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‘Squishy-soft’ Canada left out of U.S. jobs party

Canada's jobs numbers for June were "shocking," "awful any way you cut it," or "squishy soft," according to economists. More worrisome yet, they raise the possibility that the domestic economy can't count on the U.S. recovery to help drive job growth.

The two countries have travelled opposing trajectories in recent months, with the U.S. economy spitting out new jobs at a robust pace while Canada has struggled to generate any momentum at all.

In contrast to the U.S., where joblessness has been steadily falling, Canadian unemployment edged up to 7.1 per cent in June, according to Statistics Canada data published Friday. The domestic economy shed 9,400 jobs in June, following six months of almost no gains.

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For Canadians, the divergence between the neighbouring countries is worrisome since the two labour markets usually move closely together. "Clearly, the economy just isn't benefiting from the gradually improving U.S. economy due to trade competitiveness problems, which must be of great concern to the Bank of Canada," Capital Economics wrote in a report.

Of course, part of the reason for Canada's lagging performance may lie in its relatively strong performance during the financial crisis. Since Canadian unemployment never reached the dire levels seen in the U.S., the recovery here has had less ground to make up.

In addition, the two countries calculate unemployment in different ways, with Statistics Canada counting the jobless in a more stringent fashion that results in higher official figures for unemployment. If Canadian data are converted to the U.S. model, the unemployment rates for the two countries look very similar.

But even after all those caveats are duly noted, there's still no doubt that the two job markets have moved in wildly different directions in recent months. And there is at least one clear reason why: Canadian manufacturing has gone missing in action.

In past recoveries, U.S. demand boosted Ontario factories. Not so this time, with manufacturing jobs in the province falling in June to their lowest level since 1976.

That funk could go on for a while. As my colleague Greg Keenan recently reported, auto makers spent $17.6-billion (U.S.) around the world in 2013 to increase vehicle-making capacity, but not a dime of that money was invested in Canada. Instead, money is flowing to low-wage nations such as Mexico and Brazil.

U.S. manufacturers are also showing an increased tendency to move jobs back home. After decades of decline, the number of American factory jobs has steadily swelled over the past four years, with manufacturers adding about 600,000 workers during that time.

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In contrast, Canada's economy seems to be running on only two engines: energy and housing. Both are red hot in Alberta, which is the one area of the country that is still churning out jobs in quantity. In fact, "if Alberta is stripped out of the national total, there would have been no job growth in the past year," according to Douglas Porter, chief economist at Bank of Montreal.

The question now is how long Canada's stagnant jobs market can co-exist with a hot housing market. Home prices continue to power ahead, up nearly 5 per cent in May from a year earlier, according to the MLS Home Price Index, but a dearth of new jobs is likely to put a lid on the number of potential new buyers.

Given the latest jobs numbers and the fragile outlook for housing, the Bank of Canada will clearly not be raising rates soon. And unless the U.S. recovery begins to exert its usual magical effect on Canadian factories, the next rate hike could be a long time coming.

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About the Author

Ian McGugan is a reporter with The Globe and Mail's Report on Business and has been writing about investing, economics and business for more than 20 years. He joined the Globe and Mail in 2010. He has been executive editor of Canadian Business magazine and founding editor of MoneySense magazine. More

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