Digital Economy Surpasses Oil as Canada’s Growth Driver
Bank of Canada Governor Stephen Poloz has been expressing skepticism about the utility of traditional statistical methods when assessing the Canadian economy, particularly in light of the rapidly evolving digital landscape. Poloz frequently poses a question to individuals purchasing items on Amazon, highlighting the fact that these transactions are not captured in Statistics Canada’s monthly retail sales figures, which primarily rely on monitoring traditional retailers with physical storefronts. This underscores a significant challenge: the current data collection methods fail to adequately represent the growth and value generated within the digital economy.
The Canadian economy’s traditional reliance on oil as a pillar of growth is now being challenged by the burgeoning digital sector’s crucial role in driving economic expansion. However, tracking economic growth when the dominant engine is intangible – when there are no measurable gauges attached – presents a complex task. This has led policymakers, including Bank of Canada Governor Stephen Poloz, to prioritize measures that can be reliably tracked in real-time, such as labor market data, over those relying on broad, often lagging, indicators of overall wealth. Poloz emphasized the importance of the labor market data, stating, “The labor market, that’s easy right? We can ask firms, how many people are working for you? How much are they making? Those are real.” He preferred to observe the real-time numbers of employees and their earnings, contrasted against traditionally focused surveys assessing household wealth. These fresh insights were vital in determining policy decisions.
Statistics Canada’s tracking of the labor market demonstrated a surprising trend. Despite predictions of a potential economic downturn, the agency’s latest release indicated that Canada added approximately 35,000 jobs in December, significantly less than the previously reported drop of over 70,000 positions. The unemployment rate remained at 5.6 per cent, a figure near the lowest recorded level in decades. This seemingly contradictory data suggested that the Bank of Canada’s concerns over a potential recession may have been overstated. Rather than a dramatic collapse in job creation, the labor market was largely resilient.
The unemployment numbers were debated intensely, particularly by figures like Opposition finance critic Pierre Poilievre, who seized on the November hiring figures to argue against a “made-in-Canada” recession. Poilievre pointed to the 71,000 Canadians who reported losing their jobs in that month, a sobering reminder of the economic challenges faced by many. However, careful analysis of StatCan’s trend measure of hiring – a more stable, year-over-year assessment – revealed a far more nuanced picture, showing an increase of just 1,800 positions, the fewest since 2015. This indicated a slowing pace of hiring, but one that was consistent with a mature, high-performing labor market. The Canadian economy’s robust performance in 2019, with 320,300 jobs created – the second-most in the decade – provided further evidence of this sustained strength.
The youth participation rate, a key indicator closely watched by Governor Poloz, also presented a positive narrative: around 65 per cent of those aged 25 to 54 were employed or actively seeking work, a decade-high. This strong participation rate hinted at a dynamic and adaptable workforce. Employment in Alberta, heavily reliant on the oil sector, remained largely unchanged compared to December 2018, while Ontario experienced a significant surge, with 243,000 new positions—the largest year-over-year increase for December since 1987. This divergence highlighted the economy’s diversification and the relative strength of Ontario’s digital and service sectors.
To truly understand the implications of these developments, it’s crucial to recognize the evolving role of data. The Bank of Canada’s approach increasingly involves judgement and an understanding of the rapidly expanding digital economy. As Governor Poloz stated in San Francisco, “We don’t assume it. We’ve got to wait to see it. Meantime, you act as if it could be happening.” This conservative approach, prioritizing observable realities over theoretical models, is crucial in a landscape where traditional economic indicators are increasingly unreliable in capturing the full scope of economic activity. The Scotiabank nowcast of fourth-quarter GDP reflects this cautious approach, settling at a 0.03-per-cent increase—a more conservative assessment than previous projections.
Ultimately, these latest developments demonstrate the need for adaptability in economic forecasting. The Canadian economy, bolstered by a diverse range of growth engines, including a thriving digital sector, a robust labor market, and several regional drivers, is proving far more resilient than some initially predicted. The Bank of Canada’s reliance on real-time labor market data, rather than solely traditional measures, paints a more optimistic picture, offering a path forward for prudent policy decisions.
