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Robust or fragile? Jobs, trade data to offer clues on Canadian economy

The recent surge in employment, monthly trade surpluses near $1-billion and surprisingly strong economic output suggests that Canada is on the mend.

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This week's jobs and trade data will provide clues on whether Canada's economy has recovered from the dark days of the energy bust.

The recent surge in employment, monthly trade surpluses near $1-billion and surprisingly strong economic output suggests that Canada is on the mend.

"The question is whether this improved momentum … will continue," Nomura economist Charles St-Arnaud said.

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A jump in oil prices last year helped the country's economy recuperate. Employers created 91,000 new jobs over the past quarter, the strongest growth in four years.

Exports topped imports in November and December, the first consecutive trade surpluses since mid-2014, when oil prices started to collapse.

And gross domestic product beat expectations and expanded at an annualized rate of 2.6 per cent in the fourth quarter of last year.

But there are signs that the economy is still fragile and threats of U.S. protectionism could undermine the country's economic recovery.

Employers preferred to hire part-time workers instead of full-time employees, and have added 190,000 part-time positions since last January compared with 86,000 full-time jobs.

Business investment dropped 2.1 per cent in the last quarter, for the ninth consecutive period of declines.

Trade volume dropped 1.4 per cent in December, while stronger oil prices drove up exports. Crude oil is trading around $54 (U.S.) a barrel compared with $34 a year ago.

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"No question that we are still reliant on oil and it's likely to be the case for a great number of years to come," said Douglas Porter, chief economist with Bank of Montreal. "Like it or not, the economy, the currency, our financial markets will be heavily influenced, and to a large extent driven, by how oil prices fare."

A third consecutive month of trade surpluses is expected when Statistics Canada releases January's trade data on Tuesday. BMO forecasts a surplus of $750-million (Canadian).

The positive trade momentum could turn negative if the Trump administration follows through on promises to rewrite the decades-old North American free-trade agreement (NAFTA), which allows Canadian goods to travel easily across the border.

Although U.S. President Donald Trump has said he only wants to tweak trade with Canada, his government has proposed other protectionist policies. The Trump administration has suggested it would ignore the World Trade Organization, which resolves trade disputes, such as the perpetual U.S.-Canada softwood-lumber rift. And top Republican lawmakers are pushing for a border tax on imports into the United States.

"Let's not lose our heads in suddenly thinking [Trump's] pro-trade," said Derek Holt, Bank of Nova Scotia's vice-president of economics.

"Hanging over the global economy remains the risk of the … border tax and the risk of retaliatory measures the world over."

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On the employment front, a gain of 10,000 jobs is expected when StatsCan releases February's labour report on Friday, according to BMO. The jobless rate is forecast to remain at 6.8 per cent.

"We've officially thrown in the towel on looking for some retracement of the recent surge in employment," the bank said in a note.

"The solid run of data has prompted us to take a more upbeat view on the economic backdrop, as it appears conditions have started to improve meaningfully."

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