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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RBC lowers NL GDP forecast for 2010

Highlights of the latest RBC Economics forecast for Newfoundland and Labrador in 2010:

• Real GDP to grow at 3.3% for the year, down from the 4.1% forecast in June.
• Offshore oil production down 3.2% year-to-date to June.
• Non-residential capital construction to form basis of growth in medium term.
• Oil royalties expected to reach 40% of provincial government revenues in 2010, potentially supporting increase in public sector employment.  RBC states that public sector represents 30% of employment in the province.
• Real GDP growth of 3.3% forecast for 2011, up from previous forecast of 2.3%

And for the national comparison:

• Saskatchewan will lead the country in real GDP growth with 2010 and 2011. 
• NL is middle of the pack for 2010 and third in 2011 for GDP growth.
• NL has recovered less than 60% of the jobs lost since the recession.  Quebec has recovered 140% and Nova Scotia has recovered about 100%.

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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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Show us the tit and we’ll suck it

Newfoundland and Labrador is the only place in the western world where private sector businesses look to the government as the key to economic diversification:*

“If we have some guidance and support, take some initiative on our own, we can grow Corner Brook,” [ the vice president of the Greater Corner Board of Trade] said. “I think it is a great time to be doing business or setting up new business in this region. If people are interested in that, have an entrepreneurial spirit, to let that take control and get that business off the ground.”

There is no entrepreneurial spirit in Corner Brook, evidently, not if the local business association thinks that increasing government spending is the way to “grow” the economy.

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*  Here’s the link left out of the original piece.  The same e-mail correspondent who pointed out that glaring error in the timed post also noted that the quote doesn’t support the government hand-out thesis.  Well, with the link to the whole story, it should now be clearer.

Diversification links to investment, but the investment sought is public cash:

Meanwhile, Goulding said it was important for these seven ministers [ on the cabinet committee] to realize the realities of the business sector in western Newfoundland and ensure that government does all it can to support business.

The vice-president said businesses need support and training in such areas as succession planning and getting business starts. In terms of attraction and retention of businesses, that is where he said the provincial government has to step up as a follow to the establishment of business retention and expansion co-ordinators and a performance management system for regional zone boards.

“What they need to do now is expand on those types of programs,” he said. “Let’s get those business retention and expansion co-ordinators out in the field, on the ground, talking to entrepreneurs and new and upcoming businesses to give them the support that they need.

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]

Fragile Economy – The Public Sector

Last week, labradore comments on the size of the provincial labour force occupied by the provincial government public sector.  He capped it off with a chart (below) showing a comparison for all 10 provinces over the past decade.

All this brings home one of the points made here earlier this year in a series of posts on the increasingly fragile state of the provincial economy. More the provincial economy is dependent on trade with a single market, namely the United States.  There are fewer private sector industries driving the economy and, at the same time, provincial government spending has assumed an increasingly large role in the economy as a whole.

If you extend the picture back over the three decades for which data is available, you can see both the persistent over-reliance in Newfoundland and Labrador on public sector labour compared to the situation in other provinces as well as the increase in the public sector labour force over the past three years.

These charts go a long way to demonstrating the extent to which popular perceptions of local prosperity  are entirely wrong.  Whatever is going on locally is most certainly not the result of private sector economic development.

Rather there are more public servants making more money, 20% more, in fact over the most recent four year contract.  Couple this with the dramatic increase in overall provincial government spending – upwards of 60% in four years – and the picture is unmistakeable.

Those who want to talk about prosperity in the province or those who want to celebrate the province’s “have” status would do well to look at the three provinces with the smallest proportion of their labour forces working for the provincial government.  It is no coincidence that those provinces with the strongest economies are also ones in which the public sector labour force is a relatively small proportion of the overall working population.

That doesn’t mean that public servants and public services are unimportant.  Rather, the situation in Newfoundland and Labrador demonstrates the extent to which successive provincial governments in Newfoundland and Labrador – but most particularly the current one – have failed to create the climate in the province for sustainable economic development let alone diversification of the local economy.

What makes the current administration stand out, though, is that increasing the role of the public sector in the economy, whether through NALCOR or through admittedly unsustainable growth in public spending, is openly stated as the goal.

The fact that observers outside the provincial government have repeatedly failed to notice that this is occurring is another matter.  No surprise, though, that if they cannot even correctly identify the trend to growing fragility, they may not pay any attention at all to the very serious implications from policies that promote the hollowing out of the province’s economic underpinnings.

