Canada’s economy showed signs of strength today with gains in employment and housing, ending a week where the central bank delayed a plan to raise interest rates and the finance minister said slower growth is sapping revenue needed to curb deficits.
Employment rose by 50,700 last month, Statistics Canada reported today, more than double the highest prediction in a Bloomberg News survey of 22 economists. Canada and the U.S. both reported unemployment rates at four-year lows, suggesting demand from the country that buys three-quarters of Canada’s exports may be on the rise.
“We are seeing a slow but steady improvement in the jobless rate even amid relatively modest growth in this country,” said Doug Porter, Bank of Montreal’s chief economist. “Maybe even better news is the much better job numbers we have seen out of the U.S. today.”
Finance Minister Jim Flaherty said today Canada can expect “modest” growth after reviewing forecasts from Porter and other economists, as he prepares a budget he will probably deliver in the next few weeks. Canada’s dollar rose for a second day after both job reports, strengthening as much as 0.6 percent to C$1.0235 per U.S. dollar in Toronto before paring gains. Government bond yields rose, with five-year debt seeing the biggest jump since Oct. 17, to as high as 1.40 percent from 1.34 percent.
Those gains were supported by Canada Mortgage & Housing Corp.’s report today that the pace of work on new homes rose 14 percent in February to an annual pace of 180,719 units, the first increase in six months.
The Canadian data was “good economic news,” Flaherty told reporters. “The U.S. job numbers this morning are also good.”
U.S. employment rose 236,000 last month, Labor Department figures showed today in Washington. The median forecast of 90 economists surveyed by Bloomberg projected an advance of 165,000.
The job market remains one of the stronger parts of Canada’s recovery as retailers including Lowe’s Cos. (LOW:US) tap into consumer spending and resource companies expand production.
“The hiring boom seems to have resumed,” said Paul Ferley, assistant chief economist in Toronto at Royal Bank of Canada. “It’s a solid report providing encouragement the weak growth numbers we were looking at in the second half of last year will be reversed.”
Employment in services rose by 59,300 in February while jobs related to goods production fell by 8,600, Statistics Canada said today.
Professional, scientific and technical service jobs rose by 26,200 last month. Retail and wholesale employment increased by 13,200 and food service and accommodation by 21,100.
Lowe’s said last month it will hire about 1,000 workers in the next few months at its Canadian home improvement stores.
“The Canadian job market struck back with a vengeance,” said Jimmy Jean, a strategist in the fixed-income group at Desjardins Capital Markets in Montreal. Statistics Canada said yesterday the country had the smallest merchandise trade deficit in almost a year in January on higher exports of crude oil and bitumen.
Full-time employment rose by 33,600, while part-time work grew by 17,200, Statistics Canada said today. Private companies hired 29,200 workers in February, exceeding the 9,400 increase in public sector jobs.
The positive reports came at the end of a week where Bank of Canada Governor Mark Carney said his policy rate will probably be unchanged “for a period of time” after inflation slowed more than he forecast. As well, Statistics Canada reported last week that growth in the world’s 11th largest economy slowed to a 0.6 percent annualized pace in the fourth quarter, making the second half of 2012 the weakest since Canada emerged from recession in 2009.
Canada won’t sustain the improvement in the job market, economists predict. The unemployment rate will remain above 7 percent this year according to economists surveyed by Bloomberg. The measure averaged 6.2 percent in the three years before Canada’s last recession began around the end of 2008, according to Bloomberg calculations.
Much of Canada’s expansion this year rests on a shift from consumer spending that’s led growth for years, said Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce in Toronto.
“The real challenge will be for Canada if the global recovery doesn’t pick up by 2014,” Shenfeld said. “We do need to get a handoff from sectors like housing and consumer spending to exports and business investment spending, and we are going to depend on the kindness of strangers to do that.”
In the near term, Canada is facing weaker-than-expected growth in nominal output, Flaherty said, which will have a “significant” impact on government revenue. Canada will manage the shortfall in the fiscal plan through spending restraint and closing of tax loopholes and remains “on track” to balance its budget in 2015, he said.
Peggy Nash, finance spokeswoman for the main opposition New Democratic Party, said “the news from Canada’s private sector economists is worrying and in stark contrast to what Minister Flaherty has been telling Canadians.”
In an e-mailed statement, Nash said Canada needs “a real plan to spur investments and create jobs, not more reckless cuts.”
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