Unemployment rate could be lowest in 50 years – Canada News
“There are still pitting in the wage and housing tails that could lead to firmer inflation for some time” – Douglas Porter, Chief Economist, BMO Financial Group
Economic forecasting is a complex business at the best of times, but trying to read the omens of a global economy recovering from a pandemic has made it even more complicated.
“It’s certainly one of the most complex economic environments I’ve encountered in my career as an economist,” said Douglas Porter, chief economist of BMO Financial Group, during a session on financial and commodity markets at of the Association of Mineral (AME) Roundup Conference. .
In general, the signs are good, although they can be somewhat complicated by things economists haven’t had to consider in decades, like high inflation and high employment.
“We believe that later this year we could be looking at the lowest unemployment rate we’ve seen in over 50 years in Canada and the United States,” Porter said.
Although a global pandemic has yet to be officially declared over, financial markets are operating as if it were.
“Even with the ripple we’ve seen in equity markets year-to-date, financial markets, overall, are still pointing to relatively robust growth this year,” Porter said.
While there is always the possibility of another viral mutation and another wave of pandemic lockdowns and border closures, Porter said “we suspect this will become less of an economic driver through 2022.”
“Beyond the pandemic, markets have also had to worry about the surges in inflation we are seeing globally and the prospect of higher interest rates. And, as if that weren’t enough, of course, we were faced with all sorts of geopolitical concerns, center-forward of which was Ukraine.
The global economy grew by 6% in 2021, according to the International Monetary Fund (IMF). The global economy is expected to grow by 4.5% in 2022.
“It’s still above average growth,” Porter said.
The U.S. economy grew nearly 6% in 2021, the strongest growth since 1984, Porter said. Canada’s GDP growth figures for 2021 are not yet known, but in general, Canada’s growth has lagged behind the United States
“I don’t think there’s a lot of mystery about what’s going on here,” Porter said. “Essentially, Canada had to deal with longer and more intense restrictions than the United States.”
Commodities have been on fire since mid-2021, with everything from oil to lumber booming. High oil prices, in particular, are helping push up the consumer price index, and house prices, which have risen about 20% over the past year in Canada and the United States, will also fuel inflationary fires.
“It’s not just a North American story,” Porter said. “We are seeing strong consumer price increases in almost all emerging markets and most advanced countries. Even Japan, which has been contemplating deflation for about 30 years, is actually experiencing inflation of almost 1%, which is relatively high for Japan.
Inflation rates in the United States are among the highest, at 7%.
Benchmark oil prices are well above US$85 a barrel. Porter said he thinks crude oil prices will settle around US$75 to US$80 a barrel. Even so, BMO expects inflation to persist longer than some economists had originally expected.
“Even with more subdued oil prices, with an improving supply chain situation, we still see inflation in the range of 2.5% to 3% in Canada and the United States from here. end of 2023, well above the sub-2% trend we saw before the pandemic began.
“We still believe that at the end of 2023 we are still looking at underlying inflation that is higher than the rate we have seen in the 10 years before the pandemic.”
He said central banks raising interest rates to keep inflation under control are almost guaranteed. The Bank of Canada and the US Federal Reserve have announced that they will raise interest rates in March.
“We believe that, in either case, once central banks determine it’s time to start raising rates, they won’t be fooling around,” Porter said.
“For the Bank of Canada, we believe it will increase by a quarter point per meeting over the next four meetings. We expect the Bank of Canada to raise rates a little above pre-pandemic levels as it faces a more severe bout of inflation.
He said one of the biggest stories of 2022 for the economy would be jobs – high employment, that is.
“We have a very serious imbalance on the labor market front,” Porter said. “Right now in the United States we have nearly 11 million open jobs, while the number of people considered officially unemployed is less than 7 million.
“So we have a lot more open jobs than unemployed. Historically, this kind of imbalance points north for wages, and we’re starting to see wage pressures mounting in the United States.
In Canada, there are about 1 million job vacancies, although just over 1 million people are unemployed.
“We’re starting to see wage pressures start to build in Canada as well,” Porter said.
Housing prices will likely continue to add inflationary pressure, Porter said.
“Even if some of the reopening pressures ease over the next year, even if oil pressures stabilize and even if supply issues improve, there is still a sting in the tail of wages and housing which could lead to firmer inflation lasting for some time.”