The Fragile Economy: finance minister complains about his own policies

Finance minister Tom Marshall thinks its time for the private sector to step in and boost the economy around Corner Brook.

“Other than construction, I would like to see more economic investment; I would like to see more businesses coming in and investing here,” he said. “It is jobs ... What we have seen is government spending, in a massive way, in this area.”

That’s from a story in last Friday’s Western Star.

Two observations come readily to mind.

First of all, that’s a great big “D’uh” there, Tom.  Your humble e-scribbler has been banging out post after post after post over the past six years on this very subject.  The number of posts on it has gone up in the past two years because the fundamental situation is getting fundamentally worse. 

It is getting fundamentally worse – to hit the second point – as a direct result of government policy.  In everything from its energy policy to its disastrous seizure of private sector assets in 2008, the current administration has shown itself to be relentlessly opposed to creating an economic climate that attracts investment, promotes innovation and rewards entrepreneurship. 

The current fragile state of the provincial economy  - “fragile” is a word Tom Marshall used not so long ago, by the way - is a direct consequence of government policies.  Only a fundamental shift in those policies can move the province off the course it is currently on.

As it stands in early 2011, the current administration is firmly committed to continuing the policies that have contributed to putting the economy in its current parlous state.

We have seen the enemy, says finance minister Tom Marshall, and he is us.

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Average annual real GDP growth lower since 2003

The province’s real gross domestic product has grown at one third the average annual rate of the period from 1997 to 2003, according to figures compiled by Statistics Canada.

GDP  - the value of all goods and services produced in the province - grew by 3.0% annually, on average, from 2003 to 2008.  But between 1997 and 2003, GDP grew by an average of 8.9% a year.

Labour productivity increased by 6.4% annually, on average between 1997 and 2003.  However, between 2003 and 2008, productivity increased by 2.1% annually, on average.

this sort of concrete information should make anyone think twice about all those goofball commentaries claiming there was something they called the Danny Williams Effect driving the economy to unprecedented heights.

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NL posts lowest productivity in Canada in 2009

Figures released on Friday by Statistics Canada show that Newfoundland and Labrador posted the largest drop in labour productivity in the country in 2009.

Productivity fell by 8.7 percent.  The second biggest drop was 4.1% in Saskatchewan. According to Statistics Canada,

Real output was down for the first time since 2004, because of a sharp downturn in oil and metallic mineral extraction. At the same time, hours worked fell by 6.3%, also the largest decrease among the provinces.

Real gross domestic product as down 14.5% from the previous year, but total compensation was up 2.4%, hourly compensation was up 9.4% and unit labour costs were up 19.8%. In each case those figures were the largest for the 10 provinces.  Only the territories saw higher increases in unit labour costs and hourly compensation.

Broken down by the goods and services sector, the figures showed higher losses in the goods producing sector.  That’s consistent with the declines in oil and mineral production in the province.

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The Dismal Science: Debunking the “federal presence” fairy tale

Far from being hard done-by when it comes to federal jobs in the province, Newfoundland and Labrador is pretty much on par, according to a recent study conducted by the Frontier Centre for Public Policy, and reported by the National Post.

You can find a news release summarising the report here, while the full report is available in pdf format.

Some provinces  - Prince Edward Island, New Brunswick, Nova Scotia and Manitoba – have significantly more than the national average number of federal jobs per 100,000 population.  Quebec, Saskatchewan, British Columbia and Alberta have less.

Newfoundland and Labrador and Ontario are only slightly higher than the national average.

The study effectively refutes claims that this province is receiving something less than its “entitlement’ to federal pork spending.  The comparative figures also demolish two reports released by Memorial University’s Harris Centre in 2005 and 2006.  The provincial government has used those studies repeatedly to bolster its claims for increased federal transfers to the province to offset what turn out to be imaginary grievances.

The Frontier Centre study refers to these federal jobs as a form of “stealth” Equalization.  That is, they contend that the federal jobs serve as a type of federal transfer to the local economy in each of the provinces. More importantly, though, the Frontier Centre contends that the transfer comes in addition to the formal Equalization program and is particularly heavy in the provinces it refers to as “major” have-provinces.

