Bank of Canada Governor Stephen Poloz said the central bank has scope to keep interest rates near historic lows even if employment picks up.
Speaking in an interview Aug. 22 on the sidelines of Federal Reserve Bank’s annual symposium in Jackson Hole, Wyoming, Poloz said persistent slack in the country’s labor market and a tendency toward part-time job creation has restrained income growth in the world’s 11th-largest economy.
The trend of employment growth “has been around 1 percent for some time,” Poloz said. “We’re confident there’s quite a bit of room to grow and, particularly since our interest rates are already at 1 percent, we figure we’ve got time to watch this unfold.”
Poloz’s comments come less than two weeks before the Bank of Canada’s next scheduled interest rate announcement on Sept. 3. Economists surveyed by Bloomberg forecast policy makers to keep the benchmark rate at 1 percent, where it’s been for almost four years, until the third quarter of next year.
While Canada recouped job losses from the recession faster than its Group of Seven counterparts, job growth has stalled. Only 25 percent of jobs created over the past year have been full time.
“It’s been pretty weak,” Poloz said. “It’s been almost all part time so therefore it’s not generating the kind of income you would get from a usual 1 percent” employment growth.
“We know that’s significantly less than we would expect to see in a well-performing economy,” said Poloz, who is scheduled to speak tonight to the Canadian Association for Business Economics in Kingston, Ontario.
Poloz’s remarks came on the same day Federal Reserve Chair Janet Yellen spoke about her dissatisfaction with improvements in the U.S. labor market. “Underutilization of labor resources still remains significant,” Yellen said in a speech that described measures of labor-market slack that she uses -- such as the number of people employed part-time who prefer full-time work.
Statistics Canada reported Aug. 15 that the country added 41,700 jobs in July. While part-time work increased by 59,900 positions, full-time employment declined by 18,100.
That came after the statistics agency retracted its original July jobs report, which said only 200 jobs were created during the month, citing an error in data processing.
Poloz said he has “no concerns at all” about the quality of Statistics Canada data. “I don’t want to sound too provincial but I think they’re the best agency in the world. It’s a very hard job.”
The central bank reiterated in its quarterly forecast publication last month that exports have continued to fall short of forecasts amid uneven global growth.
“It’s been a key missing ingredient in our recovery to date,” Poloz said. While the bank has become more confident that the U.S. economic recovery is on a solid footing, trying to see if the trend of exports has improved has been “very difficult.”
“At this stage I’m not even able to venture a guess on that,” he said. “It’s still too soon.”
Poloz also said investors who think he favors a weaker Canadian dollar are mistaken. It’s to be expected that the currency would weaken at a time when the U.S. economy is gathering momentum.
“The direction is about what you would expect,” he said of the Canadian dollar, which has weakened 3.9 percent against the U.S. dollar over the past year, the worst performance among 16 major currencies tracked by Bloomberg except the Japanese yen and Swedish krona.
“The fact the Canadian dollar came down from over 100 to around the 90 area is something which in certain sectors of our export economy would be a welcome development,” Poloz said, referring to the level of the currency expressed in U.S. cents. “They’ve been severely stressed during this period of weak growth plus a strong exchange rate. Normally exchange rates act as a shock absorber.”