Hard to figure

The blows have been raining down thick and fast on the Canadian economy for many months. Industrial output, business investment and exports have been weak.  Statistics Canada just reported that real GDP growth fell to an annualized crawl of 0.3 percent in the final quarter of 2019.  This week the Bank of Canada instituted a 50 bp rate cut, and Governor Stephen Poloz followed up with a speech warning that the slow growth is set to persist at least in the near term, dragged down bu rail blockades, coronavirus, low resource prices and more.

So how to explain this?  Today Statistics Canada reported that the economy added 30,000 jobs in February, a result which it bizarrely described as "little changed", even though it is a larger increase than the average reported over the past twelve months.  The unemployment rate edged up to 5.6 percent, solely because more workers were searching for jobs in the month, something that does not tend to happen when the job market is perceived as weak.

The details of the report were also generally positive.  There were almost 38,000 new full time jobs in the month, offset by a small loss of part-time positions.  Employment grew particularly strongly in wholesale and retail trade, and there was a significant rise in manufacturing jobs. Year-on-year wage gains remain north of 4 percent, well above the rate of inflation.

Employment is generally regarded as a lagging indicator of economic activity. However, relying on  that to explain the strong jobs data is a stretch, given that the economy has been posting below-trend growth since the middle of 2019 -- just how long are those lags supposed to be?  Seasonal adjustment issues may be at play here, always a factor to consider in light of Canada's extremes of climate, although there were no particular weather events in February that might have thrown things off.  The standard error for the estimated employment gain is almost exactly equal to the gain itself, but that is not unusual with this notoriously volatile data series.

Today's data are welcome but do not suggest that the job of policymakers will become any easier in the months ahead. The rail blockades have all been lifted, at least for now, but the impact of coronavirus is only starting to be felt.  Governor Poloz has already made his move, and it is to be expected that Finance Minister Bill Morneau will soon follow up with a fiscal package.  Despite the February employment data, the economy is going to need all the help it can get.