Canadian economic data: it's all bad

Bad, bad data on the Canadian economy today: a record trade deficit for June, and an unexpected fall in employment in July, even as the US posted another round of solid employment gains. The lingering effects of the Fort McMurray fire certainly explain some of the weakness, but it's clear that the underlying trends in the economy are not good.

Canada's trade performance in the last three months has been unusually weak. In May, the outcome was heavily affected by the Fort Mac fire, and that impact lingered into June, resulting in the largest monthly trade deficit yet recorded -- the previous record having been set just a month earlier!  Although the value of energy exports rose in the month, thanks to higher product prices, the volume fell.  With things back to normal in the oil sands region (though there has been some extensive flooding in the past week), July should see export volumes return to their usual levels, providing some relief to the overall trade picture.

The key message from the data, however, is the continuing absence of any real evidence that the longed-for rebalancing of the economy, away from its long-standing reliance on energy exports, is actually happening.  To take one example, exports of metal and mineral products, which account for about 10 percent of all exports, are down a staggering 16 percent year-on-year. News from the automotive sector is more positive, with a yearly gain of over 10 percent, but just about every auto plant in Canada is under almost daily threat of closure, with the jobs supposedly headed to cheaper, less union-friendly climes.  It's no surprise that the Canadian dollar weakened sharply in response to today's data release.

The employment data are, if anything, even more depressing than the trade numbers, not least because of the sharp contrast with what's happening in the United States. South of the border, the economy added 255,000 jobs in July, far above the Wall Street consensus of 180,000 -- and more importantly, well above the 125,000 per month pace that the Fed seems to see as the minimum requirement for further policy tightening. And in Canada? A loss of 31,000 jobs in the month, far short of analysts' expectations of a 10,000 gain.

The details of the data make equally discouraging reading.  Full-time employment fell by 71,000 in the month, only partially offset by a 40,000 increase in the number of part-time employed.  The job losses were concentrated at the younger end of the labour force.  The national unemployment rate edged up to 6.9 percent -- by contrast, the rate in the US is stable at 4.9 percent, as the improving employment situation there continues to encourage job seekers to return to the workforce.

It's worth recalling that the Canadian employment data are subject to wild fluctuations from one month to the next: the standard error in the estimate of the number of employees, according to StatsCan, is 36,000, significantly larger than the monthly change reported today. Even so, the contrast between the Canadian and US employment pictures is stark. We wait to see whether the Liberal government's much-ballyhoo'd infrastructure spending plans, which should start to see "shovels in the ground" in the next few months, will finally get the labour market back to a more positive trend.