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Why full employment 'ain't what it used to be,' and what that means

These are stories Report on Business is following Thursday, Nov. 7, 2013.

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Room to move
Canada's elevated jobless rate has a lot of room to ease before sparking inflation that would push the Bank of Canada into tightening mode, Canadian Imperial Bank of Commerce says in a new study.

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"Full employment ain't what it used to be, and that's good news for job seekers," chief economist Avery Shenfeld said today.

"Demographic and public policy changes in recent years have lowered the non-inflationary rate of unemployment," he said.

"That will allow the Bank of Canada to keep rates low for long, and press ahead towards further labour market improvements."

The study by Mr. Shenfeld and his colleague Emanuella Enenajor is referring to what's known as the non-accelerating rate of unemployment, or NAIRU, the jobless level below which inflation jumps.

CIBC believes the central bank won't hike its benchmark interest rate until early 2015, by which time unemployment should be about 6.2 per cent, or far below "what had previously been the Bank of Canada's comfort zone."

Among the reasons are demographics, changes in government policies, such as those for jobless benefits, and, possibly, the weakening of union bargaining heft.

ECB in surprise rate cut
The European Central Bank put a spark into global markets this morning as it cut its benchmark interest rate.

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Stocks climbed and the euro sank as the ECB, dealing with extremely low inflation and elevated unemployment, cut the key rate to a record low of 0.25 per cent from 0.5 per cent.

As our European correspondent Eric Reguly reports, the central bank's move follows a decline in the annual inflation rate in the 17-nation euro zone to a four-year low of 0.7 per cent.

While inflation is the central bank's primary target, unemployment is at record, and in some cases crippling levels, in some areas of the monetary union, while economic growth forecasts have been trimmed.

"Clearly the ECB see deflation as a very real threat and October's drop as not being a one-off figure," said Craig Erlam of Alpari in London, though policy makers don't see deflation actually happening.

"The central bank has been very reluctant in the past to cut interest rates, so this reaction now begs the question, did they leave it too long to cut rates on this occasion? And, is deflation a real threat for the euro zone?"

Global markets shot up on the news.

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London's FTSE 100, Germany's DAX and the Paris CAC 40 were up by between 0.2 per cent and 1.3 per cent by about 9 a.m. ET, while Dow Jones industrial average and S&P 500 futures turned around and headed higher.

U.S. economy in better-than-expected shape
U.S. economic growth was surprisingly strong in the third quarter, leaving open the possibility that the Federal Reserve could slow its monthly purchases of assets before the end of the year, The Globe and Mail's Kevin Carmichael reports.

Gross domestic product expanded at an annual rate of 2.8 per cent, faster than the 2.5-per-cent pace set of the second quarter and much better than Wall Street's consensus estimate of 2 per cent, according to the numbers released today.

The Fed surprised financial market participants in September by opting against beginning the long process of rolling back its bond purchases.

The policy, called quantitative easing, sees the central bank create $85-billion (U.S.) a month to keep downward pressure on interest rates by purchasing Treasury debt and mortgage-backed securities. The Fed said in September 2012 that it would leave its third QE program unchanged until it detects substantial improvement in the labour market. Stronger growth will be essential to bringing about that shift.

BCE profit slips
BCE posted a drop in third-quarter profit today on a charge related to its takeover of Astral Media Inc.

As The Globe and Mail's Rita Trichur reports, BCE's profit fell to $343-million or 44 cents a share from $527-million or 68 cents a year earlier.

Adjusted profit rose to $584-million or 75 cents from $546-million or 70 cents, while operating revenue rose to $5.1-billion.

"With an outlook for continued strong wireless profitability, an improving wireline financial profile and a significant contribution from Astral to our Bell Media results, we are on track with our 2013 financial plan and reconfirm today all our Bell and BCE guidance targets for the year," said chief financial officer Siim Vanaselja.

Manulife profit climbs
Buoyed by its wealth management operations and investments, Manulife Financial Corp. came in today with a third-quarter profit that topped $1-billion.

That profit of 54 cents a share marks a rebound from a loss of $211-million or 13 cents a year earlier, which included a hefty charge, The Globe and Mail's Jacqueline Nelson reports.

Manulife's core earnings climbed to $704-million or 36 cents from $570-million or 29 cents.

"As we predicted last quarter, a number of items with unusual timing reversed themselves this quarter, contributing to the increase in net income," said chief executive officer Donald Guloien.

"Investment performance also made a very significant contribution. Our core earnings give an indication of the underlying earnings capacity of the business going forward."

Canadian Natural Resources hikes dividend
Canadian Natural Resources Ltd. boosted its quarterly dividend by 60 per cent today as it unveiled a marked gain in third-quarter profit amid record oil production.

The dividend goes to 20 cents a share.

The Calgary-based company posted a jump in profit to $1.17-billion or $1.07 a share from $360-million or 33 cents a year earlier.

Quarterly production hit a record of about 703,000 barrels of oil equivalent a day, while benefitting from the tighter spread between western Canadian crude and global prices.

Quebecor posts loss
Quebecor Inc. sank to a third-quarter loss amid restructuring efforts, the company saying today that's "positioning itself to pursue its growth, business development and profitability targets."

As The Globe and Mail's Bertrand Marotte reports, the Canadian media and telecommunications company lost $167.8-million or $1.36 a share in the quarter, compared to a profit of $17.1-million or 14 cents a year earlier.

The loss included a big non-cash hit.

On an adjusted basis, Quebecor posted a profit of $63.7-million or 51 cents a share, compared to $49.5-million or 39 cents a year earlier.

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More


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