A tough job, Governor Poloz.

I hope nobody tried to tell Stephen Poloz that being Governor of the Bank of Canada was an easy gig. Even if you ignore all of the hectoring from the cheap seats, there's no question that it's hard right now to get a clear fix on the state of the economy.

The January employment report, released today, illustrates this very clearly.  The overall change in employment -- a loss of 5700 jobs -- was worse than analysts' expectations, and the national unemployment rate ticked up to 7.2 percent. Unsurprisingly, there was further job weakness in oil-dependent Alberta, which shed 15,000 jobs in the month and has now lost 35,000 in the course of the past year.  The province's unemployment rate has reached 7.4 percent, the first time it has moved above the national rate since December 1988.

More surprising, and much harder to analyze, are the data for the remaining provinces.  For the second month in a row, only Ontario posted any increase in jobs; more on that in a moment.  But what do we make of the fact that there were falls in employment not only in the other oil-dependent provinces -- Newfoundland/Labrador and Saskatchewan -- but also in six non-oil-producing provinces as well.  The detailed data provide few clues.

What should we (and Governor Poloz) make of the last two months' data for Ontario?  The Province added 20,000 jobs in January, almost enough to offset the losses across the rest of Canada.  Interestingly, 10,000 people returned to the Ontario workforce in the course of the month, which may be an indication of increasing optimism on the part of workers.  One possible explanation for the data is the unseasonably warm weather in both December and January, which must have played havoc with StatsCan's seasonal adjustment factors.  However, the weather was also benign in Quebec, but that Province did not show similar trends.

Maybe, then, the improvement in Ontario's job picture vindicates the Bank's expectation that the low Canadian dollar will eventually help rebalance the economy away from its dependence on resource extraction.  It would be nice to think so; but if that's the case, how should the Bank react to the recent bounce in the exchange rate, which has rallied from 68 cents (US) to 73 cents in just a couple of weeks?  Will that be enough to halt or even reverse the signs of improvement in Ontario, and if so, what can or should the Bank do about it?

Tough questions for Gov. Poloz to contemplate. At its January rate-setting meeting, the Bank left its reference rate unchanged at 0.50 percent.  Gov. Poloz's statement at the time seemed to suggest that the Bank is now looking to the Federal Government to do its part to boost the economy, through the "temporary" fiscal stimulus that it promised during last year's election campaign. In principle that seems the right thing to do; however, it's now known that the fiscal situation is much worse than the outgoing government claimed -- there's already a deficit, even before the promised spending gets started. We'll have to wait for the budget, some time in March, to see whether the new Government is spooked into doing too little on the fiscal front, thereby passing the buck back to the Bank of Canada.