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File photo of hundreds lining up for various booths at the The National Job Fair & Training Expo at the Metro Toronto Convention Centre, 2012. (J.P. MOCZULSKI For The Globe and Mail)
File photo of hundreds lining up for various booths at the The National Job Fair & Training Expo at the Metro Toronto Convention Centre, 2012. (J.P. MOCZULSKI For The Globe and Mail)

Hearty Canadian jobs report prompts cheers, fears Add to ...

The strength of Canada’s labour market continues to surprise even the most optimistic forecasters, but a cooling economy, slowing housing market and delayed U.S. spending cuts promise to take their toll.

The country has enjoyed several months of better-than-expected job creation, capped Friday by a Statistics Canada report showing 39,800 new positions in December and an unemployment rate at a four-year low of 7.1 per cent.

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Economists had expected to see only about 5,000 new jobs last month, particularly given an exceptional November gain of 59,000 positions. Notable, too, is that the new jobs were full-time, private sector positions, something that should buoy consumer confidence.

But headwinds are blowing, and job creation is expected to slow to be more in line with weaker economic growth, meaning it will be tough to bring unemployment below the 7-per-cent mark.

“Though Canada experienced some solid job gains in 2012, employment is typically a lagging indicator,” said chief economist David Watt of HSBC Bank Canada.

“There is thus somewhat of a disconnect between the sluggish economy and the solid job creation. We don’t expect that to continue. Instead, we expect job creation to be more moderate in 2013, consistent with an economy that is struggling for momentum.”

Mr. Watt projects economic growth of just 1.8 per cent this year, and, indeed, other observers do not anticipate a pickup until mid-2013.

Add to that the fact that Canada’s housing market is cooling, threatening jobs in the real estate category, one of the fastest growing in terms of job creation last year at 8.9 per cent. The construction industry, in particular, showed strong gains in December, with 17,800 new positions

Also on the horizon are more than $100-billion (U.S.) in spending cuts that were delayed by about two months as part of the New Year deal to avert the “fiscal cliff” scenario in the United States.

“All said, when Congress finally pens a deal on spending cuts, the expected total impact of U.S. fiscal drag on the Canadian economy should shave roughly 0.5 percentage points from real GDP growth this year,” said economist Francis Fong of Toronto-Dominion Bank, who expects quarterly, annualized economic growth of about 2 per cent this year.

Over the course of last year, the Canadian economy created about 17,000 jobs a month, said senior economist Sonya Gulati, also of TD.

She expects that to slow to between 10,000 and 15,000 this year, and projects that the construction and education sectors can’t hold onto their momentum.

And despite the rise in overall employment, noted deputy senior economist Douglas Porter of BMO Nesbitt Burns, total hours worked edged up just 0.1 per cent in December, and just 0.3 per cent in the fourth quarter as a whole.

National Bank of Canada’s Matthieu Arseneau also pointed to that lacklustre showing, and weak growth in the wage bill of 0.7 per cent in the final quarter of the year, compared with 5.5 per cent in the third quarter.

“As a result, output may suffer on the back of stagnant hours worked, and consumption spending should moderate going forward given the modest gains in household disposable income.”

Still, there’s no question that the past few months have been stellar, particularly when compared with other countries, notably the United States and the ailing nations of Europe.

Over the year, employment in Canada climbed by 1.8 per cent, or 312,000 jobs, according to Statistics Canada. Private sector employment gained 2.2 per cent, and public sector employment, 2.6 per cent.

The outlook for Canadian youth, however, is still dim. Those 24 and under gained no jobs, and their unemployment rate rose in December to 14.1 per cent.

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