Editor’s note: Statistics Canada announced on Tuesday, Aug. 12, that there was an error in the jobs report data they released on Aug. 8. Read more.
Canadian employers created barely any jobs in July, surprising forecasters and reinforcing the Bank of Canada’s decision to keep interest rates low.
Statistics Canada’s monthly tally of hiring and firing produced a net gain of 200 positions last month, as a 60,000 increase in part-time jobs marginally outweighed a 59,700 plunge in full-time positions.
The consensus estimate of economists on Bay Street and Wall Street was for an increase in total employment of 20,000. Canada’s unemployment rate dropped to 7 per cent from 7.1 per cent, but only because more than 35,000 people gave up looking for work, according to StatsCan’s report, released Friday in Ottawa.
“Overall, the report is negative,” said Charles St-Arnaud, a former Bank of Canada economist who now works at Nomura Securities.
The Canadian dollar fell about half a cent to about 91 cents against the U.S. dollar. The Standard & Poor’s TSX Composite Index fluctuated between gains and losses, as investors weighed positive corporate earnings reports from companies such as Magna International Inc. against evidence that the broader Canadian economy is stuck in a lower gear. Mr. St-Arnaud and other economists said the poor hiring numbers leave the Bank of Canada with little choice but to lock in ultra-low borrowing costs until well into next year.
“There is little job growth in Canada and the degree of slack in the labour market remains elevated,” David Watt, chief economist at HSBC’s Canadian unit, advised clients in a note.
Canada’s moment as a standout among the world’s richer economies is over. The country weathered the financial crisis relatively well and gross domestic product and employment rebounded to pre-recession levels faster than most of its peers. Economic growth now is coming much harder. For the better part of the year, Canada has tended to follow monthly gains in hiring with offsetting declines in the weeks that follow.
StatsCan estimates there were 17,820,900 people working in July, only 0.7 per cent more than a year ago. The labour participation rate, which measures the percentage of the population either working or seeking work, dropped to 65.9 per cent, the lowest since October 2001. Employment in goods-producing industries has shrunk by 56,000 positions this year, reducing the headcount to its lowest since January 2012, according National Bank Financial.
Canada’s economy is need of a jolt that just isn’t coming.
The Bank of Canada has signalled its readiness to leave its benchmark lending rate unchanged at 1 per cent for a considerable period, yet it is wary of cutting borrowing costs because that could prompt highly indebted households to take on more credit. Prime Minister Stephen Harper is committed to balancing the budget, rather than attempting to spark the economy through fiscal stimulus. Canada’s businesses are wary of using their profits to expand, as demand at home and abroad remains lacklustre.
The result is an economy that has plateaued. Construction led the decline in goods-producing industries, as builders cut their payrolls by 42,200 in July from June. Factories added 11,500 workers last month, but there still were 14,200 fewer people working in manufacturing than there were a year earlier. There are now almost two Canadians working in the services industry for every one worker in goods-producing sectors. Employment in health care and social assistance increased by 87,100 positions from July 2013, although health jobs declined by 28,500 last month. Finance and real estate declined by 22,400 in July from a year earlier.
“While we are nearly a month away from the next Bank of Canada meeting, we expect this report to highlight why the downside risks to the outlook have not faded,” said Bricklin Dwyer, an economist at BNP Paribas in New York.
Some economists grasped for positives in the latest Canadian hiring numbers. Matthieu Arseneau, senior economist at National Bank Financial, noted that the total working hours increased by 0.5 per cent from June, suggesting an increase in demand that could prompt employers to add workers in the months ahead. Stronger-than-expected economic growth in the United States in the second quarter, paired with a broadly positive earnings season, also bodes well for stronger hiring in the second half of 2014.
For now, though, there is little to cheer. Mr. Watt observed the hours worked were unchanged from July 2013, despite the gain from June. Wages are growing at an annual rate of 2 per cent, which is slower than inflation. A stronger U.S. economy should pull exports, yet outside of the resource industries, Canada’s companies have struggled to win orders since the recession ended.