‘The easy gains are way behind us’: Canada’s surprise jobs drop highlights economy’s struggle ahead
OTTAWA — Canada’s economic engine can easily shift from low gear to reverse, and back again, as we wait for the United States to drive growth and jobs here.
Canada's job picture
Unemployment rate: 7.1% (7.0)
Employment rate: 61.4% (61.5)
Labour force participation rate: 66.1% (66.1)
Number unemployed: 1,343,800 (1,369,500)
Number working: 17,820,700 (17,830,100)
Youth (15-24 years) unemployment: 13.4% (13.3)
Men (25 plus) unemployment: 6.4% (6.1)
Women (25 plus) unemployment: 5.7% (5.7)
And, when averaged over the past year, that trend has kept our employment market on a neutral course.
In June alone, Statistics Canada reported Friday, Canada lost 9,400 jobs, pushing the unemployment rate up a notch to 7.1% — the highest reading in six months. In May, the country added 25,800 jobs — but that, too, was a swing back from April’s loss of 28,900 positions.
“If the U.S. economy does come back a bit stronger . . . and [our] currency softens a little bit, we’ll see somewhat better job growth over the next year,” said Douglas Porter, chief economist at BMO Capital Markets. “But I’m not holding my breath for a big comeback. It’s tough to see things turning around quickly.”
That kind of pessimism is not limited to Canadian analysts.
As Statistics Canada was releasing its employment data for June, the National Association of Business Economics (NABE) cut its U.S. growth outlook for the second quarter to an annualized pace of 3%, from 3.5% in its June survey.
The downgrade was not unexpected, given the weather-disruption between January and March that was largely blamed for 2.9% contraction in the first quarter — the largest decline in five years — and likely dampen output in the most recent three-month period, as well. Consumer spending in the U.S. is now forecast to growth 2.3% in the second quarter, down from the NABE’s previous estimate of 2.9%.
Nevertheless, “many of the fundamentals are there for growth,” said Jack Kleinhenz, president of the U.S. association.
Notably, employment growth south of the border has averaged 230,000 a month so far this year, with the Labor Department reporting last week that more than 280,000 new jobs were created in June, above the median pace and the unemployment rate easing to a six-year low of 6.1%.
Finance Minister Joe Oliver, speaking to reporters in Toronto, said the U.S. “is our biggest trading partner. Now that the U.S. economy seems to be moving forward, this is positive for Canadian exports.”
But he acknowledged that Canada’s employment data “are variable from month to month.”
“The fact is, we’ve created over one million jobs since the depth of the recession. It’s a better job creation record than in other countries relative to our population size and to our economy.”
The easy job gains are way behind us — and [now] it’s going to be more of a struggle
BMO’s Mr. Porter, however, said “the easy job gains are way behind us — that was in the early stages of the recovery — and [now] it’s going to be more of a struggle.”
“We see only modest improvement in the unemployment rate and in job tallies over the next year.”
In its report, Statistics Canada said the June numbers showed the weakest year-over-year growth since February 2010, when the economy was beginning to recoup job losses after of the recession.
About 33,500 full-time positions were created last month and self-employment was up 23,300, while part-time jobs dropped by 43,000. Both private and public payrolls were down in June, by 21,000 and 11,900, respectively.
Economists’ overall forecasts ranged widely from 20,000 to 35,000, while the consensus was for jobless rate to remain unchanged at 7%.
The latest numbers will add pressure on the Bank of Canada to keep its key interest rate on hold at the near-record low of 1%, where it has been since September 2010.
Policymakers will deliver their next interest rate announcement on Wednesday, along with the bank’s Monetary Policy Report, a quarterly economic outlook. The report will be followed on Friday by Statistics Canada’s consumer price index for June.
Late last year, governor Stephen Poloz dropped the central bank’s pro-rate-hike stance and adopted a neutral position in the face of sluggish economic growth and low inflation. While the annual rate of price increases has returned to the midway point of the bank’s target range of 1% to 3%, the Canadian dollar has been stronger than desired to encourage the growth of exports.
“I would anticipate they’ll hold onto that neutral-to-leaning-dovish [stance] as long as they can,” said Ken Wills, senior corporate dealer at CanadianForex .
“I think the longer that the Bank of Canada can keep it there, the longer it continues to weigh on our currency and, in turn, focuses to try to help out exporters,” he said. “So, I wouldn’t expect to see any change in their tone till December and then any real change in rates until Q2 2015.”
In its report, Statistics Canada said employment fell during the month in Ontario, down by 34,000, along with declines in Newfoundland and Labrador. The biggest job gains were recorded in Alberta, Manitoba, New Brunswick and Prince Edward Island, the agency said.
The services-producing sector led the declines in June, losing 6,000 positions, while the goods-producing sector — including construction and manufacturing — lost 3,200 jobs.
Manufacturing, a sector that reflects the health of Canada’s export market, shed nearly 11,000 positions in June after losing 12,200 the previous month.
There were more construction workers in June, however, with 31,800 finding jobs. That’s the highest level since April 2012, when 32,200 positions were added.
‘The easy gains are way behind us’: Canada’s surprise jobs drop highlights economy’s struggle ahead | Financial Post