Who did it better: Harper or Trudeau?
Statistics Canada released data on Friday showing another weak quarter of growth along with a sixth-consecutive quarterly decline in per capita national income. This matches the longest-ever streak of negative per capita quarterly readings, a record set during the deep recession of 1981-1982.
While no one believes the current situation is anywhere near as dire as that historic downturn, it underscores a persistent issue: Canada’s poor per capita economic performance. This metric, which is a critical gauge of how growth translates into individual prosperity, is arguably the most unflattering economic data point of the Justin Trudeau era.
It reflects two things, as all ratios do. Population growth that has been growing too quickly in an economy that has been growing too slowly.
The federal government has pledged to scale back international migration to address the economy’s incapacity to absorb the newcomers, which should improve the per capita metrics. But that won’t solve the real challenge: the numerator. Slow economic growth remains the fundamental issue.
Weak growth
The numbers haven’t been good.
Canada is currently experiencing one of its weakest periods of growth outside a formal recession. The data out on Friday showed our economy grew at an annualized pace of 1% between July and September—which is about what it has averaged over the past couple of years. Not long ago, failing to grow beyond 2% was a source of concern.
Even worse, that anemic growth has included the significant tailwind of massive population growth—which suggests the economy is even weaker than the headline growth rate suggests.
We see this underlying weakness more clearly in the GDP per capita measure, which is signaling recession. That metric has declined by more than 3% since the beginning of 2023—just a little less than what you’d see in a major downturn.
What the declining per capita measure tells us is that we haven’t just experienced slow growth; the growth we’ve seen has also been of low quality.
Harper vs Trudeau
Slow growth has been a feature of Canada’s economy for years, predating Trudeau. It’s something the Canadian leader shares with his Conservative predecessor, Stephen Harper.
Harper actually oversaw an even lower average headline growth rate while in power, at 1.7% versus 1.9% for Trudeau. You may remember that Harper’s growth record was a major talking point of the Liberals before they came to power in 2015. They enjoyed pointing out that Harper oversaw the slowest expansion since R.B. Bennett, who was prime minister during the Great Depression.
But the underlying numbers were better under Harper, including much stronger per capita growth.
Other key economic indicators, including private spending and productivity growth, were also more robust in the decade before Trudeau, despite the slower headline rate.
Comparing the economic records of different leaders is a mug’s game. There are unique economic conditions, global events and structural trends that diminish the value of doing it.
But policy decisions were made and they mattered. While Harper and Trudeau both operated in a low growth environment, they did so in different ways and with different results.
Harper’s growth numbers were dragged down by the impact of his fiscal consolidation after the recession in 2008-2009 and a slowdown in labour force growth. But he had a greater emphasis on private investment, particularly in resources. Trudeau chose a different route: fiscal expansion and higher immigration to support the economy, but he has struggled to grow capital spending. Thus, much weaker per capita performance.
If one looks closely enough, you can discern the outline of an emerging policy landscape around this question: do we prefer squeezing out as much growth as possible at the expense of quality (which can manifest in weak per capita performance), or do we accept slower but higher quality growth.
In other words, if we have fallen into an era of structurally lower growth, will we need to accept lower-quality growth if we want more of it?
One can make good arguments for both sides.
We may want faster lower-quality growth because scale is important to businesses, promotes investment, helps drive employment growth and supports government revenue—keeping deficit and debt dynamics more sustainable.
Or we may prefer better-quality but slower growth, an approach that maximizes individual incomes (on average) in the long-term, and is more sustainable. Slower but surer.
Weak business, strong labour
Despite my emphasis above on the negative aspects of the GDP report, there are some signs economic activity in Canada could be picking up, particularly with consumers.
The latest GDP data show household spending grew at an annualized pace of 3.5% in the third quarter, which was the strongest gain in more than a year.
Spending is being fueled by two things. One, falling interest rates are helping to repair consumer confidence, making it cheaper for households to buy things like cars and appliances.
Two, households are also experiencing robust income gains, driven by rising wages. Workers are getting a bigger slice of Canada’s economic pie, prompting them to spend more.
According to the GDP data, the share of national income going to workers hit 51.3% in the third quarter, versus an average of about 50% in the past 25 years.
The same can’t be said about our nation’s businesses, who are struggling.
The corporate profit component of GDP fell again in the third quarter by a significant 2.9%, and is now down 28% from its peak in 2022—when inflation was driving earnings higher. The share of national income going to corporate profits has dropped to 12.6%, from as high as 18% two years ago and an average of about 14.1% so far this century.
As a result, businesses are holding back their spending in a big way. Non-residential business investment fell at an annualized pace of 11% in the third quarter and capital spending continues to hover at below pre-pandemic levels. That’s worrying.
