It's all good, on the surface

Canada's economy added 10,800 jobs in November, pushing the unemployment rate down to 6.8 percent.  That's a good thing, right? Well, not exactly.  I've noted here many times that Canada's labour force survey is so volatile as to be almost incomprehensible, but in this case the details point very clearly to one conclusion: the job market is not as healthy as it seems on the surface.

For one thing, all of the new jobs were part-time in nature, as indeed they have been for the past year and more.  For another, the fall in the unemployment rate was almost entirely the result of workers leaving the labour force altogether, which usually means people are giving up looking for work because they have little expectation of finding any.  Then again -- and this is where the unfathomable volatility of this series is so frustrating -- labour force participation had seemed to be improving in recent months, so the decline in November may just be an anomaly, rather than a new, unfavourable trend.

The employment numbers were the second release from StatsCan this week that may not have been quite as good as they first appeared.  On Wednesday the agency reported that GDP grew at a 3.5 percent annualized rate in Q3, way ahead of the analysts' consensus.  Moreover, the wildfire-driven decline in Q2 GDP, originally reported at an annualized 1.6 percent, was revised to 1.3 percent.  The principal driving factor, no surprise here, was a 6.1 percent rebound in energy exports, as the area around Fort McMurray returned to normal activity levels.

What's next?  Probably not more of the same.  Although GDP grew 0.3 percent in September, setting up a strong base for Q4 growth, the improvement in the month was yet again largely down to the energy sector.  Stripping that out, real GDP only rose by 0.1 percent in the month, suggesting yet again that the Bank of Canada's and the government's hopes of seeing the economy rebalance away from its dependence on resource extraction continue to be unfulfilled.

In fact, events may be starting to conspire against that rebalancing happening at all.  This week's OPEC production cut, if it holds (a huge "if") will give a boost to Canada's oil patch.  Just the prospect of that happening has pushed the Canadian dollar back above 75 cents (US), eroding the exchange rate competitiveness that is supposed to give sectors like manufacturing a boost.

And then, of course, there's the Trump factor. The President-elect's condemnation of the NAFTA trade agreement has been mainly aimed at Mexico, but Canada is also a signatory to that deal. There's no realistic possibility that any revision of that deal, assuming that Trump doesn't just cancel it outright, will work in Canada's favour.  In the absence of NAFTA, the US will still be willing to accept Canadian energy exports, albeit in declining amounts as US production continues to ramp up.  For other sectors, however, especially manufacturing, the prospect of a post-NAFTA world is truly worrying.  Bank of Canada Governor Stephen Poloz says it's too soon to tell what the Trump impact on Canada will be.  Maybe so, but it's not too soon to fret about it.