Economists: Canada’s trade deficit matters more than slowing job creation

Plus: what the analysts are saying about U.S. employment and trade data

To recap:

  • Canadian employment dropped by 55,000 jobs in March, roughly as much as it had risen in February. The unemployment rate climbed up to 7.2 per cent from seven per cent in the previous month. Most of the jobs lost were full-time and from the private sector. Manufacturing was the biggest losers, shedding 24,000 positions, the third consecutive month of declines.
  • Canada’s trade deficit widened to $1 billion in February, up from a revised  $746 million in January. Exports dipped 0.6 per cent, reversing two consecutive months of growth. Imports inched up 0.1 per cent. In terms of volume, exports declined 0.6 per cent and imports 0.4 per cent.
  • U.S. employment posted a modest gain of 88,000 jobs in March, the smallest increase in nine months. The reading was in line with other economic indicators out last month hinting that the bout of growth of the first three months of the year is coming to an end. Unemployment declined to 7.6 per cent from 7.7 per cent, but the dip was driven by more Americans giving up on the job search and thus dropping out of the government’s unemployment head count.
  • The U.S. trade deficit narrowed to a better-than-expected $43 billion in February 2013 from a revised $44.5 billion in January. In terms of volume, exports were up 0.2 per cent and import down 0.3 per cent.

What the analysts say:

  • The Canadian labour market is “coming back to earth,” writes TD’s Diana Petramala. The pace of job creation is now more in line with Canada’s modest growth after previous suspiciously high employment gains. Expect the economy to churn out about 10,000 to 12,000 jobs per month for the next little while, without further net losses. More concerning than the headline number is the dismal performance of the manufacturing sector, which has shed a grand total of 105,000 jobs since May of last year. That’s a bad signal from Canada’s export industries, which many hoped would sustain Canada’s economic growth as the housing market cools and indebted consumers keep spending in check. The economy might not live up to TD’s 1.6 per cent GDP growth forecast for the first three months of 2013.
  • Canada’s widening trade deficit was particularly disappointing considering that a weaker loonie should have given exports a boost, writes TD’s Jonathan Bendiner.
  • On U.S. employment numbers, “few, if any, expected the figures to come in quite as weak as they did,” writes Andrew Grantham at CIBC. Although numerous disappointing March readings had tamed expectations, the 88,000 jobs gain was about half the consensus expectation.
  • While the U.S. trade balance improved, it only partially recouped a considerable deterioration in January, notes RBC’s Nathan Janzen, who doesn’t expect net trade to have much of an impact on overall growth in the quarter growth. RBC’s forecast for the first three months of 2013 remains at 2.3 per cent of GDP.


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