Canadian Employment Plummets - Unemployment Rate Falls

Daily Forex Fundamentals | Written by RBC Financial Group | Aug 08 08 14:23 GMT |


Employment in Canada has for most of this year surprised on the upside though this was quickly reversed with this morning's numbers for July. Hiring was much weaker than expected, plummeting 55,000 in the month. Expectations had been for a modest increase of 5,000 that would have reversed a similar-sized drop in employment in June. Surprisingly, the increase was paired with a fall in the unemployment rate to 6.1% from 6.2% in June. However, the reason behind the fall was that there was a sizeable 74,000 outflow of individuals from the labour force, mainly among youth workers. The weakening job market contributed to annual growth in wages for permanent workers dropping to 3.8% in July from 4.3% in June.

The fall in employment was skewed to part-time workers which dropped 48,000 and was mainly concentrated in adult women workers. Full-time employment fell as well though by a more moderate 7,000. On the basis of private versus public sector, the weakness was solidly concentrated in the former which saw jobs plummeting 95,000 with public sector jobs rising 29,000. There was also an 11,000 increase in self-employment. On an industry basis , the weakness was relatively broadly based with both goods-producing and service-producing industries showing weakness. Manufacturing jobs dropped 32,000 with business services jobs off 30,000 and educational services employment dropping 27,000. The only significant offset was in accommodation and food services where employment rose 22,000.

The weakness in manufacturing likely contributed to employment declines in both Ontario (-19,000) and Quebec (-30,000). The report also showed a surprising 4,000 drop in employment in Saskatchewan where most other indicators are showing robust economic activity.

Today's report provides strong evidence that labour markets are starting to succumb to weakening GDP growth. Although the Bank of Canada has recently put greater emphasis on the risk of inflation pressures taking hold in the economy, today's report will re-establish the downside risks to growth as of equal concern. These offsetting risks will likely result in the central bank holding interest rates steady near term with the central bank monitoring the data for signs that one or the other risk has come to dominate. Our forecast assumes that the current 3.00% overnight rate will prove sufficient to eventually revive growth. As this becomes evident in 2009, the Bank of Canada is expected to very gradually remove this stimulus allowing interest rates to move higher.

Next week in the U.S.

There are no economic releases scheduled for review today. Next week will be a busy one with the Trade Balance figures due on Tuesday. The June trade deficit is expected to deteriorate to $61.5 billion from May's unexpectedly small deficit of $59.8 billion.

Wednesday brings the Advance Retail Sales numbers. Retail sales growth is expected to decline 0.2% in July following the minimal 0.1% rise in June and the 0.8% surge in May.

On Thursday the Consumer Price Index announcements will be released and we expect that overall consumer prices in July will rise 0.4%, down sharply from the 1.1% surge that occurred in June.

Friday data includes the Industrial Production and Capacity Utilization figures. We are assuming that industrial production will be down 0.1% in July largely reflecting indications that manufacturing activity was likely down in the month, given the drop in employment in that sector.

RBC Financial Group
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The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.