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The energy hub and the loose wheel

Summertime is the season when politicians get to travel.

For example, take the annual meeting of governors from the New England states and premiers from the six eastern Canadian provinces.  They got together from July 11 to 13 in Massachusetts for a series of meetings. 

Not much came out of the meetings  - there were a couple of initiatives they all agreed to implement  but then again, these things are seldom about solving big issues.  You can get an excellent sense of how little of substance ever gets done at these meetings by taking a look at the rather vague news release from the Premier’s Office on the meetings. And if that isn’t enough, look at the equally vacuous collection of scripted quotes issued by the four Atlantic Canadian premiers.  One of them, incidentally wasn’t even at the meeting, but he did get included in the quote-fest.

Much like trade shows, these sorts of big meetings are not the places to cut deals.  They are the places to sign deals worked out well in advance.

For example, Maine and Nova Scotia signed an agreement during the meetings to work jointly on development of ocean energy.  That’s tidal power or wave power.

New Brunswick premier Shawn Graham even got a public endorsement from three New England governors for the proposed second nuclear reactor in new Brunswick. The governors of Maine, Rhode Island and Vermont support Lepreau 2.  In fact, Rhode Island Governor Donald Carcieri thinks that nuclear energy must be part of the mix for the region’s future energy supply.

Heck, even away from the conference regional energy deals are in the news. Nova Scotia Power and New Brunswick Power are working a deal on the 4200 million intertie upgrade Bond Papers mentioned last week. Daewoo will be building a wind turbine manufacturing plant in Nova Scotia, as well.

Conspicuously absent from all this concrete talk of energy deals is the place its own premier now describes as “a significant energy player” in North America. 

Not energy hub.  That job is now taken by New Brunswick.

No longer an energy warehouse.

Just a player, albeit a supposedly significant one, whatever that means.

The only specific reference to a project or initiative in Danny Williams vague news release was to the Lower Churchill.  As readers of this space know, this project is now pretty much dead in the water.  Mo markets, no money and  - especially at an estimated cost $14 billion and counting - no sign of anyone willing to underwrite the whole thing. It is now obviously what it always has been all along:  a mere political prop.

That’s what comes of putting every egg into a single basket. While other jurisdictions are allowing many different ideas to move simultaneously, the current administration in Newfoundland and Labrador is sitting as an obstacle to innovation. It’s obsession with a single megaproject  - laid down in the official energy policy itself - prevents other ideas from getting any serious consideration.

Newfoundland and Labrador is being rapidly left behind in energy development.  Despite abundant energy, a skilled work force and ample resources, new energy developments are happening somewhere else. Compare Grand Falls-Windsor to Trenton, Nova Scotia, for instance.  The wind turbine plant is expected to employ 120 in its first year and upwards of 400 at peak. What’s likely to happen any time soon in the central Newfoundland town?

The Maritime provinces are becoming an energy hub.  Newfoundland and Labrador is looking more and more like the loose economic development wheel.

The cause is flawed policy.

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Labour Force Comparison – a first look

last week’s release of the latest labour force numbers from Statistics Canada prompted your humble e-scribbler to go back and try a comparison of the overall provincial labour force in comparison to national averages.

Right off the bat, let everyone understand this is nothing more than a quick comparison based on readily available information. It should serve as the jumping off point for future discussion and if nothing else, it should help everyone get way beyond the rather simplistic comparisons of month-to-month numbers. Sometimes those things are meaningful but as the past couple of months have shown, sometimes, the statistics are just off.

The provincial numbers comes from a document included with the last provincial budget.  It’s called The Economy and gives an overview of the year just ended.  The national numbers come from the latest labour force statistics. Both sources use the same job classification system.  The listing below bundles them together so that the comparisons match up.

The figures are the percentage of the total number of jobs in each category.  For example, 1.7% of jobs in Canada are classified as being agricultural.  The corresponding percentage for Newfoundland and Labrador is 0.4%

To draw attention to aspects of the comparison, please note that categories where the provincial percentage lags behind the national significantly are marked with the digits underlined.  Where the provincial is significantly above the national average, the figures are in red. 

Statisticians may wonder what the definition of “significant” is.  Well, it comes down to the relative difference in the two numbers as they appear on the face of it. 

