Finance Committee on Feb. 12th, 2013

[Tiff Macklem]

To retrace a little bit what I said in that speech, and indeed what we've both been talking about on a number of occasions...being right beside the United States, historically, has been a wonderful thing. It has been one of the biggest and growing markets in the world. But the reality is that while the U.S. is still the biggest economy in the world, it's in a grinding, deleveraging recovery, and that's going to go on for some time. We are seeing recovery in the United States, and the governor highlighted a number of positive signals, but they still have a big fiscal adjustment, and it's going to be a modest recovery.

What that means for our businesses is that it's going to be more about fighting about share of the U.S. market than it will be about being part of a rapidly growing market. Where our exporters need to devote more attention in developing markets is in those rapidly growing markets, where all boats can rise with the rising tide. That speaks importantly to Asia and to parts of Latin America.

Then, getting to trade, clearly trade is a big part of that. Traditionally, Canada has been a big proponent of multilateral trade. Unfortunately, the multilateral trade negotiations have ground to a complete halt, so the government very appropriately is moving aggressively to develop, both with individual countries and various regional programs particularly focused on emerging markets, the Trans-Pacific Partnership that you mentioned, and there are engagements with China and with India. These will take some time, but these are certainly positive steps.

We talk a lot about developing those foreign markets. We talk a lot about how we're going to raise productivity. These are essential elements in that future.

[Randy Hoback, Conservative, Prince Albert, SK]

I guess when you look at it...you also made a comment about Canadian businesses not grabbing or seizing the opportunities that exist in those areas. Is there any advice you have for highlighting or making people understand the importance of our businesses going abroad and actually grabbing or seizing those opportunities? Do you have any advice on how to get that to happen?

[Tiff Macklem]

There are a few things. I think it starts with really recognizing that just waiting for the U.S. to come roaring back is not a great strategy. You're going to have to get out there more aggressively. We recognize that historically it's been very easy to do business with the United States. It's right next door to us, we watch the same TV shows—we have a lot in common. It does take some extra effort, particularly for small or medium-sized businesses, but we have very good trade councils. I would certainly take full advantage of those as a way to get in.

The other thing to recognize is that the nature of trade is changing. It's not as much about producing stuff for export in a sector. Increasingly, it's about being part of a global supply chain, about having an affiliate in another country, using Canadian management, Canadian design, and Canadian expertise. The nature of trade relationships is changing, and Canadian businesses need to recognize and adapt to that.

[Randy Hoback, Conservative, Prince Albert, SK]

That's a very good point. Bombardier is a good example, with what they do in Mexico, the United States, and Canada, and how they use their expertise in Montreal and—

[Tiff Macklem]

It links to our commodity sector. There is a lot of technology, there is a lot of expertise, and there is a lot of design in commodities. It's something that we can leverage globally. There are a lot of commodities to be developed around the world.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Hoback.

We'll go to Ms. Glover, please.

[Shelly Glover, Conservative, Saint Boniface, MB]

Thank you, Mr. Chair.

I also want to offer my sincere thanks to you, Governor Carney. It's been a pleasure dealing with you here in the finance committee, and I wish you all of the success possible in the United Kingdom.

I'm going to ask you about jobs. The last time you were here you commented about jobs. There are some who are implying that we haven't recovered all of the jobs since the recession. There are some who are implying that we haven't recovered quality jobs.

I'm going to ask you very specifically: have we recovered the jobs we lost in the recession? If so, what is the level of quality of those jobs? Are they full-time? Are they part-time? Are they in the private sector? Are they in the public sector? Please fill us in.

[Mark Carney]

Something tells me you know the answers to these questions—

[Voices]

Oh, oh!

[Mark Carney]

—but I will give you the objective view.

Canada has recovered all the jobs lost in the recession, and more. A little more than double the jobs—the just under 300,000 jobs lost in the recession—we have recovered.... Well, actually, it's maybe 400,000.

[Tiff Macklem]

Yes, there were a little over 400,000 lost. We've regained all of those—

[Mark Carney]

We've regained all back—

[Tiff Macklem]

—and doubled.

[Mark Carney]

—and then doubled, again.

The second point is that about 70% of those have been in the private sector. It moves around with each employment report, obviously, but the vast majority, again, north of 70% or 80%, have been full-time.

