Canada hit with surprise jobs loss, weak housing starts
OTTAWA - The Canadian economy unexpectedly shed jobs in January, while housing starts plunged, suggesting global uncertainty, weak prices for Canadian oil, and a government clampdown on the property market will drag on growth in early 2013.
A slew of weak data released on Friday quickly knocked the Canadian dollar below parity with the U.S. dollar. Adding to the gloom were figures showing Canada posted a record trade deficit in 2012.
Statistics Canada said 21,900 people lost their jobs in January, surprising markets, which had expected a gain of 5,000 jobs after two very strong months of employment growth.
The jobs data could push the Bank of Canada off its slightly hawkish tilt, said Mark Chandler, strategist at RBC Capital.
The central bank has been saying for months that it will need to increase, not cut, interest rates, although in January it said that move was “less imminent”.
“Clearly ... jobs creation last year was unsustainable and we have to brace ourselves for something more sustainable this year,” said Stefane Marion, chief economist at National Bank Financial.
“You might have to reassess your growth expectations for the domestic economy this year, which means, in my view, that the Bank of Canada remains on the sideline through this year and no move before early 2014.”
The Bank of Canada last month slashed its forecast for fourth quarter annualized growth to 1% from 2.5%.
Challenges for the economy include weak foreign markets, a relatively strong Canadian dollar and discounted oil prices that are cutting into government revenues. In addition, Ottawa moved last June to clamp down on access to government-backed mortgages in an effort to curb rapidly rising housing prices.
In a sign the housing market is cooling far faster than expected, housing starts fell steeply in January to 160,577 units from 197,118 in December, according to the Canada Mortgage Housing Corp.
Canada’s trade deficit in December decreased by almost half to $901 million from the previous month. But the trade gap hit a record high of $11.92 billion for 2012 as a whole.
Analysts had expected employment growth to slow in January but were taken aback by the magnitude of the downturn.
“Bit of a surprise,” said Michael Gregory, chief economist at BMO Capital Markets. “This number has to be taken in the context of what has happened in the months before, so the underlying trend is probably more reflective now of the overall economy,” he said.
Although the number of people out of a job increased, a drop in the number seeking work pushed the unemployment rate down to a four-year low of 7%.
The Canadian dollar slipped as low as $1.0037 to the U.S. dollar, or $0.9963 US, on Friday, its lowest level since Jan. 30, reflecting the weaker-than-expected employment and housing figures.
Overnight index swaps, which trade based on expectations for the central bank’s key policy rate, showed traders lowered their already small bets on a rate hike in late 2012.
Canadian exporters - a major driver of the economy - had a year to forget in 2012, when political and fiscal uncertainty undermined demand in major markets such as the United States and European Union.
“We in Canada were mediocre in terms of sales to our key customer, the United States ... and we had a terrible track record with the EU and Japan,” said Peter Hall, chief economist at Export Development Canada.
Hall told Reuters there was evidence of a strong pick-up in demand in certain key U.S. sectors, such as auto sales, which would start to be reflected in Canadian exports.