Seldom does Canada lose more than 50,000 jobs in one month. That’s why October’s surprise loss of 54,000 has economists rethinking their rate forecasts all over again.
Debate about the need for a BoC rate cut may now grow a little louder, especially if we get another economic bombshell of this sort.
There was no shortage of reaction to Friday’s grim employment data. Here’s a sampling:
- “This is an extremely loud warning shot for the economy,”—Doug Porter, economist, BMO(Star)
- “Clearly it will discourage the Bank of Canada from raising interest rates for quite some time. If economic conditions deteriorate, it’s possible the Bank would cut interest rates. For the moment, though, we expect steady policy.”—Sal Guatieri, senior economist, BMO Capital Markets (Reuters)
- “It is definitely suggesting the economy is slowing. I don’t think it is enough to get the Bank of Canada to cut at this point, but one or two more of these and there is a strong possibility that the bank could start reducing interest rates.”—Sheryl King, head of Canadian economics, Bank of America-Merrill Lynch (Reuters)
- “Our expectation that the economy will be able to maintain its momentum and continue to grow at a reasonable clip in 2012 is consistent with the Bank’s next move being a rate hike; although given the current heightened level of uncertainty and prospect of subpar global growth, the first increase is not likely until the third quarter of 2012.”—Dawn Desjardins, Assistant Chief Economist, RBC Economics
Rob McLister, CMT
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Last modified: April 28, 2014
Despite low mortgage rates, refinancing activity has been slow and experts believe consumers seem to be ignoring rate reductions because they don’t feel like they’ll qualify for good deals, for them a place to check is “Official Refinance” online
Rate Cut will definitely help the economy.
A Rate cut may help the overall economy, but it will have a moderate if any help in spiking the real estate market I think. In the last month or so, we have seen effectively variable rates rise .25% or more in banks reducing the discounts off prime. If the BOC cuts rates by a quarter the banks may just cut more discount off. It is clear they do not want customers to take these products.
You need economists to tell you that the job market is coming to a crawl? My father happens to work in the manufacturing sector in Ontario. Even without all the credentials and fancy degrees he would tell you the job market has been brutal for the last two years and never fully recovered from the financial meltdown in 2008. StatCan’s employment tracking figures are full of holes. As long as the Canadian economy remains heavily leveraged to what’s happening in the U.S., the Canadian economy will never thrive without the U.S. economy demonstrating solid growth, at least not in sustainable way as we have just seen in these numbers. These employment figures shouldn’t come as a surprise but rather serve as a wake-up call that Canada has to start exporting to new emerging markets in greater quantities instead of being so dependent on the U.S.
RE: “These employment figures shouldn’t come as a surprise”
Really? When was the last time Canada shed 50k jobs in a month? Lior if you saw that coming then please advise how to subscribe to your economics newsletter. With that kind of foresight you will make me rich.
Trader Mike: the reality is the picture was always grim. StatCan doesn’t keep track of those who have been looking for work for a lengthy period or cases where EI coverage expired. Those people just dropped off the radar. In addition, as governments are getting ready to tackle huge deficits, we can expect to see quite a few public sector jobs shed as well. No where is the picture more grim than youth unemployment. If you know someone who’s a student and was looking for work this past summer, they’d tell you how difficult it was finding a job if they ever found one in the first place. We were led to believe that things were getting better when in fact they got a little bit better after the recession but things never returned to normal. Why do you think the BoC kept rates low even when the Conservatives triumphantly said that Canada gained back all the jobs that were lost? Because they knew the recovery was weak and any gains in employment could be wiped out very quickly with the kind of headwinds that were coming from the U.S. and Europe.
Just to add another quick point, I don’t believe a rate cut will do anything. First, the BoC doesn’t have that much headroom to cut rates. In fact, despite what they’re telling consumers, central bankers are largely out of ammunition when it comes to dealing with another period of slow growth or even recession. Just look at the Federal Reserve in the U.S.; despite cutting rates to nearly zero and embarking on two quantitative easing expeditions, the U.S. economy remain weak and unemployment remains stubbornly high. Another example is the ECB and its roll in the European debt crisis. Even though the ECB recently engaged in quantitative easing by buying Italian bonds in hopes of lowering the yield and giving Italy some breathing room, hypocritically if I may add as they gave $%#& to the Americans about doing the same thing, it too failed to assure the markets and Italy’s yields remains at a Eurozone era high (look at the 2-year and 10-year yield). So much for that.
Second, if people don’t have jobs, consumer confidence drops and borrowing slows down. So even if the BoC drops the rate to nearly zero like the Fed, with a shaky job market people borrow less and the banks become more hesitant to lend. The WSJ published an article a few weeks back that found 60% of small businesses in America can’t get credit. While I don’t believe this scenario will unravel in Canada, with a slower job market the banks will become more restrictive and this would actually impede economic growth even further.
Get ready for some brutal months ahead.