The study also notes that the have-not provinces with the highest ratio of federal government jobs also tend to have higher than average reliance on provincial public sector jobs generally. They compare provinces based on the number of public sector employers as a share of the total population.  Newfoundland and Labrador is third highest on that scale, with Prince Edward Island and Manitoba coming, respectively, first and second.

Looking at the same information but as a share of the provincial labour force, Newfoundland and Labrador is by far the province with the largest dependence on the public sector.  Almost 30% of the provincial labour force is employed by the federal, provincial or municipal government.

The Frontier Centre study puts the findings into a particular context, namely transfer payment reform:

The stealth equalization of unbalanced federal employment described in this paper is part of a much bigger problem —an approach to public policy in Canada that transfers money out of high-productivity regions into low-productivity regions.

Not only is this policy approach harmful to our productivity growth, it is also, quite simply, unsustainable. Historically, the taxpayers in three provinces—British Columbia, Alberta and Ontario, have paid most of the bill for high levels of public sector employment in the have-not provinces.

At the same time, the study does point to issues that are especially relevant to Newfoundland and Labrador, even if the report’s authors simply missed the poster child for their argument of unsustainable public spending and the dangers of reliance on what the author’s call “the state driven approach to economic development”.

Most residents of the recipient provinces are unaware of the extent to which their economies are state-driven and reliant on transfers. Beyond the official equalization money, massive amounts of revenue from elsewhere flow into these provinces from a number of different sources. Stealth equalization through federal employment is one important example—but there are others. Higher dependence on federal
government transfers to individuals and discrimination in ordinary  operating programs in favour of the have-nots are two more examples of ways Canadian public policy transfers wealth into the have-nots.

Most residents of Newfoundland and Labrador are unaware of the extent to which the provincial economy is state-driven and reliant on federal transfers in addition to overall public sector spending.

They aren’t alone, of course.  The current provincial administration operates as if going off Equalization was a tragedy of biblical proportions.

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Related: 

• Fragile Economy:  staying the course
• Fragile Economy:  reductio ad argentum
• Fragile Economy:  The public sector
• Fragile Economy: …and two steps back
• Fragile Economy: …now three steps back and loving it

Drop-out drop detail

The 2008 report on schools from the provincial education department is a wealth of useful information on one of the most important government service areas.

Chapter 10 is about school leavers.  In light of the Statistics Canada report on drop-outs, it’s worth taking a closer look at the way the drop-out rate dropped in this province.

As we know from the Statistics Canada report, 19.9% of young people dropped out of school in Newfoundland and Labrador, on average, in the three years 1991-1993.  By 1996, that figure had declined to 16.7%.

By 2006, that number was down to 8.9%. The rate was lower in 2003, continued downward for the next two years and then jumped up in 2006. The current rate  - 7.4%  - is actually about what the rate was in 2005. The table is taken from the provincial government report.

Media reports indicate that a higher percentage of males than females dropped out in this province in 2009 (103% versus 6.6%). That’s a change from a decade and more ago when the male rate was dramatically higher.  According to CBC, “while rates have declined for both sexes, the rate of decrease was faster for men, narrowing the gap between the two.”

The provincial education department has another statistic, though.  It compares rural versus urban rates of school-leaving.  Here’s the provincial government table comparing the rates for all provinces and for the country as a whole.

This sort of statistic doesn’t bode well for economic development in rural Newfoundland and Labrador. And it doesn’t get any better when one considers the trend in the Eastern district, for example, that shows those graduating high school in rural areas are more likely than urban students to leave with a general pass.  n other words, they aren’t necessarily more likely to enter post-secondary education or training.

If a provincial government could only focus on one area in order to produce economic and social benefits to individuals and to the community as a whole, improving educational performance would be it.

Now it is interesting to pick up on comments on the other post on this report.  Both noted the possible influence of the cod moratorium in 1992 on the decline.  On the face of it, the answer seems to be that the moratorium did influence the rate.  Young people in rural areas, especially males, tended to leave school since they could make a living in the fishery or other similar work with a limited education.  Without the cod fishery they might have stayed in school.

Maybe.

The idea is worth exploring but the answer is likely to be more complex. Don’t forget that about 70,000 left Newfoundland and Labrador in the aftermath of the moratorium.  While the drop-out rate declined dramatically in the period between 1993 and 2005, the persistence of a high drop-out rate in rural Newfoundland  suggests there might be other factors at work.

