Articles

March saw employment gains of 41,000 (+0.2%), the strongest reading in five months, with Alberta (of all places) enjoying the largest improvement. This lowered the unemployment rate by 0.2 percentage points to 7.1%. So it is not surprising to see job weakness in April report. Indeed, employment was virtually unchanged last month (-2,100 or 0.0%) and the unemployment rate remained at the March level of 7.1%.

Employment in Alberta declined by 21,000, with the Alberta jobless rate little changed at 7.2%, as people dropped out of the labour force. No doubt the fires in Fort McMurray will have a meaningful impact on the May figures, but hopefully the job loss will be temporary and will reverse as the rebuilding begins. Compared with a year ago, employment in Alberta was down 37,000 (-1.6%), the weakest in the nation.

At the other end of the spectrum, British Columbia experienced an employment rise of 13,000 and the unemployment rate fell a whopping 0.7 percentage points to 5.8%–the lowest rate among the provinces. This is the first time that British Columbia has had the lowest unemployment rate among all the provinces since comparable data became available in 1976. On a year-over-year basis, employment in the province was up 110,000 (+4.9%). A strong upward trend was observed throughout the 12 months, driven by growth in wholesale and retail trade, health care and social assistance, and construction. This might help to explain at least some of the strength in the Vancouver housing market.

While employment was essentially unchanged in Ontario, an increase in the number of people searching for work pushed the unemployment rate up 0.2 percentage points to 7.0%. Compared with April 2015, employment gains for the province totalled 96,000 (+1.4%). Ontario will likely have the second strongest economy this year, second only to BC.

Employment in natural resources was down 7,800 in April, bringing total losses to 23,000 (-6.4%) on a year-over-year basis. Compared with its peak in April 2014, employment in this industry was down 50,000 (-12.9%), with most of the declines in Alberta.

Following an out-sized loss in manufacturing jobs in March (the biggest drop in nearly 7 years), employment in manufacturing continued its decline, falling by 17,000 in April. Since December 2015, it has declined 52,000 (-3.0%), and about half of the losses occurred in Alberta. The rise in the Canadian dollar and the weakness in the U.S. has dampened exports of manufactured products.

Data released this weak showed a sharp rise in the trade deficit (see chart) as exports fell more than imports. The drop in export volumes was particularly disappointing because it added further to the sizable February decline, although this followed out-sized gains during the previous two months. This earlier strength still points to export volumes rising by a robust 9.4% in the first quarter of 2016. With imports in the first quarter up by a lesser 2.5%, net exports are poised to contribute 1.8 percentage points to annualized gross domestic product (GDP) growth in the first quarter. With this addition and indications of solid consumer spending in the quarter, overall GDP still looks poised to rise by more than 3% in the first quarter.

Greater concerns as to the back-to-back declines in exports emerge with respect to the second quarter outlook, given the very weak hand-off implied by the March data. The outlook for exports going into the second quarter was dampened further by the temporary shutdown of the Keystone pipeline in April and the shutdown of oil production in the wake of the Fort McMurray fires. Expect some offset from a recovery in trade with the U.S., given the likelihood of strengthening growth in that economy after generally flat activity in the first quarter. Even allowing for some modest recovery in export growth during the second quarter, the data to date imply that net trade will likely subtract about half a percentage point from second-quarter 2016 GDP growth. This subtraction will contribute to overall GDP growth in Canada slowing to around 1.5% in the second quarter, well below the pace in the first quarter of likely over 3%.

The Bank of Canada’s most recent forecast assumed even greater slowing in growth in the current quarter to 1.0%. Nevertheless, the Bank of Canada will remain on the sidelines awaiting the stimulative effect of fiscal policy. Overall GDP growth in Canada this year is likely to be about 1.8%, pretty much in line with the Bank’s estimate of the potential (noninflationary) rate of growth.

U.S. Jobs Light On the Headline

U.S. employment increased a disappointing 160,000 in April, a step back from the first quarter average (209,000) and last year’s mean (229,000). The unemployment rate remained unchanged at 5.0%. Most industries continued to generate jobs, but job losses were once again reported in mining.

Average hourly earnings continued to rise, lifting the yearly rate to 2.5%. Though still low, wage growth is drifting higher as the slack in labour markets declines. Worker compensation as a share of national income has plummeted since the Great Recession, explaining voter disillusionment with politics as usual. The chart below shows compensation’s share is finally edging upward.

The U.S. posted weak growth in both the final quarter of 2015 and the first quarter of this year. Even with a rebound in the rest of the year, growth is likely to come in at about the same pace as in Canada, roughly 1.8%.