MRO Magazine

Canada’s economy takes a pause in July as machinery manufacturing output declines, Conference Board study shows

Ottawa, ON -- From April to June 2010, Canada added a massive 225,000 jobs, over half of all of the year-over-...


Human Resources

August 9, 2010
By MRO Magazine
MRO Magazine

Industries

Ottawa, ON — From April to June 2010, Canada added a massive 225,000 jobs, over half of all of the year-over-year gains since July 2009, which has nearly brought Canada’s employment to pre-recession levels, reports the Conference Board of Canada.. However, now that growth is beginning to normalize, employment and gross domestic product growth paused in July 2010.

Canada’s economy shed 9,000 jobs in July, pushing the employment rate up slightly to 8.0%. The 139,000 full-time jobs lost were largely offset by the 130,000 gained in part-time employment. As global and domestic demand for goods and natural resources heated up, all of the goods-producing industries increased their payroll, adding 42,000 jobs overall.

Manufacturing was particularly strong, growing by 28,500 jobs. The services sector was the drag on the economy in July. In this sector, employment tumbled 51,000 jobs, mainly due to loses in the education sector, which shed 65,300 jobs. The falling number of home sales and a general cooling off of construction output also led to declining employment in the wholesale trade, business and support services, finance and insurance, and leasing and renting industries. All other service sector industries had gains including transportation and warehousing; public administration; professional, scientific, and technical services; accommodation and food services; health care; and information culture and recreation.
Although GDP growth in May 2010 was positive and stronger than in April, it came in at a relatively modest 0.1%, or 1.4% at an annualized rate. The April and May results indicate that GDP growth in the second quarter has been sluggish compared with Canada’s fiery growth of 6.1% at an annualized rate in the first quarter of 2010.

The slowdown in growth was expected and is in line with analysts’ expectations of more tepid growth through 2010 due to the downside risks associated with the European debt crisis and a still-soft labour market in the United States.

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The goods-producing industries, growing at 0.6%, drove Canada’s real GDP growth in May. The rise came about due to increases in the agriculture and mining sectors.

The mining, oil, and gas extraction industry was the top performer in May, posting growth of 3.4%. The rise was driven by increasing global demand for resources and energy.

However, real output in the construction industry slid by 1.6% in May, due to a drop in housing starts. Manufacturing grew at a tepid 0.1%; although on a positive note, output increased in many manufacturing subsectors, particularly motor vehicle manufacturing. It was a decline in machinery manufacturing output that limited growth for the entire industry.

A struggling wholesale trade sector, caused by cooling construction activity, led to a 0.1% decline in real GDP growth in the services sector.

Despite the overall decline in the services sector, the 0.3% gain in retail trade has to be viewed as positive economic news, says the Board. Consumer spending, in part lifted by the recent rebound in employment, grew particularly strongly for clothing, accessories, and food and beverages. The gain would have been stronger had it not been for declining construction activity, which weakened demand for construction-related products.

Real output in the finance, real estate, and business services sector eked out a 0.1% gain in May. Although recovering demand for loans and an increase in stock trading volume boosted the sector’s performance, the lower level of activity in real estate, rental, and leasing offset virtually all of the gain. In particular, the fall in the number of real estate transactions drove down output by real estate agents and brokers by 11.3%-the fifth decline in as many months. While wholesale trade and real estate activity drove down services sector output, many other service-producing industries in the Canadian economy posted output gains in May. Specifically, arts and recreation, transportation and warehousing, and accommodation and food industries posted decent gains. Output growth was flat in public administration, health-care, and other service industries.

Concerned by potential risks attached to still relatively weak US demand and by the European financial market turbulences, the Bank of Canada revised its Canadian economic outlook downward. Nonetheless, the Bank raised its prime rate from 0.5 to 0.75% on July 20.

According to the Bank of Canada, the uncertainty caused by the European debt crisis and the US economy is being balanced by increasing consumer and business confidence worldwide and quickly rising employment in Canada. As a result of these balancing factors and the low risk of inflation, the consumer price index grew by only 1.0% in June on a year-over-year basis, the Bank stated in its July Monetary Policy Report that, “any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.”

Eric Thomson is a forecasting and analysis economist with the Conference Board of Canada.