Only reliable financial news

Canada's slumping manufacturers continue to act as a drag on the world's eighth-biggest economy, two government reports showed today, bolstering the case for the Bank of Canada to cut interest rates again.

Exports of automotive products dropped 4.9 percent in March, while forestry-related exports declined 7.7 percent, Statistics Canada said today. Meanwhile, the jobless rate rose to a 10-month high of 6.1 percent in April, as manufacturing payrolls shrank, the agency said in a separate report.

“The numbers were consistent with an economy growing at a crawl,'' said Avery Shenfeld, senior economist at CIBC World Markets Inc. in Toronto. “I think we're going to get a rate cut or two from the Bank of Canada.''

Bank of Canada Governor Mark Carney said last week he'll probably need to lower interest rates again after four cuts since December, citing the slowest economic growth in 16 years. Policy makers lowered the key rate by half a percentage point on April 22 to 3 percent, the lowest since 2005. The next rate decision is scheduled for June 10.

Lower borrowing costs are keeping Canada's currency from soaring past parity with the U.S. dollar, by narrowing the interest-rate gap with the U.S. where the benchmark is 2 percent. The Canadian dollar has gained 37 percent in four years, making the country's goods more expensive in the U.S.

Industries tied closely to the currency and to U.S. demand for items such as cars and lumber are struggling to cope and that's now affecting Canada's labor market.

Factory Jobs

Manufacturing payrolls fell by 14,900 in April, the third straight drop, bringing the 12-month loss to 111,500 or 5.4 percent of the workforce.

Hourly wages in Canada rose an average of 4.3 percent in April from a year earlier, the slowest in five months and down from 4.7 percent in March.

The U.S. economy, which buys three-quarters of Canada's exports, grew at a 0.6 percent annual pace in the first quarter, the same as the fourth quarter, which was the slowest since the end of 2002, the Commerce Department said April 30.

While the Canadian economy created 19,200 new workers in April, Statistics Canada said most of them were self-employed or were in the lower-paying sectors such as services or government payday loan. The self-employed workforce increased by a net 18,300 people in April, compared with a net gain of 800 workers employed by companies or government agencies.

Services-related employment grew by a net 22,900 in April, while jobs in goods-producing industries fell by 3,700.

`Not Great'

“Overall, it was not a great report,'' said Karen Cordes, an economist at Scotia Capital Inc. in Toronto. “The private sector is shedding jobs, and we saw continued reductions in the manufacturing sector.''

There may be a limit to how much the Bank of Canada can cut interest rates to help manufacturers.

Record demand for metals, energy and other commodities are propping up the economy and may eventually cause inflation to accelerate to a point where further easing is impossible even if manufacturers are still suffering.

Rising energy prices helped Canada widen its trade surplus with the rest of the world in March to a 10-month high of C$5.5 billion, Statistics Canada said today.

Also, construction — Canada's fastest-growing industry — is benefiting from sustained demand for new homes and an energy boom in western provinces that's spawned new pipelines and refineries. The sector added 16,200 workers in April for a total of 113,000 new jobs in the past year.

Still, the outlook for trade is uncertain at best. The Bank of Canada said in an April 24 forecast that falling exports and rising imports will combine to shave 2.4 percentage points from the nation's economic growth rate this year.

While total exports in March advanced 1.6 percent in nominal terms, sales were down 2.1 percent in volume terms.

“The trade numbers look a lot better on the surface than they do when you look at the details,'' said Jacqui Douglas, an economist at TD Securities in Toronto. “We're definitely seeing a big drag from exports.''

Source

Filed under: economics by Forest