New talk of a U.S. recession means that a fresh statistic out today will be of crucial interest to Canadians.
Yes, Statistics Canada releases its latest jobless figures this morning, which showed that Canada shed almost 6,000 jobs last month. But in some ways the equivalent number from the U.S. Department of Labor may be far more important to Canadians.
Our neighbours to the south added 151,000 new jobs in January, pushing the jobless rate to an eight-year low of 4.9 per cent. That's a strong showing and in keeping with what U.S. central banker Janet Yellen has been saying for months — that the American economy is on its way to recovery. And yet the business pages are still full of doubters.
A quick search of the R-word shows people are seriously considering that U.S. growth will go negative. Deutsche Bank has increased its recession reading to an uncomfortable 40-per-cent chance.
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There is certainly a new feeling of gloom in the air, much of it supported by recent economic data. The latest growth figures show the U.S. economy appears to be trending down. GDP growth for the final three months of 2015 dropped to less than one per cent, at 0.7 per cent.
Canada's latest GDP growth number, at 0.3 per cent, seems worse but that is just due to a quirk of statistical convention. Canada does not put out its numbers as quickly as our U.S. neighbours, so the 0.3 is for a single month, whereas the U.S. figure of 0.7 is for the final quarter.
The quirk is that while quarterly figures are annualised, monthly figures are not. So if we had 12 months of growth similar to what Canada had in November, the yearly figure would be 3.6 per cent. If the U.S. had four quarters like its last, the yearly figure would still be 0.7.
Monthly or even quarterly figures, of course, are just a small statistical sample and statistical economists say they only give you the merest inkling of where the economy may go next.
There was fresher data this week from the Institute for Supply Management, which issues an index based on industry surveys. The figures indicated that U.S. manufacturing was continuing to contract. The service sector was still positive, though not doing as well as it had been last time around.
Oddly enough, despite all the fears for the Canadian economy due to the fall in resource prices, January car sales were up strongly in Canada while they were down slightly in the U.S. That was blamed on the January snowmageddon that left Canada relatively unscathed.
Labour statistics are always important, but the current uncertainty means today's unemployment numbers will have more eyes following them than usual. Based on data collected in the middle of the month, job numbers are fresh and considered a relatively reliable economic indicator.
Spark of light
Last month, U.S. figures for December were a spark of light amidst all the new year market gloom. They seemed to prove that Fed chair Yellen got it right when she foresaw tighter demand in the U.S. economy, requiring a slow increase in interest rates.
This time, polls of economists — perhaps infected with the current gloomy contagion — showed they thought December's job boom would not continue.
- U.S. economy adds 292,000 jobs in December; jobless rate unchanged at 5%
- Canada added 22,800 jobs in December
Although Canadian employment numbers are always important to Canada, they are likely to reflect a continuing, two-speed economy, where resource jobs will shrink some more. But in many ways, the U.S. jobless figures are a more valuable indicator for the future of the Canadian economy.
Bank of Canada governor Stephen Poloz has repeatedly noted the importance of a recovering U.S. economy to a parallel Canadian export recovery. Only two weeks ago, Poloz reasserted his confidence in our southern neighbour.
"Solid fundamentals, including strong employment gains, high consumer confidence and very strong investment outside the energy sector, should see U.S. growth return to close to 2.5 per cent this year," Poloz told a room full of business reporters.
Even moderately strong U.S. job creation and an unemployment rate that stays at five per cent — a rate most economists call very near to full employment — will do much to dispel the fog of recessionary gloom.
But poor job creation and a rise in the U.S. jobless rate would have only perpetuated and maybe even accelerated the economic melancholy not just in the United States, but all the other places hoping America would be the country to lead the charge toward global recovery.
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