David Rosenberg: Don’t let ‘blockbuster’ job numbers fool you, Canada is one rung away from recession

David Rosenberg: Don’t let ‘blockbuster’ job numbers fool you, Canada is one rung away from recession

There was a ton of excitement over the 56,000 Canadian jobs run-up in February, but the closer you examine the data, the less impressive it becomes.

All the employment in this country is coming out of two sectors — government and the high-tech sector. Goods-producing employment has declined 23,000 year-to-date and is little higher today than it was in November 2017.

And that 56,000 headline number actually turns to a 131,000 decline once the 0.7 per cent shrinkage in hours worked is taken into account. In fact, this was the third straight decline in the hours worked in a row and, over this time, the workweek has dropped at a 4.2 per cent annual rate, something we have not seen happen since May 2009.

The tale of woe doesn’t end with a sclerotic labour market where the index of aggregate hours worked has stagnated over the past 14 months. Real final demand has contracted now for two straight quarters — if not an official recession, then one rung away on the ladder. The trade deficit has soared to an all-time high. Productivity growth on a YoY basis is closer to 0 per cent whereas in the U.S. it has accelerated closer to a two per cent annual rate. Order books in the domestic manufacturing industry have made no headway in five years. Output in this sector has turned negative recently on a YoY basis, and more broadly in the goods-producing sector too (adding in construction and resources).

The output gap has been re-established, which means the Canadian economy is now operating with spare capacity. Along with that, inflation in both the consumer and producer sectors has peaked out and rolled over in a discernible way, which will ensure that the Bank of Canada will maintain local interest rates below U.S. levels as far as the eye can see.

It is plain to see that the Canadian economy needs help. It is perilously close to a recession and there are still lags ahead to be felt in terms of the restraint actions established previously by the Bank of Canada. Housing is in the doldrums and the Canadian consumer is in deleveraging mode. Hopes of there being a quick resolution on the trade file are foolishly optimistic. And the 25 per cent rebound in oil prices and Alberta-led closing of the Canadian price ‘discount’ are benefits that are now behind us and fully discounted.

Productivity growth is stagnant and running far below the pace in the U.S., and that should be a clear signal to Ottawa that tax competitiveness should be the hallmark of the upcoming budget. And not just the business sector — households need some income support as well as they tighten their belts and face rising debt-servicing costs. This should not just be a “housing affordability” targeted response, but a broader income boost by lessening the tax burden … and finance this by keeping a firmer lid on public spending growth.

Only after a fiscal stimulus boost, and one that addresses both the cyclical and structural impediments that the Canadian economy faces, can one reasonably expect the Canadian dollar to reverse course any time soon. Until then, trade the loonie from the short side — sell strength and fade the rallies.

David Rosenberg is chief economist and strategist at Gluskin Sheff + Associates Inc. and author of the daily economic report, Breakfast with Dave.

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