Canada Missing U.S. Recovery as Export, Labor Data Show FrailtyGreg Quinn
Frailty in exports and the job market are the latest signs Canada’s economy is missing the boat on the U.S. recovery.
October’s trade deficit widened to C$2.76 billion ($2.1 billion), exceeding the most bearish forecast in a Bloomberg survey of economists and approaching the record C$3.72 billion set in March. Statistics Canada also reported Friday from Ottawa that a drop in temporary election workers and stagnant job creation in other categories boosted the unemployment rate to
7.1 percent. The job decline of 35,700 exceeded the median prediction of 10,000.
The trade weakness was underlined by the 2.8 percent drop in exports to the U.S., Canada’s largest trading partner, where employment growth is exceeding expectations, boosting bets the Federal Reserve will raise interest rates this month. The relative weakness north of the border means Bank of Canada Governor Stephen Poloz won’t be following Fed Chair Janet Yellen’s footsteps.
“These trade numbers aren’t encouraging,” said Paul Ferley, assistant chief economist at Royal Bank of Canada in Toronto. “The Bank of Canada will remain in data-watching mode hoping that we see a bit more strength emerging both on trade and employment in subsequent months.”
Poloz kept his key lending rate at 0.5 percent on Wednesday after cuts in January and July. He’d been counting on the weaker dollar and a U.S. recovery to rebuild non-energy exports in the second half.
Exports instead fell 1.8 percent in October to C$43 billion and weakness was concentrated in trade with the U.S., Statistics Canada said. Shipments fell in 10 of 11 categories including a
9.4 percent decline in metal ores and non-metallic minerals.
“I’m much more concerned on the trade side,” said Andrew Kelvin, senior fixed income strategist at Toronto Dominion Bank. “That’s where we would like to see the U.S. growth spilling into Canada.”
Statistics Canada also boosted the September deficit figure to C$2.32 billion from C$1.73 billion.
Canada’s currency initially declined as much as half a cent on the report, before reversing on a broad U.S. dollar selloff. It was little changed at C$1.3340 at 10:27 a.m. Toronto time, and has depreciated about 13 percent this year.
On the political front, the job decline comes on the day Liberal Prime Minister Justin Trudeau presents a Throne Speech in Ottawa outlining how he will implement the platform he offered before winning the Oct. 19 election. That plan was to press ahead with deficit spending to boost economic growth, part of the reason he defeated Stephen Harper’s Conservatives who planned balanced budgets.
Underlining the damage from the oil shock, unemployment in Alberta, home to Canada’s main crude deposits, climbed to the highest since April 2010, or 7 percent, on 14,900 fewer positions.
Strains in the national labor market bolster the Bank of Canada’s assertion on Wednesday that the country’s economy is undergoing a “complex and lengthy adjustment” to a shock from lower oil prices. Commodity producers including Husky Energy Inc., Athabasca Oil Corp., Cenovus Energy Inc., Meg Energy Corp. and Devon Energy Corp. have cut jobs in recent months.