Canada’s economy just shrank, but corporate profits hit a record 27-year high.
We’ve got good news and we’ve got bad news.
First, the good news: Corporate Canada’s profits have hit a 27-year high, according to a new report by CIBC World Markets. Bay Street has never been happier, right?
Well, there’s just one little catch: new Statistics Canada data shows the Canadian economy shrankin January. All those layoffs and store closures you’ve been hearing about lately? « Ugly » retail sales? That stuff.
StatsCan reported Canada’s GDP fell 0.1% in January (that’s the total value of all the goods and services within a country — often looked to as a sign of economic health). By contrast, CIBC reported that corporate profit margins hit a record 27-year high in the fourth quarter of 2014.
« Profitability remains high even though the real economy is not doing well and wages are stagnant, » said economist Andrew Jackson, the Broadbent Institute’s senior policy advisor.
Here’s what all of this looks like in six charts:
1. Corporate Canada’s profits are through the roof
Corporate Canada can thank « soft » labour costs (a shrinking labour force and low Canadian dollar) for this boost in profitability. Profit margins are currently at 8.2%, according to a CIBC analysis of StatsCan data. (By the way: Corporate Canada leads the way in global cash hoarding.)
« By all measures, higher corporate profit margins are here to stay, » said Benjamin Tal, the bank’s deputy chief economist.
2. And yet Canada’s economy is edging down
Meanwhile, StatsCan says manufacturing is down 0.07% — as jobs in the sector plummet to a near record low. Many economists — and even banks — had thought the lower Canadian dollar and low price of oil might help boost Canadian manufacturing.
Even retail fell 0.05%, a bad omen for the economy — given 38% of the new jobs created between 2006 and 2014 were in the lowest wage category, sales and service occupations (which includes retail). Here is StatsCan’s January sector data:
A report from the United Nations’ International Labour Organization lays blame for stagnating wages on profit-driven ‘trickle down economic’ policies that grind down collective bargaining institutions, labour unions and minimum wages, while simultaneously distributing profits up the drain by « exempting capital gains from income taxation, or reducing the corporate income tax. »
So Canadian workers are likely taking little comfort in the good news about Canada’s record « corporate profit margin. »
3. Productivity growth is outstripping wage growth
The International Labour Organization recently showed how the gap between the two is growing in developed countries around the world, including Canada:
4. Job quality has hit 25-year low
So, productivity and corporate profits are up! You’d think that might help the average Canadian worker, right? But the quality of Canadian jobs has hit a 25-year low, according to another recent CIBC report:
As CIBC’s deputy chief economist put it: « Our measure of employment quality has been on a clear downward trajectory over the past 25 years. »
5. And this is how labour costs in Canada stack up against rising profit margins, according to the new CIBC report:
Curious how corporate profits seem to rise while the amount of money they pay their workers seems to decline?