Canada – Employment declined 2K in April according to the Labour Force Survey, essentially in line with consensus calling for a 1K rise. The jobless rate remained unchanged at 7.1% as the participation rate dropped to 65.8% from 65.9%. The private sector (+14K) and government (+8K) rises were more than offset by decline in self-employment (-25K). Full-time employment declined 2K while part-time jobs were unchanged. Total hours worked remained essentially unchanged. The goods sector (-37K) was down with losses in all sub-sectors - construction (-6K), manufacturing (-17K), resources (-8K), agriculture (-7K) and utilities (-0.2K).
Services sector employment was sharply up +35K with major gains in trade and accommodation/food among others more than offsetting losses in business services and other services. BC (+13K) was the top performer while Alberta (-21K), Manitoba (-3K) and Ontario (- 3K) experienced the largest losses. A modest decline after a huge gain (+40.6K in March) is rather good news for the Canadian labor market. We are particularly pleased to see fulltime and private jobs gains of the previous month being confirmed by April’s data. As a result, this year’s monthly average stands at 8K, a slight moderation compared to last year’s performance of 13K and consistent with our view for 2016. However, all is not rosy in this report. Total hours worked did not increase over the past three months perhaps indicating that the economy is set to moderate sharply in the second quarter as consumers take a breather after an outsized performance in Q1. Moreover, exports weakened in March. We continue to see an 8K average monthly growth in 2016 as BC and Central Canada should continue to compensate for weaknesses in energy-producing provinces. Note that wildfires in Alberta will affect the numbers over the next few months.
In March, the merchandise trade deficit widened to a record C$3.4 billion as nominal exports slumped 4.8%, outpacing imports, which slid only half as fast (-2.4%). With the exception of aerospace, sales were down in all the broad export categories, including autos (-6%) and energy (-4%). Imports fell despite a sharp increase for energy (+13.5%). As a result, the energy trade surplus dropped to just C$2.7 billion, a 7-year low. The non-energy trade deficit widened to C$6.1 billion, its worst showing since August 2015. In real terms, Canada’s exports tumbled 3.1% while imports slipped 0.5%.
The report was much worse than expected. However, thanks to an excellent handoff from last year and an explosive start to 2016, real exports actually rose a strong 8.7% annualized in Q1, outgrowing imports (+3%) nearly three times as fast. This suggests that trade contributed positively to GDP growth over this period. The same trade report showed weak imports of machinery and equipment, which points instead to continued weakness in investment spending in the quarter. All in all, Canada remains on track for GDP growth of roughly 3% annualized in Q1. Looking ahead, we expect exports to rebound in several categories, including autos, which should get a boost from strong U.S. demand and the lagged impact of a weak Canadian dollar.
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