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CMC Economic Analysis

Wednesday, January 10, 2018   (0 Comments)
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Merchandise Trade Analysis - November 2017

Trade deficit widens in November in spite of strong export growth

Canadian exports were up strongly in November, marking the second consecutive month of solid gains after a weak summer quarter. Led by a recovery in deliveries of motor vehicles and parts, total international sales reached $46.2 billion for the month, rising by about 3.7 per cent compared  to

Those gains were eclipsed, however, by an even larger spike in imports coming into Canada. Canadians purchases of goods from the United States and elsewhere soared in November, rising by 5.8 per cent to hit $48.7 billion for the month. As a result, Canada's trade balance widened once again after narrowing briefly in October. The trade deficit in November came in at estimated $2.5 billion compared to a revised $1.6 billion the previous month.

As in October, November's trade gains were driven by a combination of price and volume effects. For their part, Canadian exporters were able to increase their sales volumes by about 0.6 per cent, but also received notably higher prices for their goods; average export prices jumped by 1.4 per cent compared to the previous month. Most of the volume-based gains came in motor vehicles and consumer goods, while price increases were relatively widespread.

On the import side, the volume of goods entering Canada jumped by 5.0 per cent in November, while the sticker price of those goods increased by an average of 1.2 per cent. Gains in both import prices and volumes were widely distributed across a wide range of product types.

With only one month to go before preliminary data are in for the year, 2017 has been a volatile year for Canadian exporters. The first half of the year was characterized by strong year-over-year gains, while the second half of 2017 has so far seen only a modest improvement over 2016. From January to June, exports were 10.2 per cent higher than last year, but have increased by just 0.7 per cent from July to November.

As noted above, most of Canada's export growth in November came in two product categories: motor vehicles and parts; and consumer goods. Auto and parts exports jumped by 14.6 per cent ($978 million), buoyed by a return to normal production levels after a labour disruption affected output in September and October. Meanwhile, a spike in exports of medicines, pharmaceutical products, and a range of miscellaneous goods all contributed to a 7.4 per cent increase ($412 million) in consumer goods exports in November. Exports of forestry products, energy products, electronics and electrical equipment, and aerospace vehicles and parts were also higher that month.

For the second month in a row, the increase in exports was almost entirely driven by higher sales to the United States. After falling dramatically from May to September, US-bound exports are recovering quickly, rising by 5.4 per cent in November after a (revised) 3.9 per cent increase in October. Exports to China were also up considerably (8.0 per cent), as were deliveries to Spain, Italy and Brazil. However, exports to most of Canada's other major destinations like Japan, the UK, Mexico and South Korea were down in November.

Turning to Canadian imports, the 5.8 per cent increase in November was the result of remarkably widespread gains across the range of product types. Of the eleven major product categories, all but one were higher in November, as imports of energy products into Canada dipped slightly that month. Generally speaking, import growth was stronger for industrial and consumer goods compared to resource-based and intermediate products. 

Most of those goods came from the United States as imports from that country rose by 6.5 per cent ($1.9 billion). Although much smaller in dollar-value terms, there was also a considerable increase in imports from China, Japan and Saudi Arabia in November. Meanwhile, imports from the EU were down slightly compared to October.

Labour Force Survey Analysis – December 2017

Unemployment rate falls to historic lows to end 2017

1. December

Canada’s job market ended 2017 strongly, adding 78,600 net new jobs to close the year. That increase builds on the 79,500 jobs created in November and represents a solid turnaround after relatively tepid employment growth over the summer and into the fall. There are now more than 18.6 million Canadians employed across the country.

As a result, the national unemployment rate dropped from 5.9 per cent in November to end the year at 5.7 per cent. That represents the lowest monthly jobless rate dating back more than 40 years (continuous data on Canadian labour markets go back to 1976).

The drop in national unemployment comes amid other positive signs for the Canadian labour market. Improving job prospects encouraged more unemployed Canadians to re-enter the workforce, driving the participation rate up slightly (to 65.8 per cent) in December. Similarly, the employment rate – a simple and underused indicator which tracks the percentage of working-age Canadians with a job – rose from 61.8 per cent in November to 62.0 per cent last month. The employment rate has not been that high since February 2009.

That said, the fact that the unemployment rate is at historic lows does not mean that job prospects for Canadians have never been better. In spite of December’s increases, both the participation rate and the employment rate remain well below levels seen 10 years ago, meaning that the unemployment rate is only as low as it is because fewer Canadian today are actively looking for work compared to the mid-2000s.

Also dampening the enthusiasm slightly is the fact that most of the jobs created in December were in part-time positions. There were 54,900 new part-time jobs across Canada last month, compared to about 23,700 new full-time positions. 

Employment grew in every province in December, but gains were heavily concentrated in two: Quebec and Alberta. Both added more than 26,000 jobs, representing an increase of 0.6 per cent in Quebec and 1.1 per cent in Alberta. There were also strong gains across the Maritimes and in Saskatchewan. Ontario was the worst performer in December, adding just 1,900 new jobs, for an increase of less than 0.1 per cent.