Actually, I should say it's higher than that; I understated: 70% of those have been in industries that pay above-average wage. So again, from a quality-of-job perspective, it's high. Most of them, the vast majority, are in the private sector, and the vast majority are full-time.

So it has been positive. The other thing that has been positive about the performance is that by and large the participation ratio in the job market has remained high, just under 67%. In other words, Canadians are out there looking for work. They're not discouraged.

Now, from a monetary policy perspective, if I may add on what we look at as well, we do still see slack in the labour market. The unemployment rate is 7%, so it's come down, but it's still higher than we would see consistent with full employment. Just under 20% of the unemployed have been unemployed for more than six months, so they are looking for work. There are some of these mismatch issues that exist as well. And hours worked have not recovered as firmly as employment. I mean, it's good news that we've got more people into work, but people aren't working as many hours as necessarily they would want to or as employers would see in full employment.

From an inflation perspective, from a monetary policy perspective, we do see slack—it's an odd word to use, but it is slack—in the labour market, which is consistent with the maintenance of very accommodative monetary policy for some time.

[Shelly Glover, Conservative, Saint Boniface, MB]

How do we compare with our G-7 counterparts in job growth?

[Mark Carney]

The performance is superior to....

In fact, since I already have to furnish a written answer anyway, to the first question of the day, we can furnish some charts that show the path of employment growth in the G-7. Canada is at the top.

Just as a number....

[Tiff Macklem]

I can give a couple of quick numbers, if you want.

Through the recession, Canada lost, on a proportionate basis, half as many jobs as the United States. We're more than 200% above where we were at the trough. The United States is less than 60%. So they haven't even regained all their jobs. They're only about 60%, or a little less, off the trough.

[Mark Carney]

It's really only Germany that approaches the Canadian performance.

[Tiff Macklem]

Yes, it's really only Germany.

[Shelly Glover, Conservative, Saint Boniface, MB]

Very good. But we're at the top—which is a nice place to be.

I was very glad, Governor, that you corrected some, I guess, misleading comments about who actually raised mortgage rates. I mean, you were in Finance in 2006, and it was actually the mortgage insurers, not the government, who raised them. The government took measures to relieve them.

I want you to comment on how those measures, such as reducing the amortization period to 25 years for government-insured mortgages and increasing the oversight of CMHC, helped address the concerns surrounding the housing market. How did this help to slow household credit growth?

[Mark Carney]

Well, I think the short answer is that both have helped. There have been four tightenings of mortgage insurance rules, which have been shortening amortization, raising qualifying interest rates, raising the minimum down payment, ending the ability to get mortgage insurance for a second home, and ending the ability to have mortgage insurance on a refinancing. Effectively all of those tightenings have been sensible. They've been paced so they didn't all come in at once and cause a sharp adjustment to the Canadian housing market. In our view, they've been timely and prudent. The oversight arrangements are welcome, and the continued quality of mortgage underwriting is absolutely essential to the long-term health of the market, and obviously to the fiscal position of the country as well, because ultimately there is a government backstop here.

The other thing I would highlight, which has been positive for the evolution of the market, is OSFI's introduction to mortgage underwriting guidelines and the tightening effect of those mortgage underwriting guidelines that came in last summer. That's been particularly relevant for home equity loans, or so-called HELOCs, and personal lines of credit, for which the underwriting standards were beginning to slip. OSFI acted in a timely way.

All of that has helped constructive evolution. If I may bring it back to monetary policy, we do see those measures, and we think that on the margin, the bank's tightening bias has reinforced or supported those measures, resulting in a slowdown in the pace of household growth and the start of a rotation of activity away from the housing sector to other sectors of the economy—and business investment is an important example. That should help contribute to a sustainable evolution of our growth. It also means that the prospect of tightening monetary policy is less imminent than we previously had anticipated .

[The Chair, Conservative, James Rajotte]

Okay, thank you.

Thank you, Ms. Glover.

Ms. Nash, go ahead, please.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you, Mr. Chair.

Governor, given your comments about the importance of financial literacy, do you think the work of the Parliamentary Budget Officer is important?

[Mark Carney]

I think parliamentarians and Canadians, as the ultimate consumers of that information, are as good at judging as we at the Bank of Canada are the value of an independent assessment of the fiscal position and elements of the fiscal position.