Employment was down 31K in July according to the Labour Force Survey

Week in review

Canada – Employment was down 31K in July according to the Labour Force Survey, significantly below consensus calling for a 10K increase. The participation rate fell one tick to 65.4%, while the job losses caused the unemployment rate to rise one tick to 6.9%. The rise in private employment (+14K) was more than offset by declines in government (-42K) and selfemployment (-3K). Full-time employment dropped 71K while part-time jobs were up 40K. The goods sector (-4K) was down with gains in agriculture and manufacturing being more than offset by declines in resources, utilities and construction. Services sector employment was also down 27K with gains in healthcare and transportation/warehousing among others being more than offset by major losses in public administration and trade. On a regional basis, BC employment rose 12K while Ontario (-36K), Quebec (-4K), and Alberta (-2K) were down.

The merchandise trade deficit deteriorated to C$3.6 bn in June (from a revised C$3.5 bn deficit the prior month) as nominal imports (+0.8%) rose faster than exports (+0.6%). That was the worst trade deficit on records. Imports got a lift thanks to energy, metal ores and electronic equipment which more than offset declines for industrial machinery and aircrafts. Gains for exporters of energy, agricultural products and consumer goods offset declines in aerospace and autos and parts. The energy trade surplus rose to C$3.3 bn, but the non-energy trade deficit widened to C$6.95 bn. In real terms, Canada’s exports fell 1.2%, while imports were roughly flat. Looking at the quarter as a whole, real exports fell 19.9% annualized in Q2, the biggest slump since the recession of 2009, while imports were up 1.6% in the quarter. So, unless there was an outsized offset from services exports, trade was a massive drag on economic growth in Q2. Adding to the bad news is the continued decline in imports of industrial machinery which suggest the investment collapse extended to Q2.

United States – Non farm payrolls rose 255K in July, much stronger than the 180K expected by consensus. Adding to the good news were upward revisions to prior months that added 18K to payrolls. In July, the private sector added 217K jobs with gains in services (+201K) and even the goods sector (+16K). The increase in goods sector employment was due to manufacturing and construction which dwarfed further losses in the mining sector. The private services sector job gains were driven by education/health (+36K), leisure/hospitality (+45K), business services (+70K), and trade/transportation (+29K). Government added 38K positions. Average hourly earnings rose 0.3% in the month or 2.6% on a year-on-year basis. The private sector employment diffusion index jumped to 63.7, the highest in a year and a half. The other US employment report, the household survey (similar methodology to Canada’s LFS) showed 420K new jobs being created in July with gains in both full-time (+306K) and part-time employment. But the one-tick increase in the participation rate to 62.8%, caused the jobless rate to remain unchanged at 4.9%.

The ADP employment report showed a 179K increase in July. The job gains were mostly in medium-sized firms which added 68K jobs, while small firms i.e. those employing less than 50 employees, added 61K to payrolls. Large firms (500+ employees) added 50K net new positions.

The ISM manufacturing index dropped to 52.6 in July (from 53.2 the prior month). The prices paid index declined to 55.0 (from 60.5) and new orders dropped slightly to 56.9 (from 57.0), while the production sub-index rose to 55.4 (from 54.7). The employment sub-index was back in contraction mode at 49.4.

The non-manufacturing ISM index dropped to 55.5 in July from 56.5 in the prior month. New orders sub-index rose to 60.3 from 59.9 while employment dropped to 51.4 from 52.7. The business activity sub-index declined slightly to 59.3.

Personal income rose 0.2% in June while personal spending rose 0.4%. As a result, the savings rate fell to 5.3%, the lowest in 8 months. In real terms, spending rose 0.3% while disposable income was up 0.1% in the month. The PCE deflator rose 0.1% in June, causing the year-on-year rate to remain at 0.9%. The core PCE deflator was up 0.1%, leaving the annual core rate at a mild 1.6%.

Construction spending fell 0.6% in June after an upwardly revised -0.1% the prior month. The decrease was driven by both the non-residential construction (-1.0%) and the residential sector (-0.1%).

Factory orders fell 1.5% in June as the slump for durable goods (3.9% decline largely due to aircrafts) dwarfed gains for nondurables. Excluding transportation, factory orders rose 0.4%.

The trade deficit widened to $44.5 bn in June from the prior month’s deficit of $41 bn. The deterioration in the trade balance was due to imports (+1.9%) rising faster than exports (+0.3%). In real terms, imports rose 1.8% while exports fell 0.5%.

World – The Bank of England loosened monetary policy this week by cutting its target interest rates to a record low of 0.25% and expanding its asset purchase program by £60 bn to £435 bn. The BoE supported the decision to provide more stimulus by downgrading its growth forecasts for the UK in the aftermath of the Brexit vote. The central bank said the outlook for the medium-term was weaker due to softer demand and lower supply capacity which are likely to open up spare capacity and cause the jobless rate to rise. In the Eurozone, retail volumes were flat in June. For Q2 as a whole, retail volumes grew just 0.5% annualized, the weakest pace of growth since 2014.

Markit published manufacturing purchasing managers indices for July for a range of countries this week. The index was above 50, i.e. in expansion mode in China, India, Taiwan, Korea, Vietnam and Mexico (although the latter was at 33-month low). Factories were in contraction mode in Japan, Brazil, Russia, Turkey, Malaysia, and Indonesia.

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