Bank of Canada rates rise;US jobs disappoint.

June 4, 2010

Once again the Bank of Canada has shown how eager it is to fight a mythical beast. Inflation is nowhere to be seen, unemployment remains stubbornly high yet the Bank recently announced a 25 basis point rise in interest rates joining the Bank of Australia among leading economies as the only countries to risk raising interest rates. The bank did admit this rate rise was no guarantee of further rate rises but the rise is premature and   Liberal leader Michael   Ignatieff was right to criticize it as unnecessary and premature. The latest unemployment numbers show that unemployment remains elevated at 8.1 % with the rates in our two largest metroplises Toronto and Montréal well above this.In fact in most of what normally is associated with the   heartland of the Canadian economy and its manufacturing and financial centre, unemployment is very high. Look at this list of urban centres and their unemployment rates for May and the previous month.(The percentage to the right is the previous month's unemployment rate)
city           Unemployment rate     Previous month.

Toronto       9.5 %                                   9.5 %
Montréal       8.8                                       9.0
Vancouver     7.5                                       7.5
Windsor       12.7                                       12.6
Oshawa           9.6                                         9.6
Ste.Catherine's8.8                                       9.3
London             8.6                                       8.8
Calgary             7.7                                       7.6
Sudbury             8.9                                         9.7
Edmonton         7.4                                         7.6
Tois Rivières     9.1                                         9.4
St.John's             7.3                                         7.3
Saint John           7.1                                         6.9
Abbotsford         7.9                                         6.9
Halifax                 5.8                                         6.1
Winnipeg             5.7                                         5.4
Victoria               5.9                                           6.5
Source: Labour force survey, Statistics Canada

These cities account for close to 50 % of the Canadian population and include our 3 most important metropolises. The unemployment rates, except for possibly Halifax,   are way too high to justify a rise in interest rates, even one as small as 25 basis points. What is the justification ? the strong growth in the first quarter of 2010 while welcome has yet to translate into a rapid fall in unemployment. The Canadian dollar dropped slightly on the announcement but it has since strengthened to 9523 cents U.S. this strong Canadian dollar will continue to make it harder for our export industries particularly if U.S. employment growth continues to be sluggish.

In the U.S. where the Fed so far has wisely resisted the foolish temptation to raise interest rates prematurely
todays job numbers were a disappointment. there was a total rise of 431,000 jobs in May and the unemployment rate dropped from 9.9 to 9.7 %. but 4111, 000 of those jobs were temporary jobs associated with the census. Stock markets were disappointed. The recovery is happening but it is still painfully slow.