Still, these numbers bear further consideration.

Especially considering the literacy and numeracy rates in the province.

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Fair to middling on entrepreneurial qualities

Only 3.8% of the St. John’s businesses that responded to a survey conducted by the Canadian Federation of Independent Business felt that government had a good awareness of small business.

Almost 60%  of respondents expressed concern about the burden of government paperwork on their business.

67.1% felt the state of business was good but only 24% expected to hire new full-time works within the next three to four months. 55.3% felt that their business would be “better” or “somewhat better” over the next 12 months.

From the CFIB news release:

There is no single best way to measure the entrepreneurship quotient of cities, so CFIB combines a range of approaches to arrive at an overall score. It may seem obvious, but the surest signs of an entrepreneurial hot spot are the presence of a high concentration of entrepreneurs and a high business start-up rate. It is also important that business owners have high levels of optimism and success in their operations. Good public policy is also critical, so we look at the presence of supportive local government tax and regulatory policies.

St. John’s placed 36th out of 100 cities studied by CFIB.

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Lowering the boom

Supposedly, there’s a baby boom in the province:

After years in decline, Newfoundland and Labrador’s birth rate has been steadily increasing in recent years — and the trend is expected to continue this year.

There isn’t really.

A steady increase or a boom.

And it isn’t clear from the Telegram front page story who expects the trend to continue.

First, the numbers.

In 2008, the number of live births in the province jumped by 300 to 4,905.  In 2009,  the number went up again by 35.  That’s not a steady increase.  It’s a big jump and then a tiny increase that is actually less than 10% of the total number of live births. Put another way, that’s almost a seven percent increase the first year and a point  seven percent increase – 0.7% (less than one percent)  - the next year.

This is not a trend. 

It’s curious but it isn’t a trend.

As for what will happen in 2010, look at it this way:  In 2008 and 2009, there were on average about 410 live births each month in the province, give or take.  If the same birth rate carried on into 2010, we’d expect to see about 3900 live births by  the middle of September (410 times 9.5)  As the Telegram notes, we’ve only reached 3300 or so by that time in 2010.

So unless people were making like bunnies nine or 10 months ago or there are a crop of twins and trips out there no one really has talked up, the provincial birth rate seems to be on track to come in well below the 2008 and 2009 figure. That’s even allowing that October is one of the big baby months according to some analysis. In fact, if the current trend holds, the birth rate might well be back to where it was in 2007:  around 4500 live births.

As for the Telly claim that someone expects the growth trend to continue, there’s no one quoted in the article who actually says that.  The Telly article includes a reference to a 2009 news release by the provincial centre for health information, but your humble e-scribbler had a few choice words about that piece and its dubious commentary when it came out.

The article also makes an obligatory mention of the provincial government’s breeding incentive program. That’s the one Danny Williams announced during the 2007 campaign with the infamous quote “we can’t be a dying race”, but that’s another story.

Basically, there’s a cash bounty of $1,000 for every live birth or adoption in the province. Aside from the fact these sorts of programs don’t usually work, this one isn’t likely the cause for the spike in births since it doesn’t really change what the provincial government’s own statistics agency identified as long term trends affecting the population:

The number of births has been trending downward for four decades because of declining fertility rates and, more recently, a decline in the number of women of child-bearing age.

A grand for successful copulation doesn’t really get at the core problem fewer people at the right age to have children wanting fewer children than previous generations.

Most likely, the two year increase in live birth rates came from the increase in migration that started in 2007.  All those young people who moved home to escape the recession may well have decided to carry on with their lives and have babies.  Since out-migration seems to have picked up again, it would only make sense that the birth rate is down, as the Telegram’s statistics suggest.

The real stunning figures from the Telegram article though – and in some respects the real story – are in the print edition but not in the online version.  In print, the Telly gave registered births in selected communities in 2009 and from January to September 2010.  Labrador City, with about 8,000 people there and in neighbouring Wabush saw only 88 births registered in 2009.  Bonavista had none in 2009 and has had two so far in 2010. Corner Brook (2006 population = 20,083) saw 650 births in 2009. meanwhile, St. John’s and its 100,000 or so residents registered 2629 births in 2009.  For those keeping track that was 53% of the total number of live births in the province that year.

