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23 Jan

Unexpected Strength in Trade and Jobs in Canada

General

Posted by: Eileen Crosbie

Canada Shows Unexpected Strength with Job Surge and Trade Surplus

December’s jobs report was unambiguously strong showing employment gains of 53,700 (0.3%), the result of gains in full-time work. Finally, for the first time this year, full-time jobs outpaced part-time. The unemployment rate increased 0.1 percentage points to 6.9% as more people entered the labour force. This is evidence that the economy may be absorbing the slack that’s kept interest rates near record lows. 

Full-time positions rose 81,300 in December from the previous month, the biggest gain since March 2012, and even after taking away 27,600 part-time jobs, the total employment gain of 53,700 shattered the economist forecasts for a small decline.

For 2016 as a whole, employment grew by 1.2%, compared to a growth rate of 0.9% in 2015. Payrolls rose by 214,000 last year, the fastest December-to-December growth since 2012.

Quebec and British Columbia posted job gains in December, while there was little change in the other provinces. In 2016, BC recorded the fastest employment growth rate among the provinces for the second consecutive year, up 3.1%. The gains were evenly split be tweet full- and part-time work and spread across many industries.

In another report, Canada’s trade balance returned to surplus in November for the first time since September 2014, moving from a $1.0 billion deficit in October to a $526 million surplus in November. Exports rose 4.3% on the strength of increased exports of metal and non-metallic mineral products as well as record exports to countries other than the US. Imports were up 0.7%, mainly on higher imports of energy products. 

The data may signal Bank of Canada Governor Stephen Poloz’s long-awaited economic revival is finally on solid ground. Poloz has stressed ahead of his Jan. 18 rate decision that there is still plenty of slack in the job market which may be adding to divergence with a recovering US economy.

The job gain made the fourth quarter the best since 2010 and turned 2016 into a breakout year from some of the slowest hiring since World War II. The trade surplus means struggling energy and manufacturing companies may contribute to growth aided by debt-fueled consumer spending on houses and cars.This would be just in time to help offset what is likely to be a slowdown in housing in Canada this year in the wake of federal government mortgage initiatives to tighten mortgage credit conditions. 

Provincial Unemployment Rates in December In Descending Order (percent)
(Previous months in brackets)

   — Newfoundland and Labrador        14.9 (14.3)
   — Prince Edward Island                     10.7 (10.8)
   — New Brunswick                                9.4   (8.7)   
   — Alberta                                              8.5   (9.0)
   — Nova Scotia                                      8.3   (8.0)
   — Quebec                                             6.6   (6.2)
   — Saskatchewan                                 6.5   (6.8)   
   — Ontario                                             6.4   (6.3)
   — Manitoba                                          6.3   (6.2)  
   — British Columbia                             5.8   (6.1)

US Payrolls Rise As Wages Increase The Most Since 2009

US non-farm payrolls rose 156,000 in December. While below economists forecast, this was a solid gain pointing to an economy at close to full employment. The jobless rate ticked up to 4.7% as the labour force grew. Worker shortages have become more prevalent in the US, putting upward pressure on wages. The job market will continue to boost consumer spending in 2017.

According to Bloomberg News, the latest payrolls report brought the advance for 2016 to 2.16 million, after a gain of about 2.7 million in 2015. The streak of gains above 2 million is the longest since 1999, when Bill Clinton was president.

Among the details of the December report, the participation rate, which shows the share of working-age people in the labor force, increased to 62.7%, from 62.6%. It has been hovering close to its lowest level in more than three decades largely as a result of demographic changes.
Some measures of labor-market slack showed improvement. Americans who are working part time who would rather have a full-time position fell to 5.6 million.The underemployment rate — which includes part-time workers who’d prefer a full-time job and people who want to work but have given up looking — dropped to 9.2% from 9.3%.

Bottom Line: There is little doubt that the Fed will continue to hike interest rates this year. The Trump administration takes office on January 20 and has promised to cut taxes, increase spending on infrastructure and cut regulations. This fiscal stimulus will likely boost economic activity in 2018 and lead to higher budget deficits. The bond markets have already sold off in anticipation of such moves, pushing mortgage rates higher in Canada. 

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres