Canada's Housing Bubble

Aug 06, 2010 Jeremy Torobin theglobeandmail.com

A man looks over employment opportunities at a jobs centre. Robert Galbraith/Reuters

Canadian economy loses a net 9,300 jobs in July

The labour market’s stunning rebound of recent months ground to a halt in July, as the economy lost a net 9,300 jobs and the unemployment rate edged back up to 8 per cent, according to data released from Statistics Canada on Friday.

The unexpected drop marks the first decline in employment this year and comes after a near-record increase of more than 93,000 jobs in the previous month. The jobless rate rose unexpectedly from 7.9 per cent in June, when it had fallen below 8 per cent for the first time since early 2009.

Canadian employment and jobless rate

In July, employers slashed 139,000 full-time positions while adding almost 130,000 part-time jobs. The full-time losses included drops of more than 65,000 jobs in education services as many teachers, administrators and custodial staff shifted to part-time status at the end of the school year, and about 30,000 in finance, insurance, real estate and leasing, in part because the housing market is cooling across the country.

Since July of 2009 though, Canada’s recovery from the recession has included the creation of 393,700 positions, Statscan said Friday, meaning that even with the drop last month the economy has still recouped most of the jobs lost during the slump. Indeed, manufacturing, one of the hardest-hit industries when exports to the U.S. plunged in late 2008, saw a monthly gain of about 29,000 jobs - the biggest increase in two years.

The surprise dip in employment pushed the Canadian dollar down for the first time in three days because it boosts the likelihood that the Bank of Canada will pause its tightening cycle after one or two more interest-rate hikes. Equally important to the trajectory of the economy and the central bank’s rate path, the U.S. Labour Department reported Friday that American private employers added 71,000 jobs in July, fewer than expected and not enough to cut into the 9.5-per-cent unemployment rate as the U.S. Census Bureau laid off tens of thousands of temporary workers.

Economists took the tepid Canadian reading in stride, saying it was in the works after June’s gain and an unprecedented increase of about 109,000 two months earlier, and dismissing the notion that the drop may be the start of a new trend.

``The first drop in employment since December does not signal a fundamental shift in the economy,’’ said Doug Porter, deputy chief economist at BMO Nesbitt Burns in Toronto. ``The main driver of the weakness was the heavy-duty decline in education jobs, which looks highly suspect - look for a recovery on this front in the months ahead. 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.’’

That’s in stark contrast to the U.S. labour market, which will be very slow to recover the 8.4 million jobs lost during that country’s worst downturn since the Depression as companies remain skittish about hiring.

Still, economic growth from April to June slowed to almost half the pace of the previous quarter, the Bank of Canada said in a quarterly forecast last month, kicking off four consecutive quarters in which austerity measures in Europe and a fragile U.S. rebound will contribute to a slower domestic recovery than the central bank had expected. Governor Mark Carney and his deputies say Canada’s growth at an annual rate slowed to 3 per cent in the second quarter, after a 6.1-per-cent pace in the first three months of the year, and that growth will come in at a 2.8-per-cent pace in the current quarter and 3.2 per cent between October and December.

Canada’s bounce-back from the global downturn has been the envy of the Group of Seven club of advanced economies, and Mr. Carney has already raised interest rates twice starting in early June. His next decision is scheduled for Sept. 8.

Even as the U.S. economy seems at risk of a dreaded ``double-dip’’ back into recession, which could be disastrous for Canadian exporters, the July report from StatsCan indicated that some inflationary pressures could be building on this side of the border. Average hourly wages rose 2.2 per cent in July from the same month a year earlier, compared with a 1.7-per-cent pace in June.