Economic analysis

Quebec's unemployment rate is lower than any time since the 1976 Olympics

Econ-o-metric: Jobs grow, but so does the trade deficit. What does this mean for interest rates?

The last time Quebec's jobless rate was this low was 1976, when Montreal hosted the Olympics.

The last time Quebec’s jobless rate was this low was 1976, when Montreal hosted the Olympics.

Canada’s unemployment rate dropped to 6.3 per cent in July, the lowest since before the Great Recession, Statistics Canada reported. The mostly positive employment data offset disappointing trade figures. Separately, StatsCan said exports declined in June.

Here’s what you need to know:

The key trend in the latest employment report:

Canada’s stats agency simultaneously released two important economic indicators on Aug. 4: jobs and trade. Neither report was unambiguously positive, a shift from recent data releases that contained little but good news. And that’s why we draw attention to the trend—which is certainly good for jobs, with the unemployment rate dropping to 6.3 per cent in July, the lowest since before the Great Recession. There are flaws in the hiring numbers, but only the most determined contrarian would bemoan the lowest unemployment rate since October 2008. Exports declined 4.3 per cent in June, a big and surprising decrease that was mostly the result of weaker commodity prices. In the second quarter, exports increased 2.8 per cent to a record $142.7 billion, StatsCan said.

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Why it matters:

Most of Bay Street and Wall Street think the Bank of Canada has already decided to raise interest rates again this year. Governor Stephen Poloz says that’s untrue: the next policy change will depend on data. Hiring figures are key for reasons that need no explanation. Exports are arguably just as important because the central bank is counting on external demand for Canadian goods and services to take over from household spending and real estate as the country’s main growth engine.

Glass half full:

Canada’s monthly unemployment rate has dipped below six per cent only five times since the start of 2000, so it’s fair to say that a jobless rate of 6.3 per cent shows the economy is performing well by its standards. The country has added 388,000 jobs since July 2016, most of them full-time. Manufacturing never again will be the force it once was, but the sector has posted notable gains in three of five months through July, including a 14,000-position increase in the most recent reporting period. Quebec, an important provincial economy that is typically seen as a laggard, posted an unemployment rate of 5.8 per cent, the lowest on records that go back to 1976. That’s an Olympic low!

Exporters had a tough month in June compared with earlier in the spring. Still, international sales were generally higher than a year ago, suggesting a sag rather than a slump. Atypical movement of gold appears to explain some of the volatility, as does a significant decline in commodity prices. Imports of industrial machinery and electronic equipment were higher, suggesting Canadian companies were retooling to boost productivity or to keep up with increasing demand.

Glass half empty:

Bad news for anyone who still believes in freedom from work at 55. The number of women of this age and older who reported having jobs rose by 14,000 from June and by 66,000 from a year earlier. The number of working men aged 55 and older increased by 69,000 from 2016. (To be sure, this could be a positive trend, depending on your perspective. The unemployment rate for women in this group is 5.4 per cent and 5.3 per cent for men, suggesting older workers who want jobs can find them. Eight of 10 employees in this group are younger than 64, according to StatsCan.)

The drop in the overall unemployment rate was smeared by a decline in the number of people seeking work, shrinking the overall workforce. New Brunswick posted an unemployment rate of 6.5 per cent, the lowest since StatsCan started compiling comparable data in 1976. But there will be no rejoicing at the premier’s office in Fredericton. Employment in the province barely has changed over the past 12 months. The record unemployment rate is entirely the result of retirement and a feeble economy.

June’s trade figures will do nothing to lift the spirits of New Brunswickers or any other Canadians. They were generally poor across the board; even oil shipments to the U.S. declined, something which Statscan noted was unusual for June. Prices were the biggest factor in the decline, but volumes were down 1.7 per cent. The trade deficit widened.

Bottom line:

Canada’s economy has too much momentum to worry about one month of poor trade data. The global economy is improving, so exports should recover. The labour market remains good, if not great. That means domestic demand will hold up, which is what the Bank of Canada predicted when it raised interest rates in July. There is no reason to panic, but these reports are just weak enough to justify a pause when the central bank next considers policy in September. Stay tuned to StatsCan.