OTTAWA – The Canadian labour market took an unexpected turn for the worse last month, shedding a surprisingly high 39,400 net jobs that included a record loss in the public sector that more than offset gains among private employers.
In all, six of 10 Canadian provinces lost workers with Quebec’s 30,400 setback the deepest fall-off.
It was the second consecutive month that Canada’s economy shed jobs — although June’s loss of 400 net jobs was only technically negative.
July’s decline lifted the official unemployment rate to 7.2 per cent 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 per cent in the first two months of 2013.
The big shock was that Statistics Canada reported a record loss of 74,000 public service jobs, more than half of those coming in the health care and social assistance category and a disproportionate number of those situated in Quebec.
Battling large deficits, most governments in Canada have sought to reduce spending. In March 2011, Finance Minister Jim Flaherty vowed to cut about 19,000 public servants from the federal workforce.
But economists cast doubt that so many public servant suddenly found themselves unemployed.
“I’ve no doubt there is some restraint going on, but it’s incredibly hard to believe that it all happened effectively in one month,” said Doug Porter, chief economist with the Bank of Montreal.
CIBC’s chief economist Avery Shenfeld agreed, noting that the 47,000 drop in health care and social assistance — a traditionally stable category — “could simply be statistical noise” or make-up from previous over-counting.
Porter had little trouble believing the general softness in the report, however. It is in line with a struggling economy that has yet to find a second gear.
“I think the overall story is job growth is moderate at best,” he said. “Another way of coming to the same conclusions is at the start of the year the unemployment rate bottomed at seven per cent and we’re now at 7.2 per cent, so it does look like there’s been a little bit of deterioration since the start of the year.”
The Canadian dollar dropped slightly 0.15 of a cent to 96.71 cents US as the data was made public at 8:30 a.m ET, but quickly recovered and was trading modestly higher by mid-morning.
Porter and other analysts cautioned that the data was not as alarming as the bottom line suggested. Hours worked, which are directly tied to economic activity, actually rose 0.3 per cent during the month, and the private sector managed to add 31,400 workers.
As well, the goods producing sector of the economy was on the positive side of the ledge and manufacturing, a critical industry, recorded 13,500 in job gains.
The biggest winner was the business, building and other support services industry, which added about 29,000 workers.
The data was heavily influenced by a loss of 45,600 young workers, reflecting one of the most difficult summers for students in recent history. Statistics Canada, which issues the labour reports, noted that the employment rate for students aged 15 and 16 was the lowest since records on the category began being kept in 1977.
“The Bank of Canada should view it as a temporary shock that will be unwound after the Labour Day holiday,” said David Madani, chief economist with Capital Economics in Toronto. “Nevertheless, the modest gains in prime-aged employment over the past six months supports our view that the economy has been underperforming its potential growth rate of two per cent.”
In a statement released by his office, Flaherty pointed out that monthly job numbers are volatile, but took note that the private sector had added workers in July.
Economists had expected a modest pick-up of about 10,000 jobs during the month, but one of the few forward indicators — the Conference Board’s want-ad index — was more prescient in predicting a setback.
The retreat all but wipes out any hopes that April’s head-scratching surge of 95,000 added jobs might have been signalling an upward trend for the Canadian economy.
Economists said a more accurate picture is that the economy and job creation is growing, but at a snail’s pace and likely not fast enough to keep up with population growth.
The agency pointed out that for the first half of 2013, job gains have averaged 11,000 a month. That’s far weaker than the 27,000 average gain the economy produced during the second half of 2012.
It is also not sufficient to fill vacancies created by the natural growth in the labour force, which analysts estimate is between 15,000 and 20,000 a month. Under this scenario, it should be expected that the unemployment rate will rise unless a large number of discouraged Canadians drop out of the workforce altogether.
The silver lining is that the Bank of Canada is predicting a big surge of economic activity of 3.8 per cent during the current third quarter, in part as a rebound from shocks that occurred in June from the Quebec construction strike and the Alberta’s floods.