Outside the St. John’s census metropolitan region, large swaths of Newfoundland and Labrador are basically devoid of people under 50 years of age.  Once bustling communities are collections of retirement homes. And in places like Grand falls-Windsor or Deer Lake, the local construction “boom” is pretty well all from retirees returning to the province from outside or people from smaller communities along the coast heading into the major centres.

What the demographic trends mean for the province is way more interesting than a minor – and temporary – shift in the birth rate.  It’s also a subject the local crop of politicians, from the Old Man on down, quite clearly don’t have a sweet clue what to do about.

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NL population drops in Q2 #cdnpoli

Newfoundland and Labrador was the only province to experience a population loss in the second quarter of 2010, according to figures released Wednesday by Statistics Canada. The cause is primarily net interprovincial outflows, in other words outmigration. That’s also the first drop since 2008.

While the provincial government issued a news released last quarter trumpeting the gain of a mere 96 people, you are unlikely to see a release like it this month talking about a drop three times the size.

Here’s what the past five years looks like, by quarter.

Now it could be nothing at all but a blip.  Then again, it could be a sign of things to come.  Note that for the last three quarters the rate of growth has dropped dramatically.  That suggests the steam was going out of things and that the Q1 results were the peak of the curve.

You can see that more clearly if you look at this chart:

In less than a year, the province went from gaining 130 people in a quarter to losing 300.

And actually, this could also mean that the North American economy is on solid footing.  The change in migration patterns for Newfoundland and Labrador in Q3 2007 actually heralded the onset of the recession.  A long-term analysis of provincial population suggests that the population grows shortly before major recession.  Those are all people working elsewhere with relatively weak ties to the community who opt to come back to the province to weather the economic storm.  When things pick up, they head off again.

And as much as the province’s finance minister may like to believe otherwise, odds are that is what’s going on again.

Great news, wot?

Well, not really. The longer term demographic problems that come with that aren’t ones the current administration and its unsound financial and economic management are not ready to cope with.   Not by a long shot.

Don’t forget that in this pre-election and pre-leadership period, you can bet the government won’t be willing or able to do much to start adjusting to cope with the harsh reality of the economy and demographics.  In fact, the next 18 months are basically a write-off for serious government decisions to deal with the problem. 

On top of that you can forget the period between the election and whenever the new Premier arrives to replace the Old Man. And if that doesn’t wind up happening happen until a couple of years before the 2015 election you can almost write off dramatic policy shifts until that election is history as well.

Wow.

Not to worry sez you.  There’s oil.

Sure there is.

Unfortunately, production and royalties won’t be able to cope with the demand for added revenue.  There’s not much else going on to take up the slack and for good measure, the current administration plans to use oil money to fuel increases for education and health care and use exactly the same money to build the $14 billion Lower Churchill project.

Here’s lookin’ at you, kid…

…as you leave the province again.

At least we’ll always have Ottawa.

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St. John’s housing market feels national slowing trend

From RBC Economics:

Atlantic Canada’s housing market was not immune to the significant slowdown in activity that has swept across the country since spring. In the last few months, housing resales in the region fell back to the lows reached during the late 2008 to early 2009 downturn. The decline was felt across the board, including areas, such as St. John’s, which were on a tear earlier this year. The cooling in demand loosened up market conditions a little – they were very tight at the start of this year – and restrained home price increases.  In turn, this limited the rise in homeownership costs in the region. Depending on the housing type, RBC Housing Affordability Measures moved up between 1.1 and 1.5 percentage points in the second quarter and remain very close to long-term averages. Overall, housing affordability in Atlantic Canada
continues to be quite attractive and signals little in the way of undue
stress at this point.

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NL only province to post jump in EI claims in July

The number of Employment Insurance claimants dropped in every province in Canada in July compared to June except in Newfoundland and Labrador.  The province saw an increase of 2.4% in EI claims in July, matching the increase seen in June from May.

Year over year, the number of claims is down 16.2%.

In June to July 2009, the number of EI claims went up by 6.5% but then dropped by 8.7% the next month. 

Over the past year, the number of claims has dropped each month, except for the past two.  Most months, the drops were modest, ranging from 0.0% to 1.3%.  Except for the July to August 2009 drop of 8.7%, the largest drop was 3.2% from October to November 2009.

