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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
report 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.)
wage growth continues to decelerate, that should lead to reduced consumer
spending (and lower GDP growth) in the months ahead.
month but this trend is expected to reverse in short order (see my note on
housing starts below).
provincial governments planning to reduce spending, this job growth momentum is
also expected to be short lived.
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
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 (movesmartly.com) and on his own blog integratedmortgageplanners.com/blog). Email Dave