The Canadian labour market took a turn for the worse last month, shedding 39,400 net jobs that included a record loss in the public sector offsetting gains among private employers.
Unexpected by some yes, but should it have been?
Economists talk all the time about how the Canadian economy is resource driven and to a large extent, this is true. With commodities including base and pressure metals and oil & gas slumping for much of the first half of 2013, is it any surprise job creation ran into significant headwinds.
For those who argue that crude has recently been on a strong run, remember that the data is backward looking; and that the Western Canadian Sedimentary Basin, which produces much of Canada’s oil, still faces bottlenecks that prevent producers from realizing quoted WTI prices. Furthermore, natural gas continues to trade at the low end of its range over the past 5-years reducing CAPEX and thus, job creation near term.
Breaking down the headline numbers further – six of 10 Canadian provinces lost workers with Quebec’s 30,400 setbacks the deepest fall-off. The big shock, according to many media outlets, was that Statistics Canada reported a record loss of 74,000 public service jobs and a disproportionate number of those situated in Quebec. Of course, half of these public servants were lost to prison – I say that in jest of course, or do I?
But seriously, is it such a bad thing we are shedding in the public sector and adding in private sector? With the state of government indebtedness across the developed world, this is likely the only viable path.
It was the second consecutive month that Canada’s economy shed jobs — although June’s loss of 400 net jobs was only technically negative.
Last month’s decline lifted the official unemployment rate to 7.2% in July, one-tenth of a point higher than in June and May and matching the level for April and March. The rate stood at 7.0% in the first two months of 2013.
The bottom line is that we should never read too much into one-month of statistics on anything. It does appear the Canadian economy continues to face headwinds. The stock market, which has been treading water in Canada for the better part of two years, has anticipated this.
Fortunately, from an investment perspective, the first half of 2013 has not been a lost period. In fact, we have seen strong gains in the technology segment with both our top hardware and software Focus BUYs hitting new all-time highs in the past 2-weeks, and increasing their dividends once again in 2013.
The recent upturn in crude prices as well as the narrowing of the gap for Western Canadian oil producers has lead to optimism in the oil patch for a better second half of 2013 and the segment has shown strength in the past few months after a dismal 12-months.
As we continue to believe the broader markets are not cheap, it is these select situations and pockets of strength in the market that will keep our attention in the near term.