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Labour force indicators raise questions about economic health and competitiveness

In a recent Fraser Institute study of labour markets in North America, Newfoundland and Labrador came in 49th out of 60 overall.  The study measured performance in five indicators:

• average total employment growth,
• average private-sector employment growth,
• average unemployment rate,
• average duration of unemployment, and,
• average gross domestic product per worker.

The study also assessed the level of public sector employment, minimum wage rate, level of unionization, labour relations laws and what the study authors termed “other areas of concern”.

Here’s how Newfoundland and Labrador placed in nine of the categories for which there was a readily measurable score that compared jurisdictions straightforwardly.   

Some of these figures, like the private sector as a percentage of the labour force, will be very familiar to Bond Papers readers. Now there is some context for them that shows they are cause for concern not just in and of themselves but because they raise serious questions about the overall health of the economy and about the province’s competitiveness.

It should almost go with saying that anyone arguing for an increase in public sector employment is out of touch.

1. Average total employment growth (2005-2009):  38th place with 0.1%.  That’s the weakest of the Canadian provinces.  The next weakest was Nova Scotia with 0.5%.
2. Average private-sector employment growth (2005-2009):  34th place with 0.0%.
3. Average unemployment rate (2005-2009):  60th place with 14.5%.
4. Average duration of unemployment (2005-2009):  17th place with 14.9% of the unemployed being out of work for 27 weeks or longer.
5. Average GDP per worker (2005-2009):  eighth place with $134,494.
6. Average provincial public sector employment as share of total employment (2005-2009):  59th, with 24.8%.  Nevada and Pennsylvania topped the ranking with 9.4% and 9.5% respectively.  Only Saskatchewan beat out Newfoundland and Labrador for the bottom spot with 24.9%
7. Average public sector employment (fed/prov/mun) as a share of total employment:  60th place with 28.2%
8. Average minimum wage as percent of GDP per worker (2004-2008):  10th place, 12%.
9. Unionized work force as a percentage of total work force (2005-2009):  59th, with 38%.  Quebec was the most unionised jurisdiction, at 39.9%.  North Carolina was the least with 4.3%.

Some of the other areas of concern are also interesting to note.  Newfoundland and Labrador showed the most days of work lost per 1,000 employees due to industrial disputes. (390 days, 2004-2008) That was three time the number of days of the second spot, British Columbia, with 127 days. Quebec – in third place – had a loss work days of 75 days.

And here are a couple of measures for just the past year:

1. Average unemployment rate, July 2009- June 2010:  60th place with an average unemployment rate of 15.4%. 
2. Average total employment growth, July 2009-June 2010:   tied for second place with 0.2% average growth.

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Fiscal Discipline

If you want to get a sense of where Newfoundland and Labrador fits on the spending landscape across Canada, take a gander at a comparison of program spending by each provincial government and the federal government on a per capita basis, in 2005 and in 2010.

This basically shows what each government spends – on average for each person  – to deliver government programs and services.

Newfoundland and Labrador was the highest spending province per person in 2005, but it was not out in front by nearly the same margin as it is in 2010. Newfoundland and Labrador went from spending $8,572 per person in 2005 to spending $13,300 in 2010.

No other province spends as much. 

Alberta spends about $3,000 per person less.

Newfoundland and Labrador spends $5,377 per person more than Quebec and yet, according to Premier Danny Williams, “Quebec pours its money into huge tax subsidies for its companies, the best childcare programs in the country and massive electricity subsidies for its people valued at 7 billion dollars.”

Apparently, they are that much better at spending money that they can deliver all that on only $200 more per person than Danny Williams spent in his second year in office.  In fact, they are so good – according to Danny Williams - they actually get all those bennies spending less money per person than Danny Williams has in any year he has been Premier so far. 

That is, of course, with the exception of that one year where they bested him by a mere 200 bucks a head.

Makes you wonder where exactly is Newfoundland and Labrador’s provincial childcare program then?

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VOCM “news” has no source

News outlets usually give a source for the information they provide, so when the province’s largest commercial radio station gives a glowing story without a single source, one tends to get a wee bit suspicious.

And when the information contradicts reliable sources, you have to wonder what sort of shenanigans are going on over at the radio network known derisively at this time of the year as voice of the cabinet minister.

