OTTAWA — Canada’s jobs engine appears to have stalled in line with economic growth, prompting some leading economists to call on Ottawa to hold off announced spending cuts.
The country’s unemployment rate rose to a nine-month high of 7.6 per cent last month, Statistics Canada reported Friday, as an addition of a mere 2,300 jobs proved insufficient to cover the increase of 23,700 Canadians looking for work.
If it had been a one-month blip, economists might have looked the other way. But January was merely the continuation of a half-year stretch of disappointing results. Since October, the economy has shed an average of just under 10,000 workers a month.
The bad news piled up Friday with the announcement that American-based Caterpillar Inc. will close its Electro-Motive plant in London, Ont., a month after it locked out 450 workers.
“I think (austerity) is unnecessary at this particular time and it will become increasingly clear as we progress through the year, because the economy is going to slow, the unemployment rate is going to be drifting up and housing is going to weakening,” said analyst David Madani of Toronto-based Capital Economics.
“Why do it now when the economy is that weak? It just seems over the top.”
Bank of Montreal economist Douglas Porter also questioned why now would be an appropriate time for austerity measures in a note to clients, pointing out that the federal deficit is about $9 billion below last year’s pace.
“The case for deeper near-term restraint is far from compelling,” he said. “Growth is now struggling and has few obvious engines of support in 2012.”
Madani said although the government’s planned cutbacks of between $4 billion and $8 billion in spending — along with phasing out stimulus and imposing a departmental budget freeze — is not of the order of some European nations, they are still sufficient to potentially “injure” the economy.
As they have all week, opposition MPs hammered the government benches Friday over the austerity measures, including the announced intention to rein in Old Age Security in future years.
In the absence of Finance Minister Jim Flaherty, who will be producing a new budget in a month’s time, House Leader Peter Van Loan gave no indication the Harper government was rethinking its schemes.
“We are very fortunate that Canada has been doing well relative to other major developed economies,” he responded, noting that over 600,000 new jobs have been added since the end of the recession in the summer of 2009.
But that boast looks to have an expiration date.
U.S. employment has been rising faster than in Canada for months, and Friday’s stateside labour report showed the recovering economy south of the border generated 243,000 new jobs in January, the best in nine months. The U.S. unemployment rate is also now inching closer to Canada’s, falling to 8.3 per cent.
Porter said the American economy may be one of the few strengths that Canada has going for it.
“That’s the big story even for Canada today, because it really does look like the U.S. economy has shaken off the rust and is up and moving again,” he said.
“I think one of the big themes this year is that after six years of Canada outpacing the U.S., the shoe is on the other foot this year. It looks like the U.S. is finally starting to outgrow Canada.”
Canadians should benefit from U.S. growth, given that about 70 per cent of exports head to markets south of the border, he said.
With a lag, a stronger than expected U.S. recovery this year should be supportive of job creation in the goods producing sector of the Canadian economy, manufacturing, transportation, wholesaleing and resource extraction.
The lengthy stall in Canadian job growth keeps surprising analysts, who for the past several months have been pencilling in growth of about 20,000 in their forecasts, only to have to take out the erasers when the data comes out.
One explanation is that employers front-ended their hiring in the first half of 2011, and have pulled back on concerns about Europe and the rest of the world.
After a strong start in 2011, employment in Canada has largely stalled since last summer, with only 20,000 or so jobs being added in the last six months. Even taking the year as a whole, the last 12 months has seen 129,000 jobs added, one of the weakest records in a non-recessionary period in many years.
The second-half stall has coincided with generally weaker economic conditions. Earlier in the week, the agency reported that the economy contracted slightly in November following a flat growth reading in October.
Wage gains also continued to track below the increase in cost of living at two per cent, compared to the 2.3 per cent inflation rate. In Ontario, the wages were only one per cent higher than a year earlier.
Madani said Bank of Canada governor Mark Carney should cut interest rates further, especially if Ottawa doesn’t act.
Most economists, however, say it is too early to consider a second-round of stimulus.
TD Bank chief economist Craig Alexander pointed out that the last few weeks have seen the risk of a European debt crisis spilling over to North America diminish, and the U.S. economy strengthening.
“Austerity is not going to jeopardize the economy, it will probably knock about half a point off of economic growth over the next several years, but that is a headwind the Canadian economy can cope with,” he said.
“I think the government should stay the course, and if things deteriorate, be flexible.”
Friday’s jobs report did contain a few bright spots. While overall employment was flat, there were 39,200 employees added, offset by a similar size decline in self-employment. Traditional employment is generally more stable and higher paying than self-generated work.
By sector, employment rose in the education, information, culture and recreation, and in other service industries in January.
Meanwhile, there were a big loss of 45,000 workers in the professional, scientific and technical services industries, and construction shed jobs despite the warm temperatures during the month. Manufacturing saw a small pick-up but remains 44,000 down over the last 12 months.
Regionally, there were few major changes in any province except Quebec. After a sharp drop in employment the previous few months, Canada’s second most populous province saw 9,500 new jobs added, bringing the unemployment rate down three-tenths of a point to 8.4 per cent.