OTTAWA – The number of Canadians collecting unemployment benefits continued to accelerate in March in a painful reminder that the economy is falling at a record pace and will take many more months to hit bottom.
March’s 10.6 per cent surge in employment insurance recipients, to 681,400, is the most since the recession began and gives added ammunition to opposition parties who have threatened a possible early election unless the government relents on increasing benefits.
But in an ironic twist, it also supports Finance Minister Jim Flaherty’s contention that Ottawa is contributing more as the economy deteriorates, since the percentage of jobless receiving benefits also jumped, to 47 per cent from 43 per cent.
More critically, the new number shows an economy that is shrinking at a pace most Canadians have never experienced, say economists, with joblessness having become a central element of the downturn.
“It’s a sign of how quickly the Canadian economy has deteriorated,” said economist Michael Gregory of BMO Capital Markets.
“The actual depth of our recession is similar to what we had in the early ’90s, and nowhere near as bad as we had in the early ’80s. But what makes this one uncomfortable is the fact it’s happened awfully quickly. What would normally have taken four quarters to unfold, we’ve squeezed into two quarters.”
The Bank of Canada has projected the economic tumble in the first quarter will amount to 7.3 per cent, the worst since records began being kept in 1961. Statistics Canada will reveal the data on Monday.
Since October, 321,000 jobs have vanished and the uptick in the number of the unemployed receiving benefits suggests more and more of those lost jobs were of the long-standing, full-time variety.
The TD Bank economists say the situation will to get much worse, with the unemployment rate topping 10 per cent early next year from the current eight.
At a meeting of the country’s finance ministers Monday, Flaherty described the economy as remaining in the midst of a “serious recession” despite the odd sprinkling of encouraging news. And he predicted the government’s fiscal deficit this year will be “substantially more” than the projected $34 billion.
That’s not a surprise to TD Bank chief economist Don Drummond, who several months ago pegged the deficit at $18 billion more over two years than Flaherty’s budget in January, which also called for a $30-billion shortfall in the 2010-11 financial year.
Most economists see Canada coming out of the downward spiral in the fourth quarter of this year, but they are split on how strong the rebound will be and when the newly laid off can start expecting to get their jobs back.
One encouraging signal, said Gregory, is that Canadian businesses enter the current recession with better balance sheets and more cash in hand than was the case the two previous recessions.
“That suggests that the hiring that will come when things turn around may happen a little bit sooner,” he said.
But Drummond believes other negative factors will continue to weigh on Canada’s ability to recoup the job losses quickly, or to return to pre-recession growth rates.
The critical factor will be the ongoing problems in the United States, which will continue to exert a drag on Canada’s export-heavy manufacturing and forestry industries.
And the surging loonie will depress exports, says Drummond, noting that the Bank of Canada’s rosy 2.5 per cent growth estimate for next year was based on the currency averaging about 80 cents US.
“I think the Canadian dollar is going to strength further and not because of higher commodity prices but simply as a mirror image of U.S. dollar weakness, and that’s going to curtail growth,” he explained.
The loonie was trading above 89 cent US most of the day Tuesday and Drummond believes it will be back at parity with the American dollar by the end of the year.
Just the increase in the loonie alone against a weakened American dollar, which has fallen against many major currencies, could potentially wipe out all of the Bank of Canada’s 2.5 per cent growth forecast for 2010, he said.