Job slowdown in US

According to the latest data in the US the rate of new job creation has slowed down significantly as higher interest rates and rising fuel prices are beginning to take their toll on the economy.

Nominal unemployment is still quite low at 4.6 % but the pace of job creation has slowed significantly and analysts including some at the US Federal Reserve wonder if the central bank has gone too far to suppress inflation and inflationary expectations. Once again there is talk of the mythical soft landing for the economy which by the way almost never materializes whenever the fed raises rates as much as they have.

Of course, a major slowdown at this point is bad news for those countries like Canada which depend upon the United States to absorb large amounts of their exports. It is also bad news for the Republicans who face mid term elections in an already anti-Bush electorate. If a harsh landing materializes you can be sure that Ben Bernanke won`t be the most popular figure at the White House in the months to come.

Here in Canada unemployment is stalled out at 6.1 % despite the booming Alberta economy as manufacturing employment continues to be hit hard by a very strong Canadian dollar which itself results from the tight money policy being pursued by the Bank of Canada. Governor Dodge claims that interest rates are very low.But if one calculates the real interest rate, that is, after subtracting the core rate of inflation which is currently under 2 %,   the real rate is substantial, particularly when measured over history.Once real rates rise above 3 % bearing in mind that mortgages , credit card debt and lines of credit are financed at much higher rates than the bank rate the overall impact is quite contractionary.

The underlying resource boom and the Schumpeterian long wave is postive but a slowdown in Canada is still likely in the coming months. Soft landings are as illusory north of the border as south of it.

One of the parts of the country that has been experiencing some improvement in their economic circumstances has been the Fredricton area of New Brunswick which I recently had the pleasure of visiting where low interest rates and returning ex patriates have created a major real estate boom. but even here there is still far too much underemployment with academically well qualified people being forced to drop out of university before finishing their degrees by the high cost of higher education and ending up as taxi drivers and low paid service workers. This is a pattern we can find in many other parts of the country. Only a real sustained low unemployment boom and major reinvestments in education can mop up the large pool of underemployed workers that exist in the country.

Doing so would create an enormous amount of additional purchasing power and wealth that would benefit the country for years to come.