Category	National	Newfoundland and Labrador
Goods-producing	22%	21%
Agriculture	1.7	0.4
Natural Res	2.0	6.7
Utilities	<1	2.1
Construction	7.0	7.3
Manufacturing	10.2	5.5
Services-producing	78	79
Trade	15.7	16.2
Trans/warehouse	4.7	5.4
Fin, ins, RE,Bus	10.5	6.7
Prof./sci./tech.	7.4	3.6
Education	7.2	8.1
Health/soc asst	11.9	16.1
Accn	6.0	6.1
Public Admin	5.5	7.9
Other	4.3	4.8

Right off the bat, note that the relative breakdown into goods-producing and service- producing is virtually the same for both the provincial and national economies.

Let’s look at the goods sector. Overall, the provincial economy in this sector is very heavily reliant on resource extraction. The natural resources grouping (which includes fishing, trapping, mining and oil extraction) accounts for three times as large a percentage of jobs within the province as the same grouping.  Manufacturing, on the other hand, accounts for only half as much.  That 5.5% manufacturing for the province includes 2.2% for fish processing.

In the services sector, there are some equally interesting comparisons.  Finance, insurance, real estate and business services account for 6.7% of the jobs in this province while the same grouping accounts for 105% of jobs nationally.  The professional, scientific and technical services sector accounts for 3.6% of local jobs versus 7.4% nationally.

Take a look, though, at two service sectors which are publicly funded. About 16% of local jobs are in the health sector compared to 11.9% nationally;  that’s 33% above the national number.  Public administration is 43%, accounting for 7.9% of provincial jobs compared to 5.5% nationally.

Fully a quarter of the jobs in the province are public sector jobs compared to 17.4% of jobs across the country.  Given that some of the other categories likely also contain public sector employees, it wouldn’t take too much to estimate reasonably that the public sector accounts for about one third of all workers in the province.

Incidentally, just to put actual numbers on this, the health and social assistance sector accounted for 34,600 jobs in 2009 according to the provincial government figures.  That’s out of a total of 214,900 jobs.  It is the single largest category in the service sector, with retail trade coming in at 29,600 for second place  There were 17,300 in educational services and 16,900 people working in public administration.

The largest job category in goods-producing was construction at 15,700. The second largest was manufacturing with 11,900.  Of that manufacturing number, 4,700 were involved in fish processing.

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Pre-publication post-script update:  This posts was written the night before it appeared. labradore has a simple set of numbers using more recent data for the size of the public sector in the province. His estimates are for the provincial public sector alone;  the figures above are for federal, provincial and municipal.

Still, according to labradore, the provincial government public sector accounted for 25% of the current labour force in the first half of 2010.

NL manufacturing nosedived in February

Manufacturing sales in Newfoundland and Labrador dropped almost 40% in February 2010 compared to February 2009, according to figures released by Statistics Canada on April 16.

Manufacturing in February was down 33% from the previous month.  No other province registered double-digit drops.

By contrast, manufacturing sector sales were up 6.4% nationally. New Brunswick registered a 26% increase in manufacturing year over year while Ontario was up 10%.

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The Fragile Economy: staying the course

“Obviously, I don't like to run deficits, but if I've got to fight a recession ... if we've got to get the economy booming again, then I'm not afraid to spend money and we're not afraid to lower taxes to stimulate the economy - that's good public policy.”

Finance minister Tom Marshall often speaks about one thing and does another.  He’s famous for trotting out a debt clock during one budget consultation farce only to deliver a budget that did nothing to reduce debt.

This year Marshall has been trying to pass off deficit spending as if it was something new for this administration.  It isn’t. They’ve run cash deficits in all but two years since 2004.  If their current forecast holds, they will be adding a considerable amount of debt for the foreseeable future.

Adding debt is just staying the course for the Williams administration.

Premier Danny Williams himself has dismissed balanced budgets as meaningless. Marshall explicitly rejected any action like balanced budget legislation or having a debt reduction policy.

Marshall’s predecessor as finance minister - Loyola Sullivan  - talked about balancing the books on a cash basis – he only did it once – and possibly not balancing the accrual books for a number of years.  That was back in the early days of the administration when it looked like they were actually going to deal with some of the provincial government’s financial woes. But even for all that notice debt got within the first couple of years after Williams and the Tories took office,  they were willing to rack up additional public debt.