Here’s the entire “story” VOCM posted to its website under the headline “Construction Booming in Capital City”.

The audio file attached to the story demonstrates the text is just the script for the report.  And if you can’t make out the print in that picture, here’s what it says:

If you're of the opinon [sic] there's more construction activity than usual going on in the capital city, you're right. Virtually all elements of the construction industry are up in St.John's. The only area which is experiencing a decrease for the year to date is residential, which is about $5 million off last year's pace. The number of units being built has dropped from 422 to 365. Commercial is going at nearly double last year's rate, industrial has gone from next to nothing to $300 million, and government or institutional type activity has soared from $20 million to $90 million. Overall, building and reno permits are worth about 60 per cent more this year than last August.

So where did all this information come from?

That’s a good question because there isn’t any clue anywhere in the audio version or in the text file as to where they got the information.

If you go to an authoritative source, like say Statistics Canada, the most recent figures don’t show anything vaguely like the VOCM claim. 

Here’s a chart of SC’s tally of non-residential building construction in the province as a whole and in St. John’s (the blue line with diamond-shaped bullets). The numbers on the vertical axis are millions of dollars. Your humble e-scribbler ran it in late July, so some of you will be familiar with it.

For the second quarter of 2010, the value of non-residential building construction  - that’s institutional (government), commercial and industrial for St. John’s was $40 million.

Not the $300 million claimed for the industrial component alone.

$40 million.

Total.

Even if you added up the two quarters, you still would be less than one third of the number VOCM claims without any sourcing for just one category and only in St. John’s.

Hey, VOCM.

Ed Murrow called.

He wants those awards back.

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Housing bubble bursts – Conference Board

The hyperactive St. John’s housing market will be slipping back toward demographic requirements in the second half of 2010, according to the Conference Board of Canada.

“We had that little bubble in the first few months of this year, which means that moving forward, we’re going to move back more toward the demographic requirements,”

according to the board’s senior economist Jane McIntyre.

Meanwhile, Deer Lake is experiencing a mini boom of its own, according to the Western Star. The town council issued 30 building permits in May.  On top of that there’s a new 31 unit apartment building going up.

But it gets interesting if you look at the source of the growth in town:

With new homes come new residents, and local real estate agent Carol Anstey of Remax Realty Professionals Ltd., said the clients she deals with cover a broad spectrum.

“There’s a certain percentage of people whose husbands are flying back and forth to Fort McMurray who live on the Northern Peninsula.  We’ve had a few of those families relocate here because the airport is here and they don’t have to do the drive up the coast,” she said.

Anstey said some customers are moving from other parts of the country to Deer Lake to retire, while other younger families are growing out of their starter homes and looking for newer and bigger.

People from the Great Northern Peninsula are relocating to Deer Lake because someone in the family is actually a migrant labourer working in Alberta. It’s easier to live In Deer Lake because that’s where the airport is.  Meanwhile another bunch of people are actually retired from working somewhere else – not in the province either – who have decided, quite rightly, that Deer Lake is a beautiful place to retire.

Nowhere in there did anyone mention that the town is growing because the local economy is booming with new manufacturing or service businesses.

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Housing starts in NL down by 28% in July

Housing starts in the province were down 28% in July 2010, compared to July 2009 according to Canada Mortgage and Housing Corporation. [Link to Telly story]

There were 195 starts across the province in July 2010 compared to 270 in the same month of 2009.

More interestingly, only 19 of the 195 starts were outside the metropolitan St. John’s area.  That puts a July 2010 CBC story on the economic boom that is supposedly Grand Falls-Windsor in a different light.  it also gives an excellent sense of what is happening in the provincial economy, as a whole, when one gets beyond the overpass.

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NL posts part-time employment gains in July

After a couple of months of big changes – up and down – in employment, Statistics Canada is reporting the number of people working in the province grew by one half of one percent in July compared to June 2010 and 3.3% compared to July 2009.

The biggest gain came in part-time employment. That’s up 8.9 percent month-to-month and 14 percent year over year.  Full-time employment dropped one percent compared to June but is up one and a half percent year over year.

Total employment grew by 1,000 jobs from 218,800 in June 2010 to 219,800 in July 2010.

