Canada’s economy eked out just enough new jobs to keep the unemployment at a five-year low, but it was the U.S. labour performance that caught the eye of the market and revived talk of higher interest rates.
The 13,200 employment gain in Canada last month was almost dead on economists’ expectations, with Quebec gaining most of the numbers.
That kept the national jobless rate at 6.9 per cent for the second consecutive month, the lowest since the start of the 2008-09 recession.
“That’s the very good news here, that the drop below seven per cent wasn’t a fluke ” said Doug Porter, chief economist with the Bank of Montreal. “The bottom line is there is still some underlying improvement in the job market.”
But the big news came south of the border, where the Labour Department calculated 204,000 employment gains for the month, while also revising estimates for September and August by about 60,000 combined.
That was a surprise given that October was the month of the U.S. partial shutdown. The backward revisions also mean the U.S. has been churning out about 200,000 new jobs for three months running, adding substance to Thursday’s announcement that the American economy expanded by 2.8 per cent in the third quarter.
The comparison was not flattering to Canada, markets reasoned, selling down the loonie about one-quarter of a cent to 95.34 in early morning trading.
Analysts said the markets were not down in Canada, but up on the U.S. The strong American GDP report, and now job numbers, has revised talk of future easing off of the quantitative easing stimulus, known as tapering, coming sooner rather than later.
Canadian central banker Stephen Poloz last month revised downward his forecast for growth next year, while also pointedly moving to a neutral stance on the interest rates. But Poloz also said the Canadian economy could perform better, should the U.S. finally come out of its doldrums.
“We’re not changing our view on the Bank of Canada today, but it won’t surprise me in the days and weeks ahead if people don’t start talking about potential rate hikes at some point in 2014 again if the U.S. economy is indeed back on track,” explained Porter.
Economist Leslie Preston of TD Bank wasn’t so quick to move off the 2015 forecast on interest rates, although she conceded to being a “little surprised to see another solid month in hiring in October.”
Still, the analyst noted that wage inflation remains benign and the economy continues to have plenty of slack.
Others noted that the details of the Canadian labour market report were at best mixed.
On the positive side, there were 25,200 more full-time employees during the month, and the number of self-employed Canadians fell. On the negative, the private sector laid off 22,100 jobs, while the gains — 47,300 — came in the public sector.
The gains were also concentrated in one province, with Quebec posting an outsized 34,100 gain, while Ontario shed 14,700 workers. There were also small employment declines in British Columbia, Manitoba, Saskatchewan, New Brunswick and Nova Scotia.
By industry, jobs increased in the accommodation and food services, health care and social assistance, and public administration industry, while business, building and other support services fell. Manufacturing, a key sector for Ontario and the country’s export prospects, again struggled. For the past 12 months, the factory sector is now down 82,500 workers, the worst of any industry.
Still, October’s numbers mean that the country has added 214,000 in a 12-month period, about the level of employment increase that economists believe is necessary to keep up with population and labour force expansion.
In other economic news, the federal mortgage insurance agency said the annual pace of housing starts in Canada rose to 198,282 in October, a short-term boost to the construction industry, but well above what analysts believe is sustainable.
— By Julian Beltrame