Skip to main content

The Globe and Mail

The week: Why jobless rate will stick stubbornly above 7%

These are stories Report on Business followed this week.

Follow Michael Babad and the Globe's top business stories on Twitter.

High jobless rate to stay
Unemployment in Canada appears destined to stick stubbornly above 7 per cent for a protracted period as the economy inches along.

Story continues below advertisement

The labour market has, until now, been chugging along, bouncing up and down from month to month but still averaging some 27,000 new positions a month since the beginning of the year, according to economist Emanuella Enenajor of CIBC World Markets.

"But a reckoning may be around the corner, with hiring set to track a slower tempo in the months ahead," she warned.

"Tame demand could see limited to need to boost head counts, while continued government spending cuts will likely weigh on public sector payrolls … We see economic growth as too slow in the quarters ahead to spark a measurable decrease in the jobless rate. Unemployment could track above 7 per cent both this year and next."

The jobless rate now stands at 7.3 per cent, and next Friday's labour market report from Statistics Canada is expected to show it stayed there, and possibly even ticked up, in September.

Having said that, projections are all over the map. While many expect the report to show the economy created 15,000 jobs last month, others expect to see less, and Toronto-Dominion Bank expects to see a loss of 10,000 jobs.

"Looking ahead, the slowdown in the global economy and the slumping domestic housing market are likely to keep monthly employment gains to a minimum, meaning the unemployment rate is likely to climb even higher," said David Madani of Capital Economics in Toronto.

According to Statistics Canada Friday, the economy grew by 0.2 per cent in July, kicking off the third-quarter with a better-than-expected reading, but one that still left economists suggesting the quarter will come in at below 2 per cent.

Story continues below advertisement

"The world remains a risk-filled one and this uncertain global economic environment should weigh on the trajectory for those areas linked to international trade," said senior economist Sonya Gulati of Toronto-Dominion Bank.

"Manufacturing and transportation are two areas that come to mind. With tired consumers and housing markets beginning to cool, the domestic economic front is running out of gas and energy to steer the Canadian growth engine."

RIM's surprise
Research In Motion Ltd. surprised investors and analysts this week with a better-than-expected second-quarter report, driving its stock price higher, but leaving many questions.

RIM lost $235-million (U.S.), or 45 cents a share, in the quarter, compared to a profit of $329-million, or 63 cents a year earlier. Revenue fell to $2.9-billion from $4.8-billion, but was above projections of $2.5-billion. Its subscriber base also climbed to 80 million, while it shipped 7.4 million BlackBerrys and 130,000 PlayBook tablets.

RIM, of course, has seen its fortunes eroded amid competition from Apple Inc.'s iPhone and the Google Inc. Android system, among others. Its new, and key, BB10 devices are still on track for early next year.

Chief executive Thorsten Heins said there's still work to do, but he was clearly pleased with the market reaction.

Story continues below advertisement

Here are the views of two analysts:

"The new management team is executing by maintaining the BlackBerry subscriber base, managing costs and cash and seemingly readying an early C2013 BB10 global platform loss … Our thesis has been that RIM's [subscriber] base would enter a period of accelerating decline leading to lower service cash flow to support BB10 transition plans. We are now taking a leap and expecting management will continue to take necessary steps to maintain the sub base ahead of the BB10 launch."

- Kris Thompson, National Bank Financial, in a report titled "Risks remain but turnaround potential looking plausible," as he boosted his price target on the stock to $12 from $8 and his rating to "outperform."

"While resilient sales of BB7 smartphones in markets like Indonesia, South Africa, and Venezuela demonstrate the strength of the BlackBerry brand in international markets, we believe the BB10 refresh is key for RIM to return to profitability. With our checks indicating increasing competition both from iPhone 5, Android and Windows 8 smartphones in Western markets and from ramping lower-tier smartphones based on Qualcomm and MediaTek turnkey solutions globally, we expect softer sales in coming quarters consistent with RIM management comments anticipating continued pressure on operating results for the remainder of the fiscal year."

- Michael Walkley, CanaccordGenuity, in a report titled "Losses continue as competition increases ahead of BB10," as he held his price target at $8 and his rating at "hold."

