pent - up supply of “ shadow inventories ” in the resale market. housing demand continues to be held back by subdued consumer confidence, the weak labour market, and the inability of some households to access financing, at historically low mortgage rates. while there appears to be limited prospect for substantial further deterioration in u. s. housing, a sharp rebound in the near term looks unlikely. u. s. businesses have responded to the challenging environment by increasing productivity. while commercial real estate investment has been unusually depressed, investment in equipment and software has been robust and consistent with prior recoveries ( chart 4 ). the same cannot be said of the u. s. labour market, which has borne the brunt of adjustment. the unemployment rate remains very high at 9. 6 per cent, the incidence of longterm unemployment reached a record level above 40 per cent ( chart 5 ), and underemployment in the form of involuntary part - time work is rampant. the prolonged weakness in the u. s. labour market reflects factors that go beyond weak output growth. the jump in the unemployment rate has been higher, by about 5 million workers, than the decline in gdp would have traditionally suggested. the restructuring of major industries such as autos, finance and of course, construction has deepened the job losses. in addition, credit constraints facing u. s. smes have contributed to the employment dynamics. 1 the natural rate of unemployment may be increasing sharply. the scale of industry restructuring means that some unemployed workers do not have the skills suitable for the about 80 per cent of job losses in this recession have been from enterprises with less than 500 employees. expanding sectors. other jobseekers are tied to their local area, due to an inability to sell their homes in distressed markets, hampering the mobility that has been a hallmark of the american labour market. the current cycle is also self - reinforcing. as long - term unemployment becomes more entrenched, workers ’ skills deteriorate and their reintegration into the labour force becomes more difficult. reflecting weakness in the labour market and an ongoing need to repair stretched personal balance sheets, u. s. real personal expenditures are not yet back to pre - crisis levels. two of the most visible indicators of this weakness matter tremendously to canada : housing starts and motor vehicle sales ( charts 6a and 6b ). the good news is that recent data revisions indicate that the personal savings rate is now at 6 per cent,

expenditures can “ accelerate ” a rise in house prices, reinforcing the increase in collateral values, access to additional borrowing, and, thus, an increase in household spending. of course, this accelerator effect can also work in reverse : a decrease in house price tends to reduce household borrowing capacity and amplify the decline in spending. levels consistent with previous recoveries, reflecting competitive imperatives, firms ’ strong financial position, and easy credit conditions ( chart 8 ). the auto sector provides an example. the recession crystallised a major restructuring, with north american capacity reduced by 3 million motor vehicles. 3 more than 576, 000 jobs were lost since december, 2007. today, u. s. demand for motor vehicles is about 11 million per year versus the average from 2000 to 2006 of 17 million, and while there will be some growth from here, the u. s. market is likely to be persistently smaller as households reduce debt. as a consequence, business models are now being substantially adjusted. canada is competing to host some of the handful of global oem ( original equipment manufacturer ) platforms, training, r & d, and capital investment are being ramped up, and some canadian tier 1 suppliers are aggressively expanding into emerging markets. similar bold moves will be required across our economy to create sustainable, wellpaying jobs. labour market dynamics in canada the most striking thing about the canadian recovery has been the performance of the labour market ( chart 9 ). all 400, 000 jobs lost in the recession have now been recovered. while the unemployment rate remains high at 8. 1 per cent, this reflects in the aggregate the movement of more people into the labour force. with this, the incidence of longer term unemployment in canada is about half that in the united states. however welcome, these headline figures mask some important details. much of the employment growth is in the public sector, with only half of the new jobs in the private sector. many jobs are involuntary part - time. in fact, although employment has regained its prerecession level, hours worked have not. overall labour input ( the combination of employment and hours worked ) has made up only two - thirds of its decline during the recession. since the crash, on the margin, the composition of labour demand has shifted from jobs in the goods sector to jobs in the services sector. the change accounts for the majority of the gap between the current level and the pre - recession level of average hours worked. in the current cycle