OTTAWA — The key pillar of Canada’s recovery — the spectacular year-long jobs growth that had sustained the consumer economy — may finally be starting to crumble, analysts say.
With almost all economic indicators trending downwards in recent months, the last domino to fall may be employment, ending a run of solid job creation that began last July.
Since that month, the Canadian economy created 310,000 jobs, recouping three quarters of the jobs lost during the painful 2008-2009 recession.
Growth came mainly from housing and construction, the public sector and a recovery in manufacturing, but the jobless rate remains stubbornly high at 8.1 per cent and shows little sign of improvement.
The first signs of a slowdown actually came in May, but at a 25,000 pick-up that was only disappointing when compared to the whopping 109,000 gain of April.
But now economists surveyed expect even Canada’s labour market will take a breather when Statistics Canada announces its jobs report for June on Friday. And if not this month, then next.
The consensus is for a 15,000 growth in the number of jobs added to the economy, which would be the lowest since December. Some economists wouldn’t be surprised if the economy actually sheds jobs in June.
“Very few economists are sticking their necks out on this one,” said Derek Holt, vice-president of economics with Scotia Capital.
“My gut is we’ll see the pace of job creation in the second half this year slow. We had that very short-lived V-phase (recovery) in the U.S. and Canada and that was driven by a bunch of one-off factors and is simply not sustainable.”
Traditionally seen as a lagging indicator, Canada’s employment record has surprised with not only the strength of the rebound from recession, but also by how quickly. Employment gains began not after output improved, but coincidentally.
The Canadian jobs growth since last July of 310,000 jobs is the equivalent of about 3.5 million jobs if they occurred in the U.S., where the employment market remains stalled and the jobless rate approaches 10 per cent.
The Canadian employment growth has coincided with the economy expanding by 4.9 per cent in the last three months of 2009, and by a decade-best 6.1 per cent in the first quarter of 2010.
Since then, however, economic indicators have returned to earth. Consumer spending, housing, auto purchases and exporters have all come in lower than expected.
Economic output began the second quarter with a surprisingly flat April reading, following strong gains of 0.6 per cent in March and 0.5 per cent in February.
Tuesday brought fresh evidence that the soaring economic growth of the latter part of a 2009 and early 2010 is indeed returning to earth, with a report showing the value of building permits fell 10.8 per cent in May.
In big Canadian cities like Vancouver and Toronto, the resale housing market has also been squeezed by rising mortgage rates, sluggish consumer sentiment and relatively flat income growth.
Analysts say it is unlikely employment can buck the trend for long, especially with global growth also moderating and concerns of further softening once governments move from spending to restraint.
“I do think the risks are tilted to the downside with this month’s report,” said TD Bank economist Derek Burleton. “Given the run we’ve had we could see a payback, and we are seeing economic growth moderate.”
Although economists wouldn’t be surprised if Statistics Canada finds jobs were lost last month, it would still cause somewhat of a shock to markets, especially since Canada has been one of the strongest performers among advanced economies.
“This would add to the growing list of indicators suggesting growth is slowing significantly, and add to the talk of a double-dip recession,” he said.
It would also give Bank of Canada governor Mark Carney another reason to pause later this month after breaking ranks with other G7 countries last month by raising interest rates one-quarter point.
Analysts had expected Carney to follow up June’s hike with a similar increase on July 20, but given the uncertainty in Europe, gathering clouds over the global economy and Canada’s own economic slowdown, that sure bet has turned into a coin flip.
Bank of Montreal economist Michael Gregory says the consensus remains that Carney will take the policy rate to a still low 0.75 per cent, then pause throughout the fall.
If he does, it will have virtually no impact on the economy or real-world interest rates, said Holt. He notes that even as the Bank of Canada is in a tightening mode — likely to raise borrowing costs further — longer-term interest rates are actually declining as the market makes its own assumptions about the economy.
In the past few days, several banks lowered some of their mortgage rates by a tenth of a percentage point.