Harper rules out recession speculation, second stimulus after job losses

Prime Minister Stephen Harper has ruled out a second round of government stimulus — for now — in reaction to employment figures that show Canada lost 139,000 full-time jobs last month and the unemployment rate rose to eight per cent.

OTTAWA — Prime Minister Stephen Harper has ruled out a second round of government stimulus — for now — in reaction to employment figures that show Canada lost 139,000 full-time jobs last month and the unemployment rate rose to eight per cent.

The stinging report — whose blow was softened by the pick-up of 129,700 part-time workers that left the net loss at a modest 9,300 — was the first time this year employment fell back.

Many full-time positions were likely downgraded into part-time as employers slowed production, analysts said.

Still, the losses resulted in the first increase in the unemployment rate in 11 months.

That’s about two percentage points higher than before the start of the 2008-09 recession.

The Canadian dollar was down 1.08 cents to 97.29 cents US in the wake of the report.

The news was no better in the United States, where 131,000 net jobs vanished in the month, although the weakness was skewed by the elimination of tens of thousands of temporary census workers.

Despite the employment setback, Harper, emerging from Rideau Hall after a minor cabinet shuffle, said he did not believe the economy is slipping back into recession.

“The job numbers today indicate what we’ve been saying, the global recovery remains fragile,” he said. “It’s not going to be all smooth, the trend lines have generally been good. At the moment I certainly don’t see any indication of a second stimulus.”

The Canadian economy has outperformed the United States and other countries during the recovery, mainly because of strength in public sector hiring, a solid housing and construction sector, and continued growth in resources and energy industries in the West.

However, with a slowdown in housing, higher consumer taxes in Ontario and B.C. and looming federal and provincial government spending restraints to cut deficits, the drags on the economy are starting to kick in.

Harper noted the Bank of Canada has been raising interest rates, saying that was an indication the government should be reducing the deficit. “But we will monitor these things,” he added.

Starting last spring, Ottawa pumped about $47 billion into the economy through tax cuts, incentives and infrastructure spending, but that stimulus is set to expire early next year.

At a speech at the Couchiching conference in Orillia, Ont., Finance Minister Jim Flaherty estimated the boost added two percentage points to GDP growth in the last three quarters of 2009.

Admitting the economy is not “out of the woods yet,” he added that Canada is in an envious position compared to most advanced economies and top of the class among the large G7 nations.

The call in the United States from some economists, however, was that the economy still needed help, given that private sector employment gains were an anaemic 71,000, far below the roughly 200,000 needed each month to reduce the unemployment rate.

That was echoed by Bank of Montreal chief economist Sherry Cooper, who said another round of fiscal stimulus was in the cards.

In Canada, the picture is not as dark and is further clouded by questions about how much of the July setback is an indication of a slowing economy, and how much was what economists call “payback” for surprisingly strong gains in previous months.

April and June saw the largest gains on record with pickups of 109,000 and 93,000 respectively, and many had cautioned that such hiring was not consistent with the economy slowing from the first quarter.

“Those numbers seemed to good to be true,” said Avery Shenfeld, chief economist with CIBC World Markets, adding that last month’s adjustment puts jobs more in line with the underlying strength of the economy.

An element in the July report was also “highly suspect,” said Douglas Porter of BMO Capital Markets, referring to the disappearance of 65,000 education workers, a large drop he said will likely be reversed in the next report.

“The first drop in employment since December does not signal a fundamental shift in the economy,” he added. “Overall, this report appears to be a very mild payback for previously amazing strength, and the bigger picture is that almost all of the recession’s job losses have been reversed in the very short space of a year.”

The tally now stands at 394,000 jobs created since last July, about 20,000 shy of the recession losses.

But Canadian Labour Congress economist Sylvain Schetagne questioned the general consensus that Canada has a healthy labour market.

He pointed out that there are 354,000 more officially unemployed today than there was before the recession — a reflection of growth in the labour market. He added that one in five workers are now part-time, a new high. The new entrants mean the economy would have had to produce more jobs than was lost just to stay level.

“Don’t tell me the labour market is back where it was when we have 300,000 more unemployed than we had in October 2008,” said Schetagne.

Porter agreed that the telling figure was the unemployment rate, which is still high and has been falling very slowly during the recovery.

With the economy slowing, the coming months may see further softness in jobs creation and an inching up of the unemployment rate, added the TD Bank’s Pascal Gauthier.

The biggest loss of full-time workers was in Quebec, which had a setback of 65,800, and Ontario, which lost 30,000 in the category.

The agency offered little explanation for such a reversal from what had been one of the world’s most robust employment records since the recession, other than a large 65,000 jobs loss in the education sector during the summer.

Aside from education workers — which included teachers, assistants, administrators and custodial staff — there were setbacks in the finance, insurance, real estate and leasing services.

Some positive news in the weak report was that the goods producing sector continued to grow, picking up 42,000 workers, including 28,500 in the still depressed factories sector. July was also a healthy month for student jobs, which experienced a gain of 56,000 positions.