Since we are discussing debt, let’s dispose of one of the finance minister’s more laughable claims from budget day:

“But we have cash to pay for that deficit. We will not increase our borrowing. Our debt will go up, but we don't have to borrow for that.”

On the face of it people may well wonder how you can increase public debt while not borrowing money.

The answer is pretty simple and it goes to the heart of the public debt charade Marshall and his colleagues have been foisting for the past few years.

Marshall covered the half billion shortfall in 2009 from temporary investments – extra cash – the provincial government had on hand.  He didn’t have to go to the banks and negotiate a loan but he sure as heck borrowed the money:  he borrowed it from taxpayers.

As for the debt, what he is referring to is net debt.  Now for those who may not know, net debt is a calculation of what is owed compared to assets – cash, property and so on – that could theoretically be sold off to pay down the money that is owed.

Those temporary investments that the provincial government racked up over the past couple of years helped to make it look like the public debt had been paid down. That’s because they are exactly the sort of assets that would have bee used to figure out the net debt:  liabilities less assets.

So when Tom took the cash and spent it, the net debt could only go back up.  The net debt will go up again next year and the year after and any other year Tom winds up having to cover off over-spending.

Just remember, though, that the total liabilities haven’t changed much in the past few years. You can see that from a post last December on net debt and liabilities and in another post on net borrowings.

This is not a subject the Fan Clubbers like to talk about but it is real. it also just happens to be one of the major financial problems facing the province that isn’t being addressed by the current administration.

Just to give you a sense of how much the past two budgets have followed what we could call the Williams administration debt addition policy, take a look at just the current account spending since 2003.  That’s the money that pays the heat and light and delivers the services and salaries every day of every year. 

And just to really keep it in perspective think of it this way.  You can have a great net debt because you have a nice house, an expensive car and some jewels that could possibly be sold off if the bank called all your loans. 

But since the house and the jewels don’t generate any cash each year they don’t help you pay the bills today.  If you can’t afford food without whipping out the credit card you could be in a situation of being cash poor. Lots of nouveau riche business types are leveraged to the max.  They drive flashy cars but they don’t really have a copper to their name. So without considering the cash deficit, the net debt could be a very misleading figure.

Anyway, take a gander at this table.  It shows the percentage increase in current account spending every year from 2003 to the current budget.

Fiscal Year	Percent increase from previous year
2004	Zero
2005	5.3
2006	4.6
2007	8
2008	7.8
2009	10
2010 (forecast)	7

That’s right.

Except for that first year, there’s never been a time when current account spending didn’t go up by at least twice the national rate of inflation.  In some years spending shot up three and four times the rate of inflation.

This sort of spending is unsustainable.

This sort of financial state – all that spending coupled with all that untended debt – is unsustainable.

There are other consequences to the Williams administration economic policy, consequences that will become more obvious as this new series – The Fragile Economy – rolls out in the days ahead.

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No bubbles in sight: GDP dropped 26% in ‘09

The value of goods and services produced in Newfoundland and Labrador dropped 26% in 2009 compared to 2008.  Those figures are in an appendix to the finance minister’s budget speech delivered on Monday.

GDP in 2009 hit $22 billion compared to $31 billion in 2008. That’s only slightly above the GDP in 2005.   The single year drop erased the gains of 2006 and 2007 which together saw an increase in GDP of 27.9%.

Real GDP declined 8.9%.

In 2008, Premier Danny Williams claimed the province would be protected from the global recession by some unknown means.  He and finance minister Tom Marshall continue to claim the recession did not affect Newfoundland and Labrador as severely as it did other places.

Average annual employment in the province during 2009 remained below employment levels in 2006 and the current forecast is for negligible growth (one half of one percent) in the coming year.  Meanwhile the labour force remains swollen with returning migrants thrown out of work in other parts of the country by the recession. 

Wages and salaries in the province are higher, driven primarily by increases in the public sector.

Sales of manufactured goods (shipment value) were down 33% in 2009. Housing starts fell 6%.

Oil production hit 97 million barrels in 2009, compared to 125 million in 2008.  That’s basically the forecast production from Budget 2009.  Interestingly, the December financial update had forecast an increase in oil production to 101 million barrels.  Oil production is forecast to drop again – to 86 million barrels – in 2010.

Newsprint shipments in 2009 were down by 49% from 2008 and 66% from 2005.  The value of fish landings was down 19% in 2009, wiping out gains in the preceding two fiscal years.

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