The Canadian Month at a Glance: May 7, 2010

A Look at Recent Indicators: Employment Surprises on Upside

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Labour markets churned out 108,700 new jobs in April, well above consensus estimates, which clustered around 20,000. April marked the largest single monthly percentage gain in employment since August 2002—and gains came entirely from the private sector. Despite a surge in labour force participation in April, the job gains were so strong that they were able to nudge the unemployment rate down 0.1 percentage points to 8.1 per cent.

Most of April’s job gains—71,800—were concentrated among men aged 25 and older. Youth workers (those aged 15 to 24) and, to a lesser degree, women aged 25 and over, also recorded combined gains of 37,100. New employment was concentrated in services-producing industries: wholesale and retail trade (32,000); business building and support services (31,000); and information, culture, and recreation (20,000). The construction industry also created 24,000 new positions—which may, at least in part, be tied to stimulus funding.

A broad economic recovery is well under way. The Canadian economy grew by 0.3 per cent in February, marking the sixth consecutive monthly increase in gross domestic product. The goods-producing sector, which experienced a 0.7 per cent increase in output, accounted for the majority of the growth. Goods-producing industries enjoyed universal growth in February, with the manufacturing sector expanding 1.2 per cent and accounting for nearly half the total GDP gains registered in February. Although production of transportation equipment declined, this was offset by gains in 14 of the 21 manufacturing subcategories, including fabricated metal, pharmaceuticals, non-metallic mining, and computer and electronics.

Excluding declines in oil and gas production, the mining sector grew by 7.6 per cent. Surging potash production (and, to a lesser extent, extraction of copper, coal, and nickel) have offset oil production losses stemming from two fires at extraction facilities. Agriculture also posted a rebound of 0.7 per cent in February, following back-to-back monthly declines. Construction edged up a meagre 0.1 per cent, thanks entirely to a 2.2 per cent rise in residential activity, even as the eligibility period for the Home Renovation Tax Credit closed. Hopefully, stimulus spending will trickle into the broad economy soon—engineering and repair work, as well as non-residential construction, lost ground in February.

Sales of new trucks rose to 71,803 units, pushing truck purchases to their highest level since January 2008.

Rising disposable incomes propelled what little growth there was in the services-producing sector in February. On aggregate, the services industries contributed only a net 0.1 percentage points to national GDP in February. Wholesale trade sharply reversed course, declining by 1.4 per cent following five successive monthly gains. The finance, insurance, and real estate sector also fell, edging down 0.2 per cent, amid decreased stock market activity.

Despite sluggish activity elsewhere in the services sector, retail trade was propelled onward and upward by increases in household item purchases (e.g., apparel, motor vehicles, beer and wine, gasoline). Purchases of new motor vehicles surged 8.1 per cent to 138,336 units—an annual rate of 1.66 million units. (In the year prior to the recession, annual vehicle sales averaged 1.7 million units.) Truck and passenger car sales increases were neck-and-neck, with monthly increases of roughly 8 per cent each in February. Sales of new trucks rose to 71,803 units, pushing truck purchases to their highest level since January 2008. Nevertheless, new motor vehicle sales are still trending below historical levels. Furthermore, a see-saw pattern has emerged since early 2009, with sales gains one month being offset by losses the following month. And preliminary data suggest that vehicle sales will fall by 4 per cent in March.

Consumer prices are heating up, prompting the Bank of Canada to rescind its conditional commitment to hold interest rates steady at 0.25 per cent through the second quarter of 2010. The Bank of Canada’s core consumer price index, which excludes the most volatile components of the consumer basket, rose by 1.7 per cent over the 12 months to March. That followed a 2.1 per cent increase in February. Rising property taxes, food costs, and transportation expenses were the primary sources of inflation. Robust domestic housing markets, combined with a stronger-than-expected global economic recovery, have prompted the Bank to increase its forecast for GDP growth this year to 3.7 per cent.

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	Sabrina Browarski Economist Forecasting & Analysis