, just managing to catch up to the U.S. growth rate in recent months.
Porter doesn’t put too much stock in the numbers.
“Personally, I have a hard time believing that the U.S. recession was only slightly deeper than Canada’s,” he told the Wall Street Journal.
The Journal noted that earlier estimates had also placed Canada’s economic decline on par with the U.S.’s, but the U.S. numbers were revised to show the U.S.’s recession was deeper. Now they’ve been revised back and “we’re back to square one,” Porter said.
“If that’s an accurate picture, then what it leads me to conclude is real GDP is not necessarily a great measure,” he added. Porter suggested looking at the numbers in a broader context.
So let’s do that. If the idea that Canada’s recession was as bad as the U.S.’s doesn’t ring true to Canadians, it may be because Canada’s job situation has been considerably better than the U.S. over these years.
Despite an apparent economic recovery, the U.S. has yet to recover the jobs lost in the Great Recession. Canada recovered the lost jobs more than two years ago, and is now well above the nominal levels seen before the Great Recession. But adjusted for population growth, Canada actually has fewer jobs than it did before the recession.
While the U.S.’s housing market suffered a long, slow collapse from which it is only now beginning to emerge, low interest rates north of the border created a super-heated housing market that continues to boom, despite a slowdown in sales over the past 12 months.
Toronto, for instance, saw an 8.1-per-cent increase in house prices in the last year, despite the government tightening mortgage rules (The CMHC may have been responding to the return of the housing boom when it announced another round of mortgage rule tightening on Tuesday).
All of this has meant that Canada is now reliant more than ever on construction jobs (7.6 per cent of all jobs at last count, a record high in data going back to the '70s), and employment in that sector has been offsetting, to some extent, the bleeding of manufacturing jobs out of Canada.
But if — as some analysts predict — Canada’s housing market is in for a crash, then the country’s heavy reliance on construction jobs could do to Canada’s job market what the U.S. housing bubble did to the job market south of the border.
And in some other ways, Canada’s economy has been eerily echoing the structural problems seen in the U.S. For instance, although manufacturing output in Canada recovered to pre-recession levels in 2012, it did so with 200,000 fewer workers than before.
And recent data from the OECD shows that Canada’s falling behind a majority of other developed countries in job creation, and now ranks 20th out of 34 OECD countries on that ranking (the U.S. is 27th).
So it may be that Canada’s economic performance only looks good when compared with that of the U.S. — and maybe not even then, so much, anymore.