Canada Jobs and Housing Data Signal Economic Weakness
Weaker Canadian job creation and slower housing starts, along with falling exports, add to evidence growth in the world’s 10th-largest economy is slowing.
Employers added 7,700 jobs in May, the fewest in three months, Statistics Canada said today from Ottawa, leaving the unemployment rate at 7.3 percent. The country also recorded its first merchandise trade deficit in six months in April as exports declined. Beginning home construction dropped 13 percent, the country’s housing agency said.
“We probably won’t see much economic momentum in coming months for Canada,” said Sal Guatieri, senior economist at BMO Capital Markets in Toronto. Exports will be restrained by “a strong Canadian dollar and the global economy is downshifting -- emerging-market economies have slowed.”
Bank of Canada policy makers led by Governor Mark Carney held their key interest rate at 1 percent on June 5 and said the country’s underlying economic momentum is in line with projections, even after first-quarter growth that trailed their earlier forecast. The central bank also said that tensions from Europe’s debt crisis have increased while the prices of exported commodities have eased.
Canada’s dollar depreciated 0.1 percent to C$1.0291 per U.S. dollar at 3:05 p.m. in Toronto. One Canadian dollar buys 97.17 cents. Two-year government bond yields fell one basis point to 1.04 percent.
In its April forecast, the central bank forecast 2.4 percent economic growth this year. Statistics Canada said June 1 the economy grew at a 1.9 percent annual pace in the first quarter.
“The Bank remains biased to take the overnight rate higher but will require a period of relative calm to pull the trigger,” said Mazen Issa, Canada macro strategist at TD Securities in Toronto.
The May job gain followed increases of 58,200 and 82,300 in the prior two months that marked the biggest back-to-back increases in more than three decades.
Today’s job report also showed faster wage growth. Hourly wages of permanent employees rose 2.9 percent in May from a year earlier, faster than April’s 2.4 percent pace.
“The trade report is consistent with the view that weak external demand, especially for commodities, may be the Bank’s main worry in the near term,” he said. “Market anxiety and potential shocks to confidence are also too significant for the Bank to be credibly contemplating rate hikes in the near future.”
Construction employment fell by 27,000 in May, reversing a similar gain in April. Demand for homes, along with public works projects and energy projects, helped drive the share of Canadian employment involved in construction to a record high in April.
Canada Mortgage & Housing Corp. said on its website today that housing starts fell 13 percent to an annual pace of 211,400 units in May.
The central bank’s rate has been at 1 percent since September 2010, the longest pause since the 1950s, while five- year mortgage rates have been at or near record lows most of this year, averaging 5.44 percent last week. The Bank of Canada this week said that gains in housing have led to a “less balanced” recovery.
“They’re not going to have growth in Europe unless they establish some confidence in markets, and it’s going to be very difficult to establish confidence without a plan to address some of these issues and some of these structural issues,” Harper told reporters yesterday in Paris.
Canada’s trade report today showed a deficit of C$367 million ($355 million) followed a revised surplus of C$152 million in March. Economists surveyed by Bloomberg projected a C$180 million surplus, based on the median of 22 forecasts.
Exports fell as industrial goods and materials dropped 5.8 percent to C$9.34 billion and machinery and equipment shipments declined 3.1 percent to C$6.68 billion. Imports rose 0.1 percent to C$39.5 billion, the fifth straight increase.
The U.S. Commerce Department said the trade deficit narrowed in April as a drop in imports overshadowed the first decline in exports in five months. The gap shrank 4.9 percent to $50.1 billion, greater than the $49.5 billion economists had forecast.
Flaherty said today’s reports haven’t changed his expectations for the economy. “Our economic expectations in the budget, based on the private-sector forecasts, was for modest, moderate growth in Canada,” he said. “I expect second-quarter numbers will show that.”
To contact the reporter on this story: Greg Quinn in Ottawa at email@example.com