Housing Slump and Canada Job Cuts Mark Slow Start to 2013

Canadian employers unexpectedly cut jobs in January while home builders slowed the pace of new construction to the least since 2009, suggesting a languid start to the new year for the country’s economy.

Employment fell by 21,900 in January on declines in manufacturing and education, Statistics Canada reported today. It also reported exports and imports fell in December. Separately, Canada’s housing agency reported the annual pace of home starts plunged 19 percent in January from a month earlier. Doug Porter of BMO Capital Markets said the data marked “a day of infamy for Canadian economic stats.”

The world’s 11th-largest economy probably had its worst six-month performance since the end of the 2009 recession in the second half of last year, as exports declined and concerns about the global expansion prompted businesses to curb spending, leading economists and policy makers to scale back their expectations for 2013. The Bank of Canada, alone among Group of Seven central banks with a tightening bias, said on Jan. 23 that the need to raise rates is less urgent.

“Domestically, we’ve had a spate of weaker-than-expected numbers,” said Mark Chandler, chief fixed-income strategist at Royal Bank of Canada in Toronto. “We’re definitely lagging the improvement we’re seeing elsewhere” in the world.

The Canadian dollar depreciated 0.4 percent to C$1.0020 per U.S. dollar at 12:02 p.m. in Toronto, weakening through parity. Canadian 10-year bond yields fell to 1.97 percent from 1.99 percent yesterday.

Trading in overnight index swaps show investors are pricing in a 1.3 basis point increase in the Bank of Canda’s benchmark rate by October. That’s down from 9 basis points yesterday.

Weakness Signs

Today’s reports mirror other recent signs of weaknesses. Canada’s inflation rate was 0.8 percent in December and November, a three-year low that is beneath the bottom of the central bank’s target bank for price increases. The Citigroup Economic Surprise Index for Canada fell to its lowest since Sept. 27 today.

Bank of Canada Governor Mark Carney pared his 2013 growth forecast to 2 percent on Jan. 23 from an October prediction of 2.3 percent. The economy will reach full output in the second half of 2014 instead of the end of 2013, he said, as growth accelerates to 2.7 percent next year.

Statistics Canada said today full-time employment fell by 20,600 in January and part-time positions by 1,400.

The labor force shrank by 57,500 in January, the largest drop since April 1995, and the participation rate fell to 66.6 percent from 66.8 percent.

Biggest Losses

The biggest job losses by industry were a 30,900 drop in education and 21,600 in manufacturing. The losses were partly offset by gains of 17,100 new jobs in construction and 17,200 in professional, scientific and technical services.

Private companies cut 18,800 workers and public-sector employment dropped by 27,000 in January. The federal government has been reducing its workforce as part of efforts to eliminate its budget deficit. The data ends a five-month string of job gains which saw employment increase by 184,000.

“I was more surprised by the resilience of the labor market and anticipated as we turned to this year the employment numbers were going to catch up with the rest of the economy,” said David Watt, chief economist at HSBC Bank Canada.

Ted Menzies, Canada’s junior finance minister, told reporters in Calgary today the trend is still strong.

‘Ups and Downs’

“We’ll see ups and downs, but the overall trajectory is in the right direction,” Menzies said. “We’re still looking at the strongest job growth record in all the Group-of-Seven countries.”

Canada’s statistics agency also reported the country’s deficit narrowed to C$901 million ($900 million) in December from C$1.67 billion in November. The decline was due to a 2.8 percent drop in imports, which outpaced a 0.9 percent fall in exports.

Separately, Canada Mortgage & Housing Corp. reported the annual pace of home starts fell to 160,577 in January, the slowest since July 2009.

Multiple-unit starts in urban areas fell 29 percent to 78,816 in January from 110,927 in December. Single-detached home starts fell 11 percent. Urban housing starts in Ontario plunged 44 percent, and were down 30 percent in Quebec.

“Combined with the steep drop in housing starts as well as the still-wide trade deficit, the jobs report rounds out a day of infamy for Canadian economic stats,” Porter, chief economist at BMO Capital Markets in Toronto, said in a note to investors.

“With housing softening notably, and consumers and governments not in much mood or ability to spend, the economy will need a major helping hand from a stronger U.S. performance in the year ahead to help generate renewed job gains,” Porter said.

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