Service Sector To Boost Canada Economy Says BoC Governor Stephen Poloz

The rise of the service sector in the Canadian economy is a natural process that is leading to high-quality jobs and supporting the return of sustained economic growth, Bank of Canada Governor Stephen S. Poloz said today.

In a speech to the C.D. Howe Institute, Governor Poloz said improved technology and productivity have led to new service industries being created. This process of creative destruction, which is happening across advanced economies, means that Canadians are increasingly working in the service sector, while employment by goods producers has fallen even as output in goods industries has continued to expand.

Poloz indicated last month the BOC had considered cutting rates in October, but decided against it because the “balance of risks” was tilted toward uncertainty. Poloz said it is too early to tell the impact of Trump election and the central bank would not react to hypotheticals. He added that the level of uncertainty for businesses has dropped following US elections.

For every job that has been lost in the goods sector since 2001, about 30 jobs have been created in service industries, the Governor noted. Since late 2014, the fastest-growing service industries are those that pay above-average wages, and this has helped the service sector to drive growth in the economy, Governor Poloz said.

Poloz said that uncertainty seen during October rate decision is still present and that the release of current account data should help bring things into focus. He said that unconventional measures are not put away and that the central bank will stand ready to use additional tools with rates already so low.

"Since the onset of the global financial crisis, growth in Canada's service sector has been stronger on average than in the goods sector," he said according to a prepared text.

"Most of the employment growth seen in Canada since late 2014 has been in service industries that pay above-average wages, helping to support national income."

He added that while the average wage in the service sector is lower than in the goods producing sector, wages vary depending on the industry within the sector.

"It probably will not surprise you that the average wage in the finance and insurance industry is higher than that in manufacturing. But so is the average wage in the transportation and warehousing industry," he said. "And, together, those two industries employ more Canadians and produce more output than all of Canada's manufacturers."

Statistics Canada is set to release the results for economic growth for the third quarter on Wednesday.