A barrage of awful economic reports have emerged over the state of Canada's economy in recent weeks.
First up was fresh evidence that Canada's manufacturing sector is struggling, despite all the support it has received from cheap oil and the low loonie. Factory sales fell in May by 1%, the third monthly drop this year, Macleans reported.
After that, Canada suffered the steepest monthly decline in GDP since 2009, as the full impact of the Fort McMurray wildfires caused the economy to shrink by 0.6% in May.
As Statistics Canada noted at the time, the majority of the downturn was due to the fires, but not all of it. In fact, in three of the first five months of 2016, according to available data, Canada's real GDP declined on a monthly basis, even when the beleaguered oil sands are taken out of the picture.
Then on Friday there were reports on the jobs and exports fronts. First, the wallop from Statistics Canada’s labor force survey—the country lost over 31,000 in July, a far, far cry from the 10,000 new jobs that were expected to be created. Ontario in particular was hit hard, losing more than 36,000 positions.
The opposition parties, Conservatives and NDP, members alike say the latest numbers have cast a pall over Prime Minister Justin Trudeau's prolonged political honeymoon and say it's high time the Liberals took action.
Perhaps one of the most troubling aspects of the jobs report, though, was that hourly wage growth has hit a wall, climbing just 1.8% over last year, compared to an annual gain of 3.25% in February. When combined together the drop in employment, slumping wage gains and stagnant growth in hours worked, paint a picture of a labor market in distress.
Trade Deficit Widens
Canada’s trade deficit—the gap between the value of the goods it buys from the rest of the world and what it sells—widened to its largest in history. The trade shortfall hit a record $3.6 billion in June—in fact, of Canada’s 10 largest monthly trade deficits of all time, five have occurred this year alone.
Worst of all, non-energy exports suffered a fifth straight monthly decline, and fell 3.5% from the year before, the biggest year-over-year decline since 2012.
As it is, this has already been the weakest recovery for business investment in decades, with the private sector on track for its lowest share of capital construction expenditures in a quarter century. So it’s hard to see businesses opening up their wallets to invest, which is what’s sorely needed in order to reduce the economy’s over-reliance on consumer spending and real estate.
Problem for BoC
This is also likely to make the job of Bank of Canada Governor Stephen Poloz a lot more difficult. The recovery in non-energy exports, driven by the weaker loonie and a strengthening US economy, was an important part of his explanation for how Canada would finally move beyond the effects of low oil prices.
At the very least, that recovery seems to be on hold, though perhaps continued improvements south of the border—a report on Friday showed the US economy created 255,000 jobs, exceeding expectations of 180,000 new jobs—will boost Canada’s non-resource economy in the coming months. If that doesn’t happen, Poloz may feel he has to cut interest rates again, at the risk of further inflating housing bubbles in Toronto and Vancouver.
Before Poloz does that, though, he will want to see if the fiscal stimulus measures revealed in the Prime Minister Justin Trudeau government’s first budget work as promised.
Ottawa plans to run a $29 billion deficit in fiscal 2016-17 as it rolls out its stimulus measures, including spending on infrastructure and enhanced child benefits. Last month the first payments under the new Canada Child Benefit went out to households, with some economists predicting it will add 0.1 to 0.2 percentage points to GDP this year due to higher consumer spending.
The government forecasted that its budget measures would add 0.5 percentage points to GDP.
