Week in review: Canadian employment disappoints, odds of a rate cut dim

Week in review

Canada – Employment dropped 1K in February according to the Labour Force Survey, essentially in line with consensus which was looking for a decline of 5K. This performance, coupled with an increasing participation rate at 65.8%, allowed the jobless rate to increase two ticks to 6.8%. Paid jobs were down 5K while self-employment was up 4K. The decline in paid jobs was entirely in the private sector (- 29K), which dwarfed the 24K increase in the public sector. The goods sector jobs dropped 24K as losses in manufacturing, agriculture, utilities and resources more than offset the 16K rise in construction. Services sector employment rose 23K with gains in educational services, trade and healthcare among others, more than offsetting declines in information/recreation and other services. Full-time employment rose 34K, while parttime employment was down 35K. Hours worked were essentially flat. The February jobs report turned out to be much stronger than we had anticipated. The strain of falling energy prices is certainly evident in Western Canada with all of the provinces recording job losses on the month with Alberta bearing the brunt of the decline. Fortunately, Ontario and Quebec are providing a full offset (those were the only two provinces with jobs gain in February). Having said this, we are not happy to see that manufacturing jobs were down nearly 20,000 on the month. Also, the diffusion was poor with only seven of the major sixteen industries reporting jobs gains on the month. Still, after two months in 2015, total employment is already up 34,000 with 22,000 full-time jobs. However, private sector jobs are down 28,000. All and all, the odds for another rate cut in Canada are lessening but a rate hike will take a long time coming.

Housing starts tumbled 16% in February to an annualized rate of 156K units. Multiple-dwelling starts fell 25% to their lowest level since 2011 while urban single-detached starts sank 4%. More than half of the overall decrease was concentrated in Ontario (-16.1K). However, starts were down in most of the other regions as well, including the Atlantic Provinces (-5.8K), Quebec (-2.4K), Manitoba (-3.5K), British Columbia (-2.8K), and Alberta (-0.4K). In Saskatchewan, they edged up 0.2K. Though cold weather and snow storms contributed to sharpen the decline, some giveback following the January spike in Toronto played a role as well. Overall, we still expect about 175K housing starts in Canada in 2015 (down from 189.3K in 2014). In the meantime, starts are set to be a drag on economic growth for a second straight quarter.

In February, the Teranet–National Bank National Composite House Price Index™ rose 0.1% after gaining 0.2% in January and declining in both December and November 2014. House prices were up in only three of the 11 metropolitan markets surveyed, namely, 1.5% in Vancouver, 0.5% in Victoria, and 0.3% in Hamilton. They were down 0.1% in Toronto and Quebec City, 0.3% in Calgary and Montreal, 0.6% in Halifax, 0.8% in Edmonton, 1.0% in Winnipeg, and 2.1% in Ottawa- Gatineau. The drop in Edmonton was a first but the recent deterioration in market conditions there suggests the correction is not likely over. For a fourth month running, the pace at which house prices increased y/y decelerated. Indeed, the Composite Index was up 4.4% y/y in February, the slowest growth rate since December 2013. Still, strong y/y gains were recorded in Hamilton (8.0%), Toronto (7.3%), Vancouver (5.7%), and Calgary (5.6%). However, prices were down from a year earlier in Winnipeg (-1.0%), Ottawa-Gatineau (-1.2%) and Montreal (-2.4%). Though it is early in the year, the data suggest that if house prices do climb at the national level in 2015, the gain will not be widespread and could be limited mostly to Vancouver and Toronto.

In 2014Q4, industries operated at 83.6% of their production capacity, compared with 83.2% the previous quarter.

United States – In February, retail sales were weaker than expected, declining for a third consecutive month (-0.6%) instead of registering a small gain. Sales of autos and other motor vehicles pulled back 2.6%, with dealers blaming bad weather for the poor showing. Excluding autos, retail sales were still down 0.1%. General merchandise stores saw sales shrink 1.2%. A few categories did manage higher sales, including food and beverage stores (0.3%) and gasoline stations (1.5%). In the latter’s case, the advance might have been due to higher pump prices. Indeed, the price for regular gasoline averaged $2.10 a gallon in January, compared with $2.41 on February 28. Nevertheless, with the job market strong and gasoline prices still low, retail sales should pick up this spring once the harsh winter weather becomes a thing of the past.

In February, the NFIB Small Business Optimism Index ticked up to 98.0 though it remained below its 2014 year-end reading of 100.4. Of the ten index components, the largest gain was in the percent of owners reporting hard-to-fill openings. On a seasonally adjusted basis, 14% of respondents planned to raise compensation in the coming months. This is consistent with reasonable economic growth and tightening labour market conditions.

In January, job openings fell short of the 5.0-million mark by only 2K, increasing 2.5% on the month. Separations notched down from 4.9 million to 4.8 million reflecting fewer layoffs and firings. The number of quits, however, sprang 3% to 2.8 million.

Weekly jobless claims data for the period ended March 7 showed initial claims dropped 36K to a three-week low of 289K. Consensus expectations had pegged these at 295K. The four-week moving average sank to 302K.

Import prices jumped 0.4% in February for a first gain since June 2014. Imported petroleum accounted for most of the increase as prices advanced 8.1% after retreating 20.6% the month before. Excluding petroleum, import prices slipped 0.4% after sliding 0.6% in January. Export prices fell for the seventh month in a row. However, the 0.1% dip in February was the smallest decline since August 2014 and followed a 1.9% drop in January.

Business inventories were unchanged in January for the second month in row. Business sales were down 2.0% on the month, their largest decrease since March 2009. This followed a 1.0% decline in December. The disappointing sales and stable inventories combined to hoist the inventories-to-sales ratio to 1.35 from 1.33 the previous month.

World – In China, the CPI rose 1.4% in February after climbing only 0.8% the previous month. Industrial production growth was slower than expected in January-February, coming in at 6.8% y/y, 1.1 percentage points lower than in December. Production figures for the first two months of 2015 evidenced the slowest start to a year since 2009. Among other things, electricity output grew a mere 1.9%. Also in January-February, retail sales were up 10.7% y/y.
In the Eurozone, industrial production contracted 0.1% in January. It was flat in Germany, fell 0.7% in Italy, but grew 0.4% in France and 0.2% in Spain. Compared with January 2014, however, industrial production expanded 1.2%.