8.5% unemployed
OTTAWA – Financial markets were dealt a reality check yesterday with disappointing December jobs data from Canada and, more notably, the United States signalling an uneven and choppy recovery, and prompting U.S. analysts to scale back expectations on rate hikes.
Analysts noted, however, that an improving trend is definitely emerging in both countries. Furthermore, some reckon unemployment levels in Canada may have peaked.
Statistics Canada said the economy lost 2,600 jobs last month, but the unemployment rate remained unchanged at 8.5%. Markets expected 20,000 new jobs in December, after an off-the-chart 79,000 gain in November.
“It’s looking more believable by the day that the 8.7% jobless rate in August will mark the peak for the cycle, far below past recession highs — 13% in 1982 and 12.1% in 1992 — and no worse than the average unemployment rate in Canada over the past 30 years,” said Douglas Porter, deputy chief economist at BMO Capital Markets.
Stewart Hall, economist at HSBC Securities Canada, said there was “palatable” disappointment given the big gain in November. But the fact the economy held onto most of those jobs “is in and of itself fairly significant,” he said.
With the December figures in hand, they suggest the Canadian economy shed 240,000 jobs in 2009 — the bulk of which occurred in the first half of the year. In the last five months of the year, the economy generated an average of 20,000 new jobs per month.
Mr. Hall said average monthly gains of 20,000 are likely in the offing, as this recovery is likely to mirror the one following the recession of the early 1990s. “One characterized by some jobs growth followed by consolidation. Not terrific, but infinitely preferable to the experience of the previous year.”
The Canadian recession ended in the third quarter with meagre annualized growth of 0.4%, as domestic strength was offset by a weak export sector that was hampered by a strong Canadian dollar and weak U.S. demand. Economists estimate growth in the final three months of 2009 to register between 3% and 4%.
The Bank of Canada is expected to begin raising its benchmark lending rate in the third quarter. There is less confidence about near-term tightening from the U.S. Federal Reserve Board.
The U.S. Bureau of Labor Statistics said non-farm employment in December fell 85,000, compared to expectations for no change. The unemployment rate was unchanged at 10%, although analysts note it was due to a plunge in the labour force, as people stopped looking for work.
“Firms are still bent on boosting productivity and remain cautious about hiring,” analysts from London-based Capital Economics said of the U.S. data.
The yield on the two-year U.S. Treasury note — a market gauge of interest rate expectations — dropped yesterday below 1%, indicating analysts believe the likelihood of a Fed rate hike has been “pushed out for a few more months,” Ajay Rajadhyaksha, head of U.S. fixed-income strategy at Barclays PLC in New York, told Bloomberg News.
The U.S. bureau noted, however, that during 2009 monthly job losses moderated, from an average 691,000 in the first quarter to 69,000 in the fourth quarter. Also, the bureau revised data for November indicating the U.S. economy created 4,000 jobs — the first monthly gain in more than two years.
Still, Avery Shenfeld, chief economist at CIBC World Markets, said the 10% U.S. jobless rate masks the “true extent” of labour slack, “as it ignores those working part-time involuntarily [and] those who gave up looking for work.”
As a result, the Fed is unlikely to raise rates for some time.