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

? in short, the question is : has the exchange rate been misbehaving? has the exchange rate been misbehaving? the answer? it ’ s complicated. first, many of the goods and services included in the price indexes are not traded ( e. g., haircuts ), so one would not expect their prices to be the same between countries. second, there are many real - world frictions that prevent goods from trading freely. transportation costs and other expenses related to the distribution and marketing of goods, once they arrive onshore, are often significant ( especially in a country the size of canada ). these expenses can drive a substantial wedge between domestic and foreign prices. in addition, sizable trade barriers associated with tariffs and quotas do still exist, despite a general trend towards freer trade in the global economy. finally, markets for certain goods are often less than perfectly competitive. although the frictions that i have just listed are important, and can explain why large level differences frequently exist between domestic and foreign prices, shouldn ’ t exchange rates at least move in the right direction in response to any shift in prices? shouldn ’ t we expect changes in the exchange rate to offset changes in prices, thereby limiting any further widening in the price gap and preserving a form of relative ppp? so what is going on? the main answer is that the exchange rate is driven by many forces other than differences in the overall level of domestic and foreign prices. if these broad price discrepancies were the although individual surveys compare prices for identical products in canada and the united states, a shortcoming of this approach is that it is not possible to track the exact same products over time. therefore, the size and composition of the sample tends to vary across surveys. bis central bankers ’ speeches only thing that mattered, the real exchange rate would be a flat line. in other words, the nominal exchange rate, adjusted for prices, would be constant. this is clearly not the case, however, as shown in chart 2. the blue line is the nominal exchange rate that we actually observe in the market. the red line is the real exchange rate, which adjusts the nominal rate for differences in domestic and foreign prices. as you can see, most of the movements observed in the exchange rate are real rather than nominal. although some of these movements are caused by temporary – and occasionally, speculative – forces, research at the bank has shown that most of the broad trends in canada