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Public spending ignores realities of the job market

Ontarians steaming over the latest iteration of the sunshine list and reports of runaway government payrolls find themselves working in a softer job market even as corporate profits reach new heights.

In essence, more money is being lifted from their wallets by government profligacy even as their own prospects dim due to the private sector’s focus on profit margins. Squeezed at both ends.

A new report from CIBC World Markets shows corporate profit margins in Canada hit a 27-year high in the fourth quarter. The average profit margin of all non-financial corporations rose to 8.2 per cent of sales in the fourth quarter of 2014.

While corporate profit margins fluctuate with the economy, historically they have tended to average less than five per cent, the report notes. The reason? There are no shortage of explanations: globalization, innovation, lower cost of capital, high barriers to entry, and reduced bargaining power of labour among them. That last item identified by the bank – a weaker position for labour – is a biggie. With government spending and taxes outstripping inflation and growth in the economy, more of us are falling behind, with no uptick in sight.

The bank reports that the rise in margins over the past two years has been relatively strong, with margins expanding by almost a full percentage point since 2012, pointing to two factors, softening labour costs and a sinking loonie. The pace of growth in labour costs dropped sharply from 3.5 per cent in 2012 to 1 per cent in 2014, while the Canadian dollar has depreciated nearly 25 per cent.

So, we’ll be seeing less in the way of raises, while facing increasing costs for imported goods, particularly food. Most of us have already noticed the grocery bills climbing steeply. Don’t expect that to change – in addition to the loonie, there are a host of environmental issues at play here, too – and don’t expect your paycheque to be adjusted to even the reported rate of inflation, let alone the real one.

It’s not strictly gloom and doom. Another report out this week, this one from the Chartered Professional Accountants of Canada, found Canadians on a whole feel that they are doing alright financially and living comfortably despite the unsettled economic climate. Canadian households also rate themselves highly in terms of financial discipline but they are not taking action to plan for potential changes in the economy.

It seems many Canadian households do not feel threatened by today’s unsettled economy yet they are vulnerable because of high debt levels, says the organization.

However, the report reveals a number of troublesome findings:  More than half of non-retired households said they did not save on a regular basis even though 65 per cent of all households assessed the level of their financial discipline as somewhat or very strong; only 60 per cent of households with debt said they paid off a portion of their debt on a regular basis; a mere 16 per cent expected a negative change in their personal financial situation because of the changing economic outlook; more than half (51 per cent) of non-retired households said they do not have a special reserve fund for unexpected financial emergencies, in additional to regular savings for other purposes.

Maybe things aren’t so grand, after all, some people’s optimism notwithstanding. The precarious reality ought to sink in for all us, especially those charged with (purported good) governance.

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