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The Irish Miracle

From a Globe and Mail article on some of the human consequences of the Irish economic disaster:

After almost 20 years as Europe’s strongest economy, during which hundreds of thousands of Polish, British and North American immigrants flocked to Dublin for work, the Irish are once again a nation of emigrants. Moving abroad, a response to the economic calamities of the past 170 years, has once again become the way out of an impossible situation at home, and is creating a new Irish diaspora.

Statistics show that the shift from an immigrant-receiving population to a largely outgoing one began just as Ireland suffered the continent’s most precipitous economic collapse – a freefall that began with the collapse of a real-estate bubble, which in turn set off bank collapses and government-debt emergencies. The result has been double-digit unemployment.

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Forever blowing bubbles

We are in a bubble. I think we are in a protected bubble.

That’s Danny Williams making a few observations at the close of the most recent session of the provincial legislature.

It’s not the first time Williams talked about bubbles.  He said the same thing in October 2008 as the world headed into the worst recession since the Great Depression in the 1930s:

We now, for the first time in our lives, are in a bit of a financial bubble and that's a wonderful thing. We have that protection and the people of this province got the support of the provincial government

Williams even claimed during that call to a radio open line show that “[h]opefully our [budget] surpluses will continue, hopefully they'll get even larger, it will enable us to do the things that we've been doing. I mean this, for us this hasn't happened overnight. We've been preparing for this.”

Then the talk of surpluses and bubbles disappeared. 

You see, bubbles are wonderful things,  all pretty and shimmery in the sunlight.

But bubbles are flimsy and insubstantial.

Bubbles have a distressing tendency to burst.

And in the case of the Williams economic bubble, the whole thing burst quite spectacularly.  The provincial gross domestic product dropped 22% in 2009, or 10.2% in real terms as RBC assessed it. Deficit spending became the new order not just for the day but for the years to come and cabinet ministers openly admitted provincial government spending was unsustainable.

Now for those reasons alone it was nothing short of bizarre to see Williams return to the complete nonsense that somehow the province – let alone the provincial government – had emerged from the recession safely wrapped in some sort of bubble. It was even more bizarre to see Williams repeating this line:

However, when I look at what is happening here in Newfoundland and Labrador, the fact that we do have our debt reduced,…

It’s bizarre because it simply isn’t true.  The total public sector liabilities remain as high in 2009 as they were at just about any point in the last five years.  Even the net debt – government’s favourite misleading measure – increased as the 2009 cash shortfall sucked up a half billion dollars of cash the government had laying about and which had previously been used to offset government’s liabilities, even if only paper.

Williams went even beyond those crazy remarks, claiming that the previously unfunded pension liabilities had been addressed.  Of course, that isn’t correct either.  As Budget 2010 forecasts, the unfunded pension liabilities will increase in the current fiscal year just as the net debt will increase.

So aside from a decidedly unhealthy dose of self-delusion, it’s pretty hard to tell what the Premier was getting on with in the House of assembly only a month or so ago.

The prospect of a second and prolonged recession  - widely discussed for some weeks now – only makes the premier’s claims that much harder to fathom. If the United States economy slows down again, then the Newfoundland and Labrador economy will follow suit.  Williams’ own economic policies have seen to that.

If economist George Athanassakos turns out to be right, things in Newfoundland and Labrador could be even worse:

Economies are still extremely vulnerable to speculative bubbles and dips and increased volatility. The panic of 2008 and the subsequent rescue packages did not provide the necessary catharsis that recessions bring to economies. Demand for broader reforms has also waned as a result of the rescue of the economy from the panic of 2008. If this were not enough, economies have become addicted to low interest rates and to liquidity infusions.

Rather than being protected by a bubble, Newfoundland and Labrador may be more vulnerable to a second economic downturn than other parts of the western world. First of all, more and more of the local economy under the Williams administration is based on unsustainable public sector spending.*  Second of all, the metro St. John’s area housing explosion  - even as it subsides – has been built on public sector spending coupled with low interest rate policies. A second recession will likely kill both of those simultaneously.

Incidentally, the most recent figures from Statistics Canada suggest that the construction boom in Newfoundland and Labrador isn’t a commercial one. 

