Job losses and trade deficits suggest the Canadian economy is slowing in the first quarter of this year with businesses failing to drive growth as policy makers predicted.
Employment fell by 7,000 in February, the second decline in three months, according to Ottawa-based Statistics Canada, as a 50,700 drop in government workers exceeded a 35,200 gain at private companies. January’s trade deficit reported today was the 23rd in 25 months, subtracting from growth as export volumes fell faster than imports.
The Bank of Canada said earlier this week the world’s 11th-largest economy may slow in the first quarter while keeping its key lending rate at 1 percent, citing weak exports and investment. Today’s employment figures suggest consumers may struggle to keep driving the expansion.
The job report “speaks to the bank remaining on the sidelines, just monitoring the data, and getting a sense if this handoff to exports and investment does seem to be happening or not,” Paul Ferley, assistant chief economist at Royal Bank of Canada, said by telephone from Toronto.
The Bank of Canada has said that company spending and shipments abroad need to take over from consumers burdened by record debts to power growth.
“Future growth, if it is to last, needs to draw more support from business fixed investments and exports,” Bank of Canada Deputy Governor John Murray said in a speech yesterday. “The household sector is now largely played out.”
The payroll decline contrasted with economists surveyed by Bloomberg who predicted a gain of 15,000 jobs. The unemployment rate, which was unchanged at 7 percent, probably won’t drop much this year because of the modest economic expansion, according to Doug Porter, chief economist at BMO Capital Markets in Toronto.
“The kind of expansion we’re going to rotate into isn’t going to be very friendly for the labor market in the next year or two,” Porter said by telephone.
The economy will grow 2 percent this year, Porter said, slower than the 2.9 percent annualized fourth-quarter expansion Statistics Canada reported a week ago.
The Canadian dollar depreciated 0.9 percent to C$1.1084 per U.S. dollar at 11:50 a.m. in Toronto. Canada’s job losses contrasted with a faster-than-expected U.S. payroll gain of 175,000 last month. Government bonds fell, with the yield on the two-year benchmark rising one basis point to 1.06 percent.
The federal government has cut workers as Finance Minister Jim Flaherty aims to eliminate a budget deficit next year. Another sign of weakness was the decline in the labor force participation rate to 66.2 percent, the lowest since December 2001.
While manufacturing employment rose by 5,000 in February, the industry has added only 6,400 jobs over the last 12 months. Total employment of 1.74 million remains below pre-recession peaks of 2 million in June 2008 and 2.3 million in May 2004.
Canada’s trade deficit narrowed to C$177 million in January from a revised C$922 million in February as imports fell from a record.
Imports dropped 1.6 percent to C$40.8 billion in January from December’s record C$41.5 billion, Statistics Canada said. Motor vehicle sales led the decline, falling 5.9 percent to C$6.75 billion. Exports rose 0.2 percent to C$40.6 billion, with higher prices powering a gain in energy shipments.
The data suggest that after adjusting for prices, trade was a drag on economic growth in January, even as the deficit narrowed. The volume of exports declined 5.3 percent, faster than the import volume decline of 2.6 percent, Statistics Canada said. Volume figures adjust for price changes and can be a better indicator of how trade contributes to the expansion.
“Today’s trade numbers are consistent with a weak start to 2014 for the Canadian economy as a whole,” said Diana Petramala, an economist at Toronto-Dominion Bank.