Bull market is not in jobs or economy, but in cheerleaders
David Rosenberg breaks down why it’s best to put the cork back in the bottle for now.
I couldn’t stop laughing over the weekend when I read the press headlines and Bay Street economists marvelling about those surreal job numbers in Canada for August. Think of what a gain of 80,000-plus jobs means if you believe it — it’s akin to an 800,000 surge in U.S. employment.
The Statistics Canada data were so not-to-be-believed. Accounting for all those Quebec jobs and part-time positions in Ontario, there was no employment growth in other areas of the country. Yet the Canadian dollar has rallied hard on this report and on the overconfidence the Bank of Canada is now demonstrating.
Overconfidence about what, exactly?
The 0.7-per-cent decline in real final domestic demand in the second quarter? That’s the third decline in the past four quarters. By the way, real final sales in Canada would have contracted by more than a two-per-cent annual rate in Q2 absent the dead-cat bounce in the depressed energy sector, all that activity at the local bar during the Raptors amazing road to victory and, well, how can we forget this (maybe by taking in too much of it), the 74-per-cent annualized surge in the cannabis sector. No wonder productivity growth in Canada has slowed to a crawl ... though pizza parlours and Pink Floyd albums have emerged into a full-blown bull market.
There is so much backslapping happening on Bay Street and, dare I say, Wellington Street that you would never know business machinery and equipment spending in Canada tanked at a 32-per-cent annual rate in Q2 (contracting in three of the past four quarters), which is a decline we last saw in the 2001 and 2008 recessions.
Non-residential construction dropped at a 1.8-per-cent annual rate in Q2, and has contracted in each of the past six quarters. Consumer spending volumes on cyclically sensitive durable goods fell at a 1.3-per-cent annual rate and has slipped in five of the past six quarters.
Where exactly is this progrowth hype coming from? One source is Finance Minister Bill Morneau, who should restrain himself from acting like an impulsive Donald Trump on his Twitter account. Best to put the cork back in the champagne bottle for the time being.
Industrial production also shrunk 0.7 per cent month over month in June, which matches the decline in durable goods manufacturing, not to mention that total manufacturing activity has slumped at a 2.9-percent annual rate over the three months to June. That’s one heck of a swing from 3.3-per-cent rate at the turn of the year.
Save for the most obtuse, who would dare to rejoice over data points such as these?
Oh, did I fail to mention that Canadian real GDP has expanded 1.5 per cent in the year to June? Strip out the public sector, and business-sector activity is rising at the grand pace of 1.3 per cent. But guess what? Population growth, via an aggressive immigration policy, is running at a 1.5-per-cent annual rate. Depending on how you measure it, real per capita GDP is running flat to fractionally negative. What an economy.
Statistics Canada’s employment report seemed constructive, but it mostly spoke to the noise of the Labour Force Survey data series. Looking at the situation on a three-month basis, employment in the retail/ wholesale trade industry fell at a 2.9-per-cent annual rate, a testament to the shape of the Canadian consumer, which is none too good.
The spillover from the global economic slowdown, and contraction in cross-border trade flows, are creating mega strains in domestic businesses reliant on the world economy, such as transportation/warehousing, where employment declined at a 3.2-per-cent annualized pace over the three months to August.
With the manufacturing sector in a recession of its own, jobs in the goods-producing sector has retreated at a 2.9-per-cent pace. I didn’t hear many economists, strategists or pundits talk too much about the 7.2-per-cent collapse in hours worked by Canada’s factory sector over the past three months, either.
The main story here is that while the Canadian job market looked bright and shiny in Friday’s report, the engine is actually sputtering and it won’t be long before the Bank of Canada is compelled to follow the U.S. Federal Reserve and the other 31 central banks that have cut rates so far this year.
Expect the loonie’s wings to get clipped once investors take a more in-depth look at an economy that is losing cyclical momentum at a time when there already is no growth at all in real per capita terms.
Financial Post
David Rosenberg is chief economist and strategist at Gluskin Sheff + Associates Inc. and author of the daily economic report, Breakfast with Dave.