All posts by George Liu

I am the President of UW Economics Society. Currently I am a third year Economics student with an interest in macroeconomics and finance. I have internship experiences in banking and hope to pursue a career in Capital Markets. I oversee the team, aiming to fulfill our mandate of providing opportunities for collaborative student engagement and learning. Please feel free to contact me for any questions you may have.

Unemployment Rates Fall in Canada and U.S

July’s labour market figures in Canada show a healthy situation with unemployment rate falling to 6.3%, a decrease of 0.2%, according to Statistics Canada. The last 12-months saw employment rise by 388,000 where the majority – 354,000 jobs – was in full-time work. The employment growth was driven by wholesale and retail trade, information, and manufacturing. Employment in wholesale and retail trade lead the growth with an increase of 22,000, trending upward since late 2016. Information and culture and recreation sectors have been mostly consistent with little change in growth, month to month. Wages are still rising at a low level and this remains a concern for both Canada and the U.S. Canada’s job market also faces a lowering labour force participation rate, falling from 65.9 to 65.7%, affected by factors we will go over later in the article.

In regards to our neighbors down south, the U.S unemployment rate fell to 4.3% from 4.4%, reaching its 16-year low. A 209,000 increase in July non-farm payrolls beat the expectations of The Wall Street Journal surveyed economists who expected 180,000 new jobs. This job growth was driven by food services, professional and business services, and health care industries. A standout of the statistics is the significant growth seen in traditionally lower wage industries such as home health-care and food services. Furthermore, leisure and hospitality saw a wage gain of 3.8% which outpaces the average. These trends paint a brighter picture for low-wage jobs as there appears to still be some slack in the job market even with tightening monetary policies. However, like in Canada, wage growth continues to be modest in most industries where hourly earnings increased 2.5% for the fourth consecutive month.  It is important to note that once wages are adjusted for inflation, the growth rate is outperforming the 30 year average.

An indicator that is likely to continue to raise concerns in both Canada and the U.S is the labour force participation rate. The U.S participation rate sits at 62.9% in July with very little movement over the past year.  This indicator shows the number of people who are employed or are actively looking for a job. A number of factors contribute to the high number of Canadians and Americans who are outside the labour force. Discouraged workers, people who believe no jobs are available to them, remains fairly unchanged over the year at 536,000 in the U.S. A study conducted by Obama’s Council of Economic Advisers back in 2015 found that structural factors included aging population and prime-age participation rates of males and females declining. Aging trends accounted for over 50% of the overall LFP trend.

With that being said, the labour markets remain a bright spot for both Canada and the US. The July labour market releases tell a similar story to ones we have seen all year, where a fairly health labour market is seeing strong job growth while contrasted by weak wages that will hopefully pickup in the near future.


The Importance of NAFTA’s Economic Influence

The North American Free Trade Agreement (NAFTA) was implemented in 1994, almost 23 years ago. The agreement was negotiated between Canada, United States, and Mexico to eliminate the majority of tariffs between the countries and to promote the trade of manufacturing, agriculture, and more. Canada and the United States exchange $750 billion each year in trade, with Canada being the largest trade partner to the U.S. The trilateral trade between the countries in 2015 had exceeded USD$1 trillion [1]. NAFTA is arguably the most important trade agreement for Canada and is credited for increased economic growth, investment opportunities, job growth, and much more.

However, with the successful election campaign of President-elect Donald Trump, the fate of NAFTA is now in the spotlight. It is no denying that the trade agreement between our three countries has an enormous economic impact, however Trump and others like him have been very vocal against the agreement, believing it has a negative effect on their economy. While we wait for the governments to discuss NAFTA’s fate, here is why it benefits Canada and the other countries:

NAFTA creates jobs: Many people argue the opposite, that free trade will shift jobs to places that have cheaper labour and production costs, leading to the loss of many jobs where they live. It is true that corporations will make changes to lower costs of production, however jobs are also created in the export industry. In Canada, 5.2 million net new jobs were added during 1993-2015 and one in five jobs are related to the exports industry (Statistics Canada). High skilled jobs will not be as affected by lower minimum wages and increasing the export destinations with lower tariffs creates higher demand for these products. Companies also profit from lower costs, allowing domestic companies to expand operations, potentially increasing their workforce.

Increased investment opportunities: NAFTA has helped influence Canada as an attractive destination for foreign investment. Investments from the United States into Canada in 2015 was CA$387.7 billion and the investments from Canada to the other NAFTA countries was CA$463.3 billion [2]. Many of the provisions set by NAFTA require fairness and transparency for investors. The agreement also sets out to protect intellectual property rights, allowing companies to enact legal action and reducing the risks when investing in another NAFTA country [3]. Greater investment opportunities will boost employment and productivity, positively affecting economic growth.

Lowering tariffs and consumer prices: The decrease of tariffs as a result of NAFTA incentivized trade between the three countries. Tariffs have the effect of increasing costs of imported goods and as a result causes lower consumption demand. Free trade allows Canadians to purchase more American and Mexican goods, many of which we depend on, such as oil, manfactured goods, food, and more. Cheaper prices improve the welfare of individuals and households, allowing people to afford basic living necessities as well as products that can improve quality of life.

There are other factors like reducing government spending, improved government relations between member countries, improved industry integration (Ex. automotive manufactoring), and more. All of these factors contribute to improving economic growth in each of our member countries. NAFTA affects everything from the day to day products we consume to the jobs we work. There are also many arguments people can make against the agreement, and that is important as well. It is important to consider the pros and cons of NAFTA before making any decision on changing or removing it.


The Federal Reserve decision on interest rates

This Wednesday, the Federal Reserve announced that they will not be increasing the federal funds rate at this time. The Federal Reserve downgraded the economic growth forecast to a projected 1.8% this year.

The decision did not come without debate as three Federal Reserve officials chose to cast dissenting votes. Esther George, Loretta Mester, and Eric Rosengren all voted no on keeping the interest rates steady, instead suggesting to raise rates immediately. The hesitations seen with the Fed on raising interest rates and the dissenting votes from high level officials may add up to a loss of credibility in the future.

On the topic of wages, Ms. Yellen stated there has been “some modest pickup in wage growth”. This reflects last week’s Census Bureau report which showed U.S. Household Incomes increasing 5.2% in 2015. The productivity growth rate has been low, with the outlook remaining it will stay at a low level. However, due to the continuing rise in job-market growth, concerns with productivity may be offset.

Ms. Yellen stressed that the lack of a rate raise does not mean a lack of confidence in the economy. The Feds is hoping that keeping the rates unchanged will allow for further improvements in the labour market. She further mentioned that the committee has agreed the employment rate is almost at a sustainable rate (long run) and they are looking to raise the inflation goal to 2%.

It is possible that the Feds will decide on raising interest rates in December, however there are numerous factors in that decision and it is possible they may not raise interest rates this year at all. If however the Federal Reserve does decide to raise interest rates in December, Canadians may be affected with a stronger U.S dollar value and see the value of  the Canadian dollar decrease. A lower Canadian dollar may be good news for exports, however consumers may be at a disadvantage shopping across the border. It is also unlikely for the Bank of Canada to follow the Fed’s decision as the Bank of Canada’s governor, Stephen Poloz, announced this Tuesday to expect the low interest rates in Canada to remain for a long time.