Canadian Employment Proves a Complete Disaster

Alan Penny

6 December 2019

3 min read

  • Canadian jobs report misses
  • -71200 instead of 10000 added
  • Unemployment Rate 5.9% instead of 5.5%
  • USMCA could help

During the trading session on Friday, at the same time as the US employment figures, the Canadian employment figures came out. Quite often overshadowed, the Canadian employment figures do tend to be very volatile, but that would be expected in an economy that is highly levered to oil and other commodities. Beyond that, Canada is a relatively small country with only 30 million people, so the numbers can be all over the place.

The figures

The Employment Change figures for Canada last month came in at -71,200 as opposed to the anticipated 10,000 added. The previous month was -1800, showing signs of a slowing employment situation, and something to keep the Bank of Canada concerned. Furthermore, the Unemployment Rate came in at 5.9%, much higher than the 5.5% expected in general. This is a huge miss and shows just how much damage has been done to the crude oil markets.

Canada going forward

The Canadian economy is highly levered to crude oil, and at the same time, OPEC is looking at cutting production. It is a strange coincidence; it might actually be OPEC that saves Canada. If oil markets skyrocket, it’s very likely that it will have a ripple effect on the Canadian economy and push employment back out.

It is a strange coincidence; it might actually be OPEC that saves Canada

Remember, Canada is a relatively small country as far as population is concerned, and therefore 71,000 jobs suddenly disappearing is a much bigger deal than it would be in the United States. However, if crude oil suddenly spikes another $10 a barrel, that would have massive implications for oil sands production in the western provinces. That could have a knock-on effect throughout the economy.

The Canadian dollar will probably remain relatively soft, as the Bank of Canada is certainly light-years away from being able to tighten any monetary policy, and they have even stated as much recently. The Canadian dollar will move with oil, but only to a point. There would need to be a sustained rally in crude oil for the Canadian dollar to take off going forward.

Long-term vs short-term

This is also probably going to be somewhat disastrous for the TSX, the Toronto Stock Exchange. Canadian shares will continue to suffer, but this could offer nice value trading in some of the miners and petroleum-based corporations after the dust settles. In the short term, they will probably be somewhat toxic, but for the longer-term “buy-and-hold” type of investor, they could continue to offer more value.

Keep in mind that Canada’s biggest trading partner is the United States, and if they can get the USMCA deal signed, it could help the Canadian economy as well. That languishes in Congress while they did all-around with the impeachment process. Eventually, if the market were to get that agreement, it’s likely that the Canadian economy will see the benefits of easier trade with their neighbors to the south. As the United States goes, typically Canada will go over the longer term as it offers a lot of raw materials to the Americans. While not dead in the water, Canada has a lot of external forces determining where it goes next.

Written By
Alan Penny

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