These are stories Report on Business is following Friday, July 45 2013.
Porter on selling Canada
Bank of Montreal’s chief economist let loose today with his own version of “The Rant,” slamming the doomsayers piling up against Canada on everything from the loonie to the housing market.
Best to let him say it:
“Rarely a day goes by without a fresh scare story about the calamitous future for Canada’s currency/economy/housing market … We first highlighted 18 months ago that, after a sustained period of extreme outperformance, Canada was in for a prolonged spell of underperformance. However, underperformance does not equal catastrophe. While we do believe that the Canadian dollar is likely to soften a bit further over the next year, and that Canada will grow more slowly than the U.S. again this year and next, we flatly reject the extreme negativity of many recent analyses – which have mooted everything from made-in-Canada recessions, to a Canadian bond bubble, to a housing collapse (the favourite call among the punditocracy), to a deep dive in the loonie.”
(Mr. Porter’s statements – in a report titled “Woe Canada?” – reminded me a little bit about the old beer marketing campaign dubbed The Rant.)
His commentary comes in the wake of a growing “short Canada” crowd and amid an eroding currency and underperforming Toronto Stock Exchange.
Mr. Porter notes this, and thus there is “a kernel of reality” to the concerns of said short-Canada group.
But Canada’s ties to the United States, among other things, suggests the Great White North won’t sink while the Yanks surge ahead.
“The simple fact of the matter is that the U.S. still exerts a tremendous gravitational pull on the Canadian economy,” Mr. Porter says.
“Through every kind of weather – depression, war, inflation, commodity boom/bust – the correlation between U.S. and Canadian GDP remains consistently around 0.8,” he added.
“With exports to the U.S. now equal to 23 per cent of GDP, that reality is not going to change abruptly.”
Mr. Porter agrees that “some payback is inevitable” given that economic growth in Canada outpaced that in the U.S. by 0.6 of a percentage point a year from the middle of 2003 to the middle of 2011.
“But Canada remains among the most levered to the fate of the U.S. as any major economy; it is simply inconsistent to be simultaneously bullish on the U.S. outlook and bearish on Canada.”
Mr. Porter isn’t for a minute suggesting that Canada’s outlook is overly rosy, but that it “counsels caution, not calamity.”
Most importantly, “we are fundamentally bullish on the U.S., which ultimately is a big positive for Canada.”
- A funny thing happened on the way to the housing crash (It didn't crash)
- 'Fair value model' pegs Canadian dollar at 98.73¢ (So where did 3.5¢ go?)
- Welcome to a 95-cent (and falling) Canadian dollar
Canada loses full-time work
Canadian employers slashed several thousand full-time jobs in June, while the ranks of part-time workers swelled.
Today’s report from Statistics Canada looks better than what’s beneath the surface because it shows a loss of just 400 jobs, with the unemployment rate holding steady at 7.1 per cent.
Look beneath the surface, however, and you find that employers cut 32,400 positions, while part-time jobs increased by 32,200.
“The main point is that underlying job growth has clearly geared down, but has not collapsed, and we expect it to remain mild in the second half, pointing to some modest improvement in the jobless rate,” said chief economist Douglas Porter of BMO Nesbitt Burns.
There had been fears of greater total job losses after the stunning gains of May, when 95,000 jobs were created.
“After the fireworks of huge gains in May employment, markets weren’t expecting much in June, and that’s exactly what we got,” said chief economist Avery Shenfeld of CIBC World Markets.
“It’s easy to shrug off one weak month in this series after the leap in the prior month, and with employment still up a quite respectable 1.4 per cent from a year ago,” he added.
“Indeed, the jobs trend has been quite a bit better than the pace of GDP growth would typically have justified.”
Canada has had a rare showing among western industrialized nations, having regained all the jobs lost to the recession long ago. Holding May’s increase, then, would be another good sign but for loss of full-time work.
So far this year, total job gains have averaged 14,000 a month, down from the average of 27,000 in the second half of last year.
June’s jobs gains were strongest among professional and scientific employees, and techies. Employment in that group is now up almost 5 per cent from a year ago.
The construction industry showed little change last month, but employment in that sector has been climbing since the fall of 2012, and is up 6.2 per cent over the course of the year.
Canada’s factories, which lost 71,000 jobs in the first quarter, have held steady recently.
The breakdown of jobs in the private and public sector did not change much in June.
But since last June, private employers have added 137,000 jobs, marking gains of 1.2 per cent, while the public sector has added 55,000, up 1.5 per cent.
Regionally, Manitoba and Saskatchewan saw gains last month, with the latter now boasting the lowest jobless rate in the country, at 3.7 per cent.
The Statistics Canada survey began just a week before floods ravaged Alberta, so the impact on the latest reading was “negligible,” the federal agency said.
That, of course, will change, as will the impact from a construction strike in Quebec.
“The jobs data in Canada were not as bad as we thought it would be but note that total hours worked are up an anemic 0.1 per cent on the quarter following a 1.7-per-cent increase in Q1,” said chief economist Stéfane Marion of National Bank of Canada.
“So we are looking at another quarter of below-potential growth in Canada.”
Canada’s young people continue to suffer, with jobless rate in the 15-24 age group rising to 13.8 per cent in June.
In the United States, employers added far more jobs than expected, The Globe and Mail's Kevin Carmichael reports.
What that could mean is that the Federal Reserve will indeed begin to pull back on its stimulus measures later this year.
The U.S. economy added 195,000 jobs last month, according to the Labor Department, while the initial readings from April and May were revised higher.
Still, the jobless rate in the United States held stubbornly at 7.6 per cent.
“Solid employment growth in June and upward revisions to previous months imply continuing support to both consumer spending and the recovery in housing,” assistant chief economist Paul Ferley of Royal Bank of Canada said of the U.S. numbers.
“As well it reflects a pace that will put sustained downward pressure on the unemployment rate. Confirmation that the economy continues to pump out jobs consistent with above-potential growth will be a key factor prompting the Fed to start reducing asset purchases in the fall.”
While the Fed may be preparing to ease the asset-buying stimulus measures, it has pledged to hold its benchmark rate at its emergency low near zero until unemployment eases to 6.5 per cent, which Mr. Ferley doesn’t see happening until sometime in 2015.
- David Parkinson in Economy Lab: Better U.S. job numbers good news for Canada's stagnant labour market
- U.S. adds 195,000 jobs, boosts odds of Fed tapering
- Follow our Inside the Market blog
- Europe's central bankers move to quell fears of rate rises
- Four days in, Carney makes his mark on Bank of England
- Job market expected to revers course in June
Can Samsung Electronics Co. do no wrong? Hold that thought.
Samsung’s Galaxy smartphones have come on strong, and the South Korean company is now the biggest of its kind on the planet, in terms of sales.
Indeed, today it estimated a record quarterly operating profit that would be the equivalent of $8.3-billion (U.S.). It just wasn’t good enough to meet the projections of stock analysts expecting even faster growth.
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