An ugly LFS report: employment fell by 71,000 – the sort of report we haven't seen since the last time we were in recession. And no commodities boom is going to come save us this time.
It's time to do something - but not just anything. The cutbacks in the Harper government's economic update were clearly wrong-headed, so it's a good thing that they didn't pass. But then again, the arguments in favour of the opposition coalition's rush to spend on infrastructure aren't particularly compelling: if there's one sector of the economy that doesn't need immediate, massive stimulus, it's the construction sector – employment there actually increased in November.
I mentioned elsewhere that I think the problem is one of a lack of imagination. The old playbook that we’ve been reading for generations uses public works as the standard mechanism for fiscal policy, because it was easy to understand, and because the story came complete with an aerial photograph of the Hoover Dam.
But this is 2008, and the construction sector is working at full capacity. Time to write a new play or two.
Worthwhile Canadian Initiative 
I thought those construction numbers would provide you some solace, in an otherwise gloomy report. 😉
The Bank of Canada decides how to respond on Tuesday (I wish they did monthly Fixed Announcement Dates, to coincide with the timing of data releases, rather than the semi-quarterly FAAs they do now). Expectations seem to be that they will cut 50 basis points, to 1.75%. Yesterday I recommended (on the CD Howe MPC) that they cut 125 bp, to an even 1% (I want them to get ahead of the curve, and head off a possible liquidity trap). I wouldn’t rule out the Bank making a very aggressive move, but would be still a bit surprised if they cut as much as I want them to. In a away it’s fortunate that fiscal policy is on hold temporarily, because it is easier for the Bank to decide how much to cut, without trying to guess what fiscal policy will be.
The old play (monetary policy) still has a bit more life in it.
Manufacturing employment seems to be weakest, but it’s not obvious that we should have the government buy (say) cars, if the government doesn’t really need any more cars.
So, Stephen, what do you recommend as part of the new playbook?
It seems like by the time any public works put in motion now actually get to the point of needing construction workers there should be lots available. Oil under $50/barrel should free some up in the prairies and collapsing housing markets should free some up in Toronto and parts West, and the completion of all the Olympic projects in Vancouver should free up a whole pile as well. Maybe the situation is different in the Eastern part of the country?
I think that Nick Rowe has it right in his comment; I don’t see why we need fiscal stimulus while monetary stimulus still has so much room to maneuver and there doesn’t appear to be a liquidity trap or banks saddled with bad loans in Canada to prevent monetary policy from functioning.