Quotes of the Day

Canadians may have achieved what Americans still long for, a turn up in the national mood, and a job machine that hums.

In fact, Canada's job creation engine is on a tear, last month producing 10,000 more jobs than the U.S. This despite having a population and stimulus program roughly one-tenth the size of the U.S.

Critics warn that the new jobs being created in Canada don't pay nearly as well as the old ones, resulting in a permanent underclass of McWorkers. Still, America's northern neighbor created 93,000 new jobs in June — nearly 70% in the industrial heartland of Ontario — continuing a trend of job growth in service industries, including retail, wholesale trade and construction. By contrast, private employers in the U.S. added 83,000 jobs in June. However if you factor in the loss of 225,000 temporary Census jobs in government, the U.S. labor market contracted by a dramatic 125,000 workers last month.

Canada's unemployment rate sits at 7.9%, compared to 9.5% in the U.S. And while its latest job numbers are impressive, June was the second month this year that the U.S. was outperformed by its biggest trading partner in labor statistics. (Canada created 43,000 new jobs in January, compared to 14,000 in the U.S.)

"Canada is coming back better than the U.S.," says labor economist Alan Blinder of Princeton University. "I'm losing a bit of the confidence I previously had." Blinder says the U.S. needs to create at least 200,000 new jobs every month to keep its economic recovery on track, but since May employment growth has been nowhere close to that level. This has many in the private and public sectors wondering whether President Barack Obama's stimulus plan — which has so far injected about $450 billion into the economy — has prematurely run out of steam.

It's also raising questions about whether government spending, which is not the primary driver of economic growth in Canada, can ever fully revive the U.S. economy. The U.S. deficit in 2010 is on track to surpass last year's record $1.4 trillion. That translates to about 10.6% of GDP, compared to 3.5% in Canada.

Despite the big bucks, sentiment in the U.S. remains tentative and cautious. "In the U.S. companies are still in a cost-cutting mode," says economist Peter Buchanan with Toronto investment bank CIBC World Markets. "In Canada the trend is toward adding workers."

One sign of an improved national mood is that imports are on the rise, increasing 5.7% in May. This has in part been possible because Canadian consumers and businesses are far less leveraged than their U.S. counterparts.

For an economy creating jobs, it's perhaps ironic that imports are growing at a faster clip that exports. In fact, Canada reported its third trade deficit in a row in May — it widened to $487.9 million from $320 million in April — but this does not appear to be a problem. That's because both imports and exports are rising at a healthy rate, lending support to a minor economic boom.

But Canada is far from being the Land of Oz. The economy has created 403,000 jobs in the last two years, making back nearly all the losses suffered during the recent global crisis. The bad news is that its manufacturing sector continues to shrink, losing 14,000 jobs in June. That means high-paying manufacturing jobs in the industrial heartland of Ontario are being replaced with lower-paying service jobs with few benefits and even less security.

Critics charge Canada's recovery is being forged on the backs of a new economic underclass forced to accept a diminishing standard of living. Ken Lewenza, president of the Canadian Auto Workers, says job contraction in the automotive and parts sectors is far from over, with the unemployed forced to accept whatever work they can find.

Can Canada maintain its lead over the U.S. in job creation for the balance of 2010? Not likely, but it's expected to lead the G7 in economic growth for at least the next two years.

That's because its banks continue to be the best capitalized in the G7, with sufficient strength to underwrite an economic recovery. And because foreign demand for its natural resources — base metals in China and crude oil in the U.S. — is only getting stronger.

• Erik Heinrich