Latest Canadian Employment Data Falls Into Line (Monday Interest Rate Update)

Dave Larock in Monday Interest Rate Update, Mortgages and Finance, Home Buying, Toronto Real Estate News

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For the past several months there has been a disconnect in the Canadian economic

While most measures (GDP growth, income growth, inflation) have shown our
economic momentum to be slowing for some time, we have still managed to generate
a surprisingly robust average of 27,000 new jobs each month over the most recent
six months. But sooner or later the data had to converge and when Statistics
Canada released its latest employment
on Friday of last week, they did just that.

Here is a summary of the important details in the January report:

  • The Canadian economy lost 21,900 jobs for the month and 18,800 of those jobs
    were full-time positions.
  • The manufacturing sector lost 21,600 jobs in January and that marked the
    second monthly decline over the last three months. Manufacturing jobs are
    important because they produce a powerful multiplier effect that spreads
    throughout the broader economy. (This was highlighted in a report by the
    Department of Finance last year which estimated, for example, that each
    manufacturing job in the automotive industry produces 3.6 other jobs, 2.4 of
    which are in non-manufacturing sectors.)

  • Year-over-year wage growth slowed to 2.0% in January, down from 2.4%. If
    wage growth continues to decelerate, that should lead to reduced consumer
    spending (and lower GDP growth) in the months ahead.
  • The construction sector contributed 17,100 new jobs to the economy last
    month but this trend is expected to reverse in short order (see my note on
    housing starts below).
  • The public sector added 15,400 jobs for the month but with our federal and
    provincial governments planning to reduce spending, this job growth momentum is
    also expected to be short lived.
  • From the Sometimes Quirky World of Official Statistics file: The
    unemployment rate fell from 7.1% to 7.0% despite the fact that the economy lost
    jobs for the month. This is because the reduction in the number of jobs was
    more than offset by the 57,500 Canadians who gave up looking for work and are
    therefore no longer being counted in the official unemployment rate. Of course,
    when a large number of discouraged workers give up looking for work, that’s a
    bad sign for the job market, no matter what the headline number says.
  • Last Friday we also received new data that showed a sharp drop in housing
    starts in December , most specifically for condominiums in the Toronto area. On
    the one hand, construction spending has served as a key source of economic
    growth for some time, so a significant slowdown in this sector will take some
    wind out of our economic sails. But on the other hand, the federal government
    has been bound and determined to slow multi-residential development in Toronto
    and Vancouver. If the latest rule changes achieve that desired effect, another
    round of mortgage rule changes (which would have otherwise been inevitable)
    becomes less likely.

    Five-year Government of Canada (GoC) bond yields were nine basis points lower
    for the week, closing at 1.44% on Friday. Five-year fixed-mortgage rates were
    largely unchanged for the week and can still be found in the sub-3% range. While
    last week’s drop in GoC bond yields should reduce the risk of an imminent hike
    in fixed-mortgage rates, borrowers are still well advised to lock in a
    pre-approval nonetheless to eliminate the risk of any unexpected short term

    Five-year variable-rate mortgages are still offered in the prime minus 0.40%
    range for qualified borrowers (which works out to 2.60% using today’s prime
    rate). While the spread between five-year fixed and variable rates is narrow
    using historical comparisons, variable rates are still cheaper and data like
    the latest employment numbers bolster my view that they will remain so for the
    foreseeable future.

    The bottom line: When the Bank of Canada finally softened its
    interest-rate language in its last policy statement, I saw that as a sign that
    subsequent pieces of key economic data, like employment, would show more signs
    of our economy downshifting. Violà.

    The good news is that interest rates do not look to be going anywhere for a
    while yet; the bad news is that, at least in the short term, our economy doesn't
    look to be going anywhere either.

    David Larock is an independent mortgage planner and industry insider specializing in helping clients purchase, refinance or renew their mortgages. David's posts appear weekly on this blog ( and on his own blog Email Dave

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