David Rosenberg: Latest labour data shows Canadians are begging the Bank of Canada for renewed rate relief
The industry-wide Canadian employment data for March were a complete dud, with the number of jobs sliding 54,100 after a 40,200 slump in February, according to Statistics Canada’s Survey of Employment, Payrolls and Hours. And remember, the Labour Force Survey for April showed virtually no rebound at all. The workweek was flat for the 10th time in the past 11 months and down 0.2 per cent month over month in the goods-producing sector.
There can really be little doubt that the Canadian economy has entered a recession , and the Bank of Canada would be well advised to move out of the dugout and onto the baseball field.
Interestingly, and rather disturbingly, you can’t even pin the trade battle on this horrible report because the manufacturing sector only posted a modest decline (1,800). The vast majority of the employment loss was in the services sector (59,500). This came on the heels of a 32,700 contraction in February to mark the largest back-to-back declines since the spring of 2020.
The combined 3,500 slippage in manufacturing and transportation/warehousing is a sure sign that the Canadian dollar rally has been both problematic and worrisome when it comes to aggravating the downturn in these export-oriented industries.
Meanwhile, the heavy losses in real estate, construction, retail and finance are very important because these are the most interest-sensitive sectors of the economy and they are begging Bank of Canada governor Tiff Macklem to provide more rate relief.
The fact that accommodation/food services (basically the leisure-hospitality space), arguably the most domestically economic-sensitive segment of the economy and the heartbeat of consumer discretionary spending, could sag 8,400 and falter now in each of the past three months is a telling statistic regarding the acceleration in financial stresses in the household sector.
This was on full display in the latest bank earnings numbers, where the main feature was the continued increase in loan loss reserve provisioning.
The year-over-year trend in industry employment has cooled off dramatically from 3.5 per cent two years ago to 1.3 per cent a year ago to 0.2 per cent currently. Outside the 2020 pandemic recession and the post-COVID-19 period in early 2021, you have to go back to the early months of 2010, when the Canadian economy was crawling out of the great recession, to see the 12-month pace of employment this weak. Another message to the Bank of Canada to get moving again.
One thing is for sure: there was no inflation coming out of this latest report, with average hourly earnings for salaried workers as flat as a beavertail, and that followed a 1.6 per cent month-over-month February downturn. Hourly employees actually saw a 0.2 per cent month-over-month wage pullback on top of a stagnant February.
The investment implications are clear : go short the Canadian dollar and go long the front end of the Bank of Canada bond curve.
While it seems a tad bizarre to sound so downbeat on the Canadian economy at a time when the equity market has tested all-time highs, make no mistake, the local macro backdrop is on very shaky ground.
The divergence goes to show how loose the relationship is between stock valuations and the economy: the Toronto Stock Exchange is not gross domestic product. The pace of real activity right now is 1.6 per cent year on year. That doesn’t sound so bad until you consider that population growth has come in at 2.7 per cent, so that generates a minus 0.9 per cent year-over-year trend in real per capita economic activity.
Less than 60 per cent of Canadians who entered the labour market in the past 12 months in search of a job have managed to find one. The ranks of the unemployed have ballooned 14 per cent over the past year to 1.55 million — not exactly the definition of economic vitality.
Ergo, the unemployment rate has climbed to 6.9 per cent from 6.2 per cent a year ago and 5.1 per cent two years ago. A 180-basis point increase over a two-year period in the jobless rate in the past has been a sure-fire recession indicator (though the economists at the Organization of Economic Co-operation and Development have put on a happy face in this regard).
The broadest form of unemployment, the R-8 measure, which includes all forms of idle labour resources, has risen to 9.2 per cent from 8.4 per cent a year ago and 7.2 per cent two years ago. That is a ton of slack and that’s something the Bank of Canada should be devoting its attention to because no way, no how, do we squeeze any inflation juice down the road out of this lemon.
David Rosenberg is founder and president of independent research firm Rosenberg Research & Associates Inc. To receive more of David Rosenberg’s insights and analysis, you can sign up for a complimentary, one-month trial on the Rosenberg Research website.
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