Canadian economy at a turning point?

Almost all of the recent data on the Canadian economy have been strong.  GDP rose much more quickly than expected in May, retail sales are robust, housing prices have started to recover and exports are at record levels despite the Trump trade war. At first glance,  employment data for July, released this morning by Statistics Canada, seem to tell the same story.  The details of the report, however, may be starting to point in a less favourable direction.

In terms of the headlines, the economy added 54,000 new jobs in the month, well above expectations.  This pushed the national unemployment rate down by 0.2 percentage points to 5.8 percent, matching the multi-decade low seen in May.

But let's look at some of those pesky details:

• The net gain in employment for July was more than fully accounted for by part-time jobs, which rose by 82,000 in the month, offset by a loss of 28,000 full-time positions.  This marks the second straight month that part-time positions have accounted for the bulk of the headline gain in employment.  For the past year and more, effectively all of the gains in employment have been of the full time variety, but this now seems to be starting to change.  On a rolling 12-moth basis, full-time jobs are still predominant (211,000 out of 246,000) but the pattern does seem to be shifting in a less-favourable direction.

• For the second month in a row, Ontario led the job gains, posting an increase of 61,000 in July.  There are two important reasons to believe that this cannot continue.  First, Ontario is clearly the Province most exposed to any escalation of the incipient tariff war with the US, especially if the threatened tariffs on automobile exports come to fruition.  Second, it seems certain that the new Ford administration will have to start cutting public sector payrolls if it is to meet its assumed budget targets, even though it pledged not to do so during the election campaign. 

• Virtually all of the new jobs in July -- just below 50,000 -- were in the public sector, with only 5,000 new private sector jobs created in the month.  This seems to suggest that the state of the overall economy may not be as robust as the headline level of job creation seems to suggest.  

None of this implies that the Canadian economy is about to hit a brick wall.  However, some of the near-euphoria that recent economic data have prompted in part of the media is almost certainly overblown. Further monetary tightening by the Bank of Canada still seems likely, most probably early in Q4, but there is little prospect of a return to the above-trend growth rate seen a couple of quarters ago.