December’s gains were heavily concentrated in the services sector. Services-providing industries created 72,600 net new jobs to end the year, compared to just 6,000 jobs in the goods sector. Leading the way were finance, insurance and real estate businesses, which hired 25,000 more Canadians last month. There were also strong gains in education (11,200 new jobs), transportation and warehousing (9,500), and miscellaneous services (12,600). By contrast, there were modest job losses in health care, manufacturing, agriculture and the public service.

2. 2017 Summary

The release of December’s job numbers also means that annual labour market data are also available for 2017. All told, 2017 was a good year for Canadian labour markets, ending a three-year streak of poor growth. Overall, there were 332,200 new jobs created across the country last year, representing an increase of about 1.8 per cent compared to 2016. Those are the best job-creation numbers Canada has seen in a full decade.

Those new jobs helped to drive the unemployment rate down as well. The annual jobless rate fell from 7.0 per cent in 2016 to an average of 6.4 per cent last year. It has not been this low since 2009.

However, it bears repeating that the low overall unemployment rate does not reflect unusually tight labour markets (in most industries) as much as it does the legacy of poor recent growth and the demographic impact of more Canadians hitting retirement age and exiting the labour market. Labour force participation rates and the employment rate remain well below levels seen a decade ago. Those factors, not runaway labour demand, are what is driving the unemployment rate so low.

Job prospects improved in almost every province last year. In terms of growth rates, BC was the national leader, with employment up 3.6 per cent compared to 2016. There were also strong gains in PEI last year (3.0 per cent), and Quebec (2.1 per cent) saw slightly above-average growth. For its part, Ontario was in line with the national average, while employment growth was slower elsewhere. Only Newfoundland and Labrador and Saskatchewan posted year-over-year job losses in 2017.  

At the industry level, most of the new jobs created in 2017 were in service-providing businesses. There were about 291,000 new services jobs across the country last year, compared to just 41,500 new jobs in the goods sector. By far the largest increase was in wholesale and retail trade businesses, which added 61,600 positions in 2017. There were also notable gains in professional, scientific and technical services jobs (54,700), finance, insurance and real estate (44,600) and health care and social assistance (43,200). At the other end of the spectrum, there were fewer jobs in business support services; information, culture and recreation services; agriculture; and utilities compared to 2016.   



Manufacturing Sector Labour Market

1. December

The number of manufacturing jobs dipped slightly in December, with the loss of 3,600 positions compared to November. However, it is important to remember that November had been an extraordinary month for manufacturing job creation.  There were 30,400 new manufacturing jobs created in November, representing the largest month-over-month increase in nearly 16 years. Sometimes, these large monthly swings prove to be little more than survey anomalies, but the modest decline in December suggests that that may not be the case this time around. Manufacturing employment remains at about the highest level seen in more than five years.

As noted last month, one concerning element of the recent strength in manufacturing job growth is that it is magnifying existing labour and skills shortages. While the national unemployment rate sits at 5.7 per cent, the jobless rate in manufacturing is far lower – just 2.7 per cent. That jobless rate is well below what is usually considered to be “full employment” and indicates the presence of severe challenges in finding workers.

Although there were manufacturing job losses in most provinces in December, they were concentrated in Canada’s manufacturing heartland, as both Ontario and Quebec recorded modest declines of about 2,100 jobs each. There were also notable losses in BC and Nova Scotia.

Offsetting those to some degree were strong gains in Alberta and New Brunswick. Alberta added 3,300 manufacturing jobs and employment is on the path to recovery after devastating job losses through 2015 and 2016. At 127,500 jobs, manufacturing employment in Alberta is now at a two-year high, but there are still 22,500 fewer manufacturing jobs in the province compared to the beginning of 2015. In New Brunswick, meanwhile, the province added 1,400 new manufacturing positions, representing a strong increase of about 4.4 per cent. Manufacturing employment in that province is now at its highest level in more than nine years.

2. Year-end

All told, 2017 was an excellent year for manufacturing employment in Canada. Employment was up 1.8 per cent as the sector added nearly 30,000 new jobs compared to 2016. That represents the largest annual increase since 2002. It also brings total employment in the sector up to 1.73 million jobs – its highest level since 2012.

Even so, it is important to note that manufacturing employment remains well below historic highs. In 2004, there were 2.3 million Canadians working in the sector. That longer-term decline is the result of several contributing factors. These include lost manufacturing capacity in Canada, automation and changes in the nature of manufacturing production, an ageing population and relatively few entrants into the manufacturing workforce. With automation lowering the labour intensity of manufacturing, future employment growth will rely on expansion and attracting new manufacturing investment to Canada.

In terms of the number of jobs created, Ontario was Canada’s manufacturing growth leader in 2017. The province added 19,100 manufacturing jobs last year, accounting for 64 per cent of nation-wide jobs growth and bringing total manufacturing employment in the province up to 770,500.

From a growth rate standpoint, however, Saskatchewan and PEI were the runaway leaders in 2017. Manufacturing employment in Saskatchewan was up 9.2 per cent compared to last year, gaining back most of the ground lost in two successive years of job losses. For its part, PEI manufacturing continues to grow at a fast pace (7.0 per cent growth in 2017), as employment there hit a 10-year high.

Newfoundland and Labrador, along with Quebec, were the only provinces which lost manufacturing jobs in 2017. The former lost close to 900 jobs (an 8.7 per cent decline), while there were 1,800 fewer positions in the latter (a 0.4 per cent drop) last year.

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