Just to add another quick point, I don’t believe a rate cut will do anything. First, the BoC doesn’t have that much headroom to cut rates. In fact, despite what they’re telling consumers, central bankers are largely out of ammunition when it comes to dealing with another period of slow growth or even recession. Just look at the Federal Reserve in the U.S.; despite cutting rates to nearly zero and embarking on two quantitative easing expeditions, the U.S. economy remain weak and unemployment remains stubbornly high. Another example is the ECB and its roll in the European debt crisis. Even though the ECB recently engaged in quantitative easing by buying Italian bonds in hopes of lowering the yield and giving Italy some breathing room, hypocritically if I may add as they gave $h%& to the Americans about doing the same thing, it too failed to assure the markets and Italy’s yields remains at a Eurozone era high (look at the 2-year and 10-year yield). So much for that.
Second, if people don’t have jobs, consumer confidence drops and borrowing slows down. So even if the BoC drops the rate to nearly zero like the Fed, with a shaky job market people borrow less and the banks become more hesitant to lend. The WSJ published an article a few weeks back that found 60% of small businesses in America can’t get credit. While I don’t believe this scenario will unravel in Canada, with a slower job market the banks will become more restrictive and this would actually impede economic growth even further.
Statscan does track people that have fallen off EI, people who have retired, and those who have stopped looking for a job, indirectly through the “Participation rate”, and it’s reported on their website every month.
You’re correct Lior.
I work at a marketing firm that only deals with the manufacturing and industrial sectors for B2B in Canada. They are getting shelled and we continue to lose advertising dollars from them.
Somebody please explain:
How would a .25% rate cut from 1% to .75% on the Bank of Canada prime rate help the economy in any notable way?
Seriously – is money not cheap enough where it is right now to be “stimulative”?
speaking for the average joe in this whole shaky mess of an economy, if the banks were to offer us decent long term fixed rates, and forget these ‘great’ four year rates i think people would lock and load and probably feel better about spending a bit more money…but why would the greedy banks do something like that and cut into their profit margin just to help the economy….and the good folks of this hard working and overtaxed country..aint gonna happen….
When it comes to job rates sagging the provinces that have a comparative advantage when it comes to job growth, i.e. Saskatchewan and Alberta, will become even bigger magnets and you might see a trend reversal in these places.
I suspect real estate activity will pick up relative to the rest of the country wherever there are jobs to be found.
Why would I lock into a long term rate… pay penalties when I move, refinance, etc?? Feel better about spending more money? Just doesnt make sense to me…I guess there’s a reason why your the average joe and I’m not. I believe in paying the least amount in the shortest time span so I can build future wealth for my family.
Over-taxed we are Mr. Average. We can drink to that.
Economic growth directly effects the over all interest rates, and with stagnant growth , I am not looking to see the rates to fall much lower than they are now. Sadly, companies are leery of taking on a loan without seeing some improvement coming, and improvement can only come with increased consumer spending. This spending can only come from job security and job growth, which can not happen without increased consumer spending.
It is a vicious cycle that only businesses can break. With the low interest rate of today, companies would be wise to seriously consider borrowing to expand their market, thus creating jobs and simulating the economy.
i’m on a variable and i plan to stay there…what I meant was if we ever got offered long term fixed rates as low as they are in the united states i would lock in….but i know canuck banks will never ever offer those and so i have a low variable and jumping from it doesnt make much sense right now….or even in the near future given the european problems….
Lior-
I have heard rumors that Stats Canada wasn’t even reporting unemployment in non-Conservative ridings before the last election. So, either they are reporting on unemployment in more ridings (due to their increased seat count) or the pork barreling that was going on before the election has run out, and the Conservative electorate are now paying the price. So for the numbers to jump so much is an omen we should all pay attention to.
I am not convinced China and the rest of Asia are ready to step up and assume their role as global consumers just yet, though. Until they put money into helping Europe and the US recover, I am very suspicious of doing business with them. How many products – and indeed even entire retail fronts – have been copied by Chinese ‘entrepreneurs’? In Canada, we worry about music being downloaded illegally; yet in China an entire Apple store is copied and no penalty for the business owner.
They ain’t going to buy European and American made products when they can copy them for less. And as far as our services go, would you buy stock from an ex-Lehman Brothers employee?
And then again, perhaps the lights are starting to go on for consumers. Maybe they realize that notwithstanding the low rates, what goes down must go up. Maybe they are thinking ahead for a change.
I think the tax system in Canada is a reasonable tradeoff. We’re not as bad as the Europeans but also not undertaxed like the Americans. The consequences of being undertaxed is the disappearance of the middle class. In America, people there are selfish and completely allergic to paying taxes. As a result, the government can’t fund many of the social programs we take for granted here in Canada such universal healthcare. And the social security system there is on the brink of collapse. But heaven’s forbid, don’t add a tax on pop soda!