Canadian job losses in December were the heaviest since May 2003 as the softening US economy and strong currency battered manufacturers, making an interest rate cut by the Bank of Canada almost a certainty.
Statistics Canada reported that payrolls fell by 18,700, beating even the most pessimistic forecasts. The unemployment rate remained unchanged at 5.9% and annual wage inflation, closely watched by the Bank of Canada when setting monetary policy, sped up to 4.9% from 4.1% in November.
“A very disappointing number, just shocking expectations to the downside with an outright job loss,” said Eric Lascelles, chief economics and rates strategist at TD Securities.
“I think the Bank of Canada is already prepped for rate cuts and I think it validates that position. I don’t think we’re at the point where a 50 basis point rate cut is at all justified in Canada but the 25s are good to go,” he said.
The Bank of Canada sets its overnight lending rate on Jan. 22 and is widely expected to lower it to 4.00% from 4.25%, following a quarter-point cut in December.
The Canadian dollar sank to its lowest level in a month versus the US dollar after the report to 98.02 US cents, valuing each US dollar at C$1.0202, down from 99.27 US cents, or C$1.0074.
But as markets become increasingly jumpy over the prospects of a US recession and its spillover effects on Canada, there were voices calling for calm.
“It’s not time to push the panic button,” said Garth Whyte, executive vice-president of the Canadian Federation of Independent Business. “This is not a trend yet.”
Jobs growth has been remarkably strong through most of 2007 and the average monthly gain over the past three months was a healthy 30,000. Employment gained 2.2% in the year compared with 0.2% in the United States.
CFIB’s fourth-quarter survey of small and mid-sized companies, which represent 60% of total employment, showed 60% of firms expect their employment levels to remain stable in 2008 and 31% expect it to increase.
EXPORTS STRONG, FOR NOW
A separate release showed Canadian exports staged a comeback in November despite the currency’s spike against the US dollar that month, widening the trade balance to C$3.70 billion ($3.63 billion) from C$3.13 billion in October.
After a three-month slide, exports gained 3.1% to C$37.91 billion, outpacing import growth of 1.7% to C$34.21 billion.
Exports to Canada’s top trading partner, the United States, rose 2.1% and the surplus with the neighboring country expanded for the first time since August.
Economists do not expect the export strength to last.
“The second consecutive increase in the trade surplus is welcome, but the goods surplus, which is in a deteriorating trend, is about equal to the non-goods deficit, meaning Canada could soon be running a current account deficit for the first time in nearly a decade,” said Benjamin Reitzes of BMO Capital Markets.
In volume terms, exports rose 2.5% and imports grew 1.0%, Statscan said. (Reuters)