OTTAWA - The recession may be officially over, but Bank of Canada governor Mark Carney warns that the economy is still a long way from returning to strength and that finding good, high-paying jobs will remain a challenge for some time.
The central banker went to Canada's unofficial unemployment capital, Windsor, Ont., on Thursday with a sobering message — temper expectations about just how strong the economic recovery will be.
"Canada's economy is now back to its pre-crisis peak in output," he said in notes of the address released in Ottawa.
"However, our recovery is relatively modest in comparison to its predecessors and has relied heavily on housing and personal consumption."
And that can't last, he added, because consumers are weighed down with record debt, their income growth will be modest and because house values won't rise sufficiently to boost household wealth.
The future months will see growth slow to a modest pace as the economy comes under pressure from low demand for Canadian exports — mainly from the United States — and the "limits of household balance sheets," he said.
In fact, that is already happening. Statistics Canada reported earlier in the day that Canada's gross domestic product actually shrank by 0.1 per cent in July, the first such contraction in almost a year.
Externally, Carney says the problems are even more intractable. He said a durable global recovery will require a rebalance of supply and demand, particularly between the U.S. and China and other emerging economies, and that could take a decade.
"During this period of adjustment, we should expect subdued growth in major advanced economies," he said.
The cold shower on what Carney admits has to date been the strongest recovery among Canada's peers in the Group of Seven industrialized countries likely signals that he has decided to put aside further interest rates hikes.
"We've got to be careful in this environment," Carney told reporters after his speech. "There's unusual uncertainty around the U.S. and global outlook and the knock-on effects on Canada, and this environment warrants caution regarding any further withdrawal of monetary stimulus."
He pointed out that while he has hiked rates three times since June to one per cent, his counterpart at the U.S. Federal Reserve has held the policy rate at virtually zero.
"While Canada's circumstances and the discipline of the inflation target dictate a different stance than in the United States, there are limits to this divergence," he noted.
Carney even downgraded just how good the recovery has been in Canada.
He pointed out that the labour market has not truly recovered even though all 400,000 jobs lost in the recession have now been recouped.
The unemployment rate remains high at 8.1 per cent and many of the jobs created since July 2009 have come in the public service or are what he called involuntary part-time work.
A truer measure may be labour input, a combination of employment and hours worked, which he said has only made up two-thirds of the decline during the slump.
"If you look at the U.S. where they've only recovered 10 per cent of the jobs (lost), this is a night-and-day comparison in terms of the strength of the labour market," he said after his speech.
"But it does mean that ... it's a more modest outlook for consumption growth than it would be if everyone had returned to full-time jobs."
Canada's auto sector is in for a slow ride, as well. He said auto sales in the U.S. are about six million less than the 17 million a year prior to the slump, and won't rise quickly.
"Part of the new reality, which I think has been absorbed by enterprises in the whole auto value chain, is a much lower profile for North American demand over the medium term," he said.
That will be particularly difficult news for Windsor, an auto town with an unemployment rate that has recently hovered around 11 per cent, three points higher than the national average.
The Ontario border city has been battered by the restructuring of the so-called Detroit Three automakers — GM, Ford and Chrysler — which used to have big operations there just across the river from Detroit, long-time centre of the American auto industry.
All three U.S. companies have cut jobs in Windsor, including the July shutdown of GM Canada's last plant in the city — a transmission factory that still employed 500 people.
The shutdown ended a 90-year relationship between the auto giant and Windsor, where GM Canada once employed 7,000 people.