Economic Indicators Review: June 2012

– In June, employment rose by 7.3k, overshooting consensus expectations for a 5k hike and confounding our forecast for a 10k decline. Job gains registered mostly in the full-time category (+29.3k) and in the public sector (+38.9k). Private sector jobs were down 26k on the month. Agriculture recorded its largest monthly drop on record at -20k. There were notable retreats in other segments as well, including information, culture and recreation (-31k) and accommodation and food services (- 13k).

At the provincial level, Ontario was the stand-out with a 20k advance. Alberta (-9k) and Quebec (-5k) were the worst performers. The jobless rate edged down to 7.2%. Canadian job numbers were disappointing at first glance given the big losses in the private sector. However, as these were mostly in agriculture, we think that a rebound could be forthcoming. Still, the fact remains that the private sector racked up a loss of almost 50k jobs in the past two months. With commodity prices falling and the global economy losing steam, we would be surprised to see hiring pick up markedly in the private sector. As for the public sector, June’s groundswell is not sustainable. All in all, we think that job creation will hold at an underlying cruising speed below 10k in the months ahead. This means that the jobless rate is likely to move upward.

In May, building permits jumped 7.4% to $7.0 billion after slumping 4.4% in April. After four consecutive monthly declines, residential permits ended a four-month negative streak springing 8.5% to $4.1 billion. Non-residential permits rose 6.0% to $2.9 billion. Singles permits were up 2.1%. While the value of building permits sank in Newfoundland and Labrador, New Brunswick and Quebec, it rose in the other provinces.

United States – In June, total nonfarm payroll employment rose by 80k and recorded its weakest three-month gain since the fall of 2010. The private sector added 84k jobs while governments cut 4k on a net basis. Employment in the manufacturing sector grew 11k. In Q2, manufacturing job gains averaged 10k a month compared with 41k in Q1. In the service sector, a total of 71k jobs were added in the month versus 126k in May. Although job creation remained anemic in the month, other employment stats showed more vigour. Average hourly earnings increased 6 cents to $23.50 and total hours worked increased 0.4%. The wage bill grew 0.6%, leaving the quarterly gain at 2.3%. The number of unemployed stayed roughly level (12.7 million) and the unemployment rate held at 8.2%.

Again in June, the ISM manufacturing index slipped to 49.7, its first sub-50 reading in three years. Most of the drop was accounted for by the new-orders component, which plunged 12.3 points to 47.8. The weakness stemmed in large part from the external sector. Indeed, new export orders collapsed while new import orders remained buoyant. With Chinese growth cooling and the eurozone stalling on the back of fiscal austerity, new export orders are likely to remain under pressure in the coming months. The ISM non-manufacturing index fared better pegging in at 52.1, though this was nevertheless its lowest reading since January 2010.

After falling 0.7% in April and 2.1% in March, factory orders rallied in May with a 0.7% gain. Excluding transportation, orders rose 0.4%. Despite advancing 2.3% in the month, capital-goods orders receded 6.9% on a three-month annualized basis. Total shipments climbed 0.5% and the ratio of inventories to shipments slid to 1.27 months from 1.28 in April. However, declining oil prices were a factor in this state of affairs. Still in May, construction spending rose 0.9% to its highest level in more than two years. Much of the gain was concentrated in the private residential segment (+3.0%) though private nonresidential spending progressed as well (+0.4%). Spending on public construction sagged 0.4% in the month while the value of state and local government agency projects dropped to its lowest level since late 2006.

In June, passenger cars and light trucks sold at a seasonally adjusted annualized pace of 14.05 million units, up from 11.51 million the year before.

Euro Area – As expected, the ECB cut its key interest rate by 25 basis points to 0.75%. In addition, the central bank lowered its deposit rate to zero. With growth softening over a broader base, the ECB felt justified to ease its policy stance further.