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Free AccessMNI BOC State of Play: More Job Gains But Exports Disappoint
By Yali N'Diaye
OTTAWA (MNI) - The Bank of Canada had some data to be encouraged about on
the domestic front Friday but also something to be disappointed about on the
export front.
Statistics Canada reported Friday that the Canadian economy added jobs for
the eighth consecutive month in July, when employment rose 10,900, led by
full-time positions which were up 35,100.
The unemployment rate decreased to 6.3%, its lowest level since October
2008, although this was in large part due to the lower participation rate as
less people searched for a job.
The number of hours worked rose 1.9% year-over-year, picking up from June,
when they were up 1.4%. And while average hourly wage growth was steady at an
unimpressive 1.3% year-over-year in July, average weekly wage growth accelerated
to 1.4% from 1.1%.
Yet wage growth continues to show little upward pressure. Also on the
downside, all positions were self-employed as the number of employees was down
2,400, led by private-sector employment, which decreased 3,200 in July.
Still, the employment report was overall positive considering the economy
has been constantly adding jobs for the past eight months, with a visible
rotation towards more full-time positions rather than part-time jobs.
On the external front, data released Friday by Statistics Canada were far
less encouraging, with the deficit widening to C$3.6 billion in June from C$1.4
billion in May. The disappointment was reinforced by revisions for the worse in
May, April, and March, now all showing larger deficits than initially reported.
The bad news was that weaker exports were responsible for the poor
performance, as they were down 4.3% on the month, with a 2.7% price drop only
part of the story. Volumes were indeed down 1.7%.
While energy played a role, with exports down 9.2%, exports excluding
energy products were still down 3.4%.
The reason is that declines were widespread: 9 of 11 categories recorded
lower exports.
On the bright side, imports of industrial machinery, equipment and parts
rose 1.8%, a good sign for investment activity in Canada.
In addition, June export weakness came on the back of three consecutive
months of solid gains.
Besides, the Bank of Canada is already expecting GDP growth to lose some
steam in the third quarter. And even if the BOC insists on being data dependent,
it is unlikely to adjust its policy to just one month, especially considering
the volatility of trade data.
Of note, June export weakness, including a 4.5% drop in exports to the
U.S., Canada's main trading partner, occurred amid renewed strengthening of the
Canadian dollar against the greenback since May, and a sustained appreciation of
the currency, or an acceleration of it, could eventually impact the bank's
judgment on the impact not only on exports, but also on inflation.
For now, however, given the growth slowdown already factored in for the
third quarter, the decrease in exports coming after three months of gains is
unlikely to worry the BOC, leaving a fall rate hike on the table.
Yet the central bank has also said it will carefully gauge the impact of
higher rates on the economy, making a gradual rate increase more likely than
not.
On that front, housing and debt-related trends also remain on the radar.
While federal and provincial measures are expected to cool down the housing
market in the Toronto region, the BOC is not projecting any housing crash.
Still, the Toronto Real Estate Board announced Thursday that home resales
in Toronto plunged 40.4% in July year-over-year.
However, the TREB said the drop "had more to do with psychology, with
would-be home buyers on the sidelines waiting to see how market conditions
evolve."
"As we move through the fall, we should start to get a better sense of the
impacts of the Fair Housing Plan and higher borrowing costs," it added.
--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com
[TOPICS: M$C$$$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.