In the markets
It's no wonder that stock markets fell this week amid the images of violent clashes between authorities and anti-austerity demonstrators in Spain and Greece.

The S&P/TSX composite lost half a percent, and the S&P 500 1.3 per cent.

But, noted Robert Kavcic of BMO Nesbitt Burns, the S&P still closed out the third quarter with a gain of 10 per cent, pushed up by the stimulus measures of the U.S. and European central banks and better signs from the U.S. housing market.

"Canadian stocks continued to lag their U.S. counterparts in the third quarter, but at nearly 8 per cent, the gain marks much improved relative performance from the woeful underperformance seen in the first half of the year," he said.

Five things
1. Thieves are getting caught up in the iPhone frenzy. A rise in the theft of Apple products so far this year is outpacing the increase in crime in general in New York City, the NYPD says. The NYPD cited 11,447 incidents of theft for Apple products between the beginning of the year and Sept. 23, an increase of 40 per cent from the same period of 2011. Overall crime was up just 4 per cent.

2. At least the New York thieves appear to know what they're doing. Unlike the robbers in the town of Coesfeld, Germany, who, according to NBC, blew up an entire bank in a bungled attempt to just explode the ATM.

3. Colour commentary of the week, from Kit Juckes, the chief of foreign exchange at Société Générale: ? "If I tell people I think EUR/USD will go down as the ECB prints money and the European crisis lingers rather than going away, many ask me 'what about the fiscal cliff?' My baseline assumption is that the current 6-year old's debate (I won't increase the debt ceiling unless rich people pay more tax ... I won't increase the ceiling unless spending is cut') will turn into a teenager-ish affair of painful compromise that results in 2013 growth being slower than 2012's and the Fed dragging QE 3.5 out of the closet sooner or later."

4. Quote of the week (Yes, German Chancellor Angela Merkel actually said this): "There is a lack of confidence on financial markets that some euro zone states can pay back their debts in the long term. The world wonders how competitive euro zone countries are." You think?

5. Is nothing sacred for hackers? "Wireless medical devices are potentially vulnerable to being remotely controlled by hackers and should be tracked more closely, according to a Government Accountability Office report," Bloomberg News reports.

Required reading this week
Putting more Canada into the National Hockey League just might be the answer to the troubled economics at the heart of the player lockout, Barrie McKenna writes.

The Democratic Republic of the Congo is one of the world's most corrupt, impoverished and war-torn countries. Yet even there, the lure of the Africa boom is proving irresistible, Geoffrey York reports in his Africa Next series.

Four years after President Barack Obama successfully wooed the financial industry and its campaign donations, the relationship has ended in reproach from both sides. It's a breakup that can be measured in the millions of dollars, Joanna Slater writes from New York.

A handful of uninhabited islands in the East China Sea are drawing Japan and China into a standoff threatening major disruptions to two-way trade worth more than $340-billion (U.S.) last year. Carolynne Wheeler reports from Beijing.

The coming arrival of U.S. discounter Target Corp. promises to shake up, or bruise, Canadian retailers, and they're taking steps to rise to the occasion, Marina Strauss reports.

What to watch for next week
Monday should be an interesting day as Statistics Canada releases revisions to GDP over three decades. Here's one interesting point from Derek Holt at Bank of Nova Scotia:

"The level of household income may be revised higher as Statistics Canada is better able to capture unincorporated business income, and when balance sheet figures then get revised on Oct. 15, household net worth could be revised higher because the revisions include a full shift toward market value based accounting. Therefore, measures like debt-to-income may be revised lower, and household finances may appear to be sounder than previously judged with implications for the Bank of Canada's concerns."

Markets will also get the latest reading of the U.S. jobs market Friday, a key signal for investors and, arguably, voters heading into the American election.

Economists expect the report to show that about 110,000 jobs were created last month, better than the August showing but "still too weak to prevent an upturn in the unemployment rate to 8.2 per cent," said senior economist Sal Guatieri of BMO Nesbitt Burns.

Report an error Editorial code of conduct Licensing Options
As of December 20, 2017, we have temporarily removed commenting from our articles as we switch to a new provider. We are behind schedule, but we are still working hard to bring you a new commenting system as soon as possible. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to