Canadian Manufacturing

Bye-bye purchasing power: Canadian wage growth is tanking

by The Canadian Press   

Operations Energy Economy purchasing power wages workers

Canadian's aren't keeping up with the cost of filling their fridge, fueling their cars and heating their homes as the average wage declined again in September.

OTTAWA—The average Canadian wage declined 0.3 per cent to $872.75 in September, according to the latest wage data collected by Statistics Canada. This comes amid a shaky economy, gloomy job outlook and spending-wary governments.

And its not like we didnt see it coming—wage gains in Canada have been dropping steadily since the spring, when they were as high as 4.1 per cent annualized in April, well above the inflation rate.

They now stand at 1.1 per cent, the lowest pace of growth since November 2009 and about one third the inflation rate.

“The nominal wage gains, being as soft as they are, (have) created a condition where the average Canadian isn’t keeping up with the cost of filling their grocery carts, filling their cars and heating their homes,” said Derek Holt, a senior economist with Scotiabank.


Holt and other economists agree that consumer spending can’t keep up and most forecasts project consumers cutting back in the next year.

NDP finance critic Peter Julian called the loss in purchasing power outlined in the Statistics Canada report a “serious problem” and accused the federal government of indifference.

“What we’re seeing is lower paying jobs replacing higher paying jobs, we’re seeing more part time jobs; more and more levels of indebtedness—that’s a toxic mess and should be no surprise to the government.”

Julian said new jobs since the recession have paid about $10,000 less than those lost in the 2008-2009 slump.

Finance Minister Jim Flaherty was not available to the media to discuss the earnings report. But in responding to questions in the Commons, Flaherty defended his policies, saying 600,000 jobs had been added to the economy since the recession.

At a minimum, Ottawa should cancel January’s hike in unemployment insurance premiums to boost job creation, opposition MPs said. Last month, Flaherty went half way, cutting the scheduled hike from 10 cents per $100 of insurable earnings to five.

With income from investments also soft because of the volatility in equity markets, analysts said it is fair to assume Canadians’ average standard of living is falling.

The sharp decline belies what is often presented by the ruling Harper government as a relatively healthy labour market in Canada, which it says has added about 600,000 jobs since the recession and is regarded as stronger than what has occurred in the U.S. and much of Europe.

The job creation record, however, gives only half the picture.

About one million more Canadians have entered the workforce since the recession, meaning there are close to 400,000 more unemployed, contributing to the 7.3 per cent unemployment rate.

CIBC economist Benjamin Tal said the recent downward trend in wages also coincides with weak jobs growth over the past four months. His own research suggests many of the jobs recovered since the recession have been of the low-paying variety.

“The composition of jobs is getting worse, namely you have more low-paying jobs,” he explained.

“There’s clearly a movement from high-paying professional, public sector and construction jobs to low-paying service and retail. Even within manufacturing, there’s a movement from high-paying manufacturing jobs to lower-paying.”

Aside from how weak income growth affects individual Canadians, the trend is a worrying signal for the economy overall. Consumers represent a major component of the Canadian economy and any slowdown in spending will depress growth.

Tal said Canadians can always dip into savings to compensate, but that is also problematic because household debt is already at record levels relative to disposable income.

“The consumer is starting to slow down and we also see consumer credit is softening,” he said. “What we are going to see is that business investment is the only (driver) of the economic expansion.”

The Statistics Canada data puts in context a new outlook by the Conference Board and the Business Development Bank of Canada that projects industries dependent on consumer spending will experience sluggish growth and profits over the next five years.

The industries analyzed were retail sales, accommodation, food and beverage manufacturing, restaurants and catering, transportation and warehousing, and wholesale trade.

“Several industries profiled in this outlook have recovered from the 2008-09 recession, but the prospects for continued growth are muted because of weak consumer and business confidence, as well as high household debt levels,” explained Michael Burt of the Conference Board’s industrial economic trends division.

The Bank of Canada has projected growth in the economy overall will slow to 1.9 per cent next year, after expanding by 2.1 per cent in 2011 and 3.2 per cent in 2010.


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