Investment in all categories of non-residential building construction peaked in mid to late 2008 and declined steadily in 2009 until it flattened for the past three quarters.  The pattern shows up in the total provincial number (the long red line on top) as well as in the St. John’s-only line (the blue long line with diamond shaped data points)

Even as spending on the Vale Long Harbour project, Hibernia South and Hebron ramp up in 2012, they won’t be able to offset a decline through all other sectors of the economy. And that’s even allowing that oil prices don’t drop thereby putting development of Hebron in some doubt.

The forest industry is a pale shadow of what it was even a half dozen years ago.  The fishery is mired in restructuring talks. In any event, the industry is woefully short of the capital investment needed to sustain itself let alone retool for global competition. Destroying Fishery Products International and selling off its most useful and lucrative assets will prove to be one of several catastrophic policy failures of the current administration.

Mining may be doing reasonably well in the year ahead, but a second global recession will also adversely affect commodity prices.  Even if oil prices remain at current levels, declining production over the next two to three years will reduce government revenues significantly.

Meanwhile, provincial government cash deficits in 2010 and again in 2011 would rapidly eat up whatever cash reserves are on hand. A significant economic downturn through the latter half of 2010 and into the 2011 election could force the government into a difficult financial position likely meaning spending cuts and wage freezes.

The province is not protected by a bubble.  It is subject to the same forces that affect the rest of the world. Far from insulating the provincial economy from global forces, government policy has left the province in a more precarious position than it has been in two decades.

That’s the thing about bubbles.  Like delusions, they have a tendency to burst in the most unsettling way imaginable.

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* The growth in the provincial public service in recent years is not just a relative growth owing to a decline in other sectors, like forestry. From labradore:

In the past decade, the absolute numbers of people in NL who work in the provincial public sector — the provincial civil service, public health care, social service, and education system, and public post-secondary education institutions — has increased by 35%.  Not only is that the largest increase, start to finish, of any of the ten provinces, for most of the decade, NL has topped the chart in terms of the growth rate. And, starting in 2006, that growth curve spiked steeply upwards, with annualized growth of up to seven percent per year, unmatched by any other province except, starting in the second half of 2008, Prince Edward Island. [Emphasis added]

Labour force trending

Friday’s labour force data from Statistics Canada got a fair bit of news time, largely for the reported drop in employment in Newfoundland and Labrador of 8,100.

It’s hot on the heels of an equally large jump in employment the month before.

Month to month fluctuations don’t necessarily mean very much of anything.  And in fact if you look at the last couple of months compared to say figures dating back to march 2007, you can easily see that the big rise and big fall in employment could just be an anomaly.

The current estimated number of employed people is around 218,000 which is roughly where the employed chunk of the labour force peaked a couple of times going back to early 2007.  It only went over that – peaking out at 226,000 or thereabouts for a few months in early 2008.

What’s more noticeable when you look at these long term figures is that while the number of employed people is up again, the total labour force is the highest it has been in the past three years.  Whether these people have been living here and have returned to the labour force or whether they’ve shifted here from somewhere else, there are more people available for work.

Rough appraisal:  The economy has struggled to regain lost ground during the recession.  At the same time, the available labour force has grown hence the unemployment rate remains high.

Take a look at a couple of other numbers in the Statistics Canada survey to see some other points of interest.

First, the estimated population – that is those 15 years of age and over  - remains pretty steady at a little over 430,000. 

Second, of those, only 59% participate in the labour force.  That’s the lowest rate in the country.

Third, the employment rate – that is, the percentage of employed people as a part of the labour force  - is one of the lowest in the country.  Other provinces beat that by a good 10 points.

Now if you look at the provincial government’s own figures for May (likely to soon disappear in favour of a more recent update), you’ll see that they use higher numbers in their estimates.  The overall trending is likely the same.

One important thing to notice from the provincial government’s assessment is where the job growth came in May.  Growth came in health and social services, accommodations and trade.  The drops came in manufacturing, information, culture and recreation and in business.

- srbp -

Revised to correct typos and improve readability.

NL posts 8k job loss in June

The Newfoundland and Labrador economy shed 8,100 jobs in June, erasing gains posted in May. That’s according to figures release on Friday by Statistics Canada.

Overall, the Canadian economy gained 93,000 jobs in June.

Compared to June 2009, the province has gained 4,400 jobs.

According to Statistics Canada, the labour force dropped to 256,500 in June compared to 263,100 in May.

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