Economic Update January 9, 2009 by Paul Ferley, Assistant Chief Economist, RBC Economics

Canadian job losses reflect weakening economy
January 9, 2009
Reflecting weakening economic conditions, employment in Canada fell by 34,400 in December, slightly stronger than the 20,000 expected within financial markets. In contrast to the fall in employment, the labour force rose 12,700, which sent the unemployment rate sharply higher to 6.6% from 6.3% in November. Expectations had been for a more moderate rise to 6.5%.

The decline in employment was concentrated in full-time jobs, which were off 70,700, and was partially offset by a 36,200 rise in part-time employment. Most of the weakness was concentrated in construction, which shed 44,300 jobs in the month, one of the largest monthly declines for that sector in more than three decades. Manufacturing employment gained 8,900 jobs in the month. Service-producing sector jobs were up by a minimal 5,000.

Declines were recorded in nine of 10 provinces led by Alberta (-15,800) and Quebec (-9,400). Ontario eked out a gain of 1,800, likely benefiting from the increase in manufacturing employment. This gain was not enough to prevent Ontario's unemployment rate from rising, albeit it minimally, to 7.2% from 7.1% in November.

The year-over-year growth in the key wage measure in the report, average hourly wages for permanent workers, moderated to 4.5% from 4.7% in December.

Employment levels in recent months have been distorted by the October 14th federal election that temporarily boosted employment in that month and then biased down the numbers in November as these workers were laid off. The December job loss is more indicative of underlying weakening in the Canadian job market and reinforces our view that the Canadian economy has likely slipped into recession.

To limit the extent of the downturn, we expect both monetary and fiscal policy to add further stimulus to the system. This includes the Bank of Canada likely cutting the overnight rate a further 50 basis points later this month to 1.00% and the federal government introducing fiscal stimulus equal to 1% to 2% of GDP in its upcoming budget on January 27. These actions will not prevent GDP from showing negative growth rate near-term, but will likely contribute to a rebound by the second half of 2009.

Paul Ferley, Assistant Chief Economist, RBC Economics

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