OTTAWA—The Canadian economy unexpectedly shed 7,200 jobs in March, its first decline in seven months, Statistics Canada data showed on April 5, reinforcing market expectations that the Bank of Canada will keep interest rates unchanged next month.
The unemployment rate held steady at 5.8 percent for the third straight month. Analysts in a Reuters poll had forecast a marginal gain of 1,000 jobs in March, following outsized gains in the previous two months, and no change in the unemployment rate.
Despite the drop in March, employment rose by 116,000 jobs in the first quarter.
“We got a little dip in employment, but the numbers are volatile and it’s been on a pretty strong run over the prior half year,” said Nathan Janzen, senior economist at Royal Bank of Canada.
Analysts said the small decline in March, following six months of consecutive gains, was unlikely to alter the Bank of Canada’s view of employment as a bright spot in Canada’s economy.
“After such a strong run of employment gains, a modest pull-back in March is of little concern to us and won’t raise many eyebrows at the Bank of Canada either,” said Andrew Grantham, Senior Economist at CIBC Capital Markets, in a note.
Bank of Canada Governor Stephen Poloz expressed guarded optimism earlier this week that Canada would emerge from a soft patch, but said the economic outlook still warrants an interest rate below the neutral range.
The central bank, which has hiked rates five times since July 2017, held rates steady last month. The next rate decision will be April 24, when the bank also will provide its quarterly monetary policy update.
The Canadian dollar hit a one-week low at 1.3403 after the jobs data was released but has since pared some of its decline.
The economy added 1,100 goods producing sector jobs, mostly in manufacturing, and shed 8,800 services sector jobs, mostly in healthcare and social assistance, and the business, building and other support services category.
Full-time jobs dropped by 6,400 from February to March, while 900 part-time jobs were shed, the data showed.
Canada’s two most populous provinces, Ontario and Quebec, shed jobs in the month, while British Columbia and Saskatchewan posted job gains.
The average year-over-year wage growth of permanent employees – a figure closely watched by the central bank – was 2.3 percent in March, up from 2.2 percent in February.
Carbon Tax Impedes Hopes of Exports, Investment Driving Canadian Economy
A long-standing gripe of businesses in Canada is their competitive disadvantage relative to the United States, which experts say has been exacerbated by the newly implemented federal carbon tax.
It also works to counter the Bank of Canada’s mantra that exports and business should drive the economy, given the level of household indebtedness, says Philip Cross, senior fellow with the Macdonald-Laurier Institute public policy think tank.
“You have to wonder what is the underlying goal of policy-makers here,” Cross said in an interview. “We have a policy that encourages households to spend more and penalizes the competitive position of businesses when they’re trying to invest and export.”
Courtesy of the federal “backstop” carbon tax enforced in Ontario, Manitoba, New Brunswick, and Saskatchewan, gas prices went up by 4.42 cents a liter on April 1 and will go up by 11.05 cents a liter in April 2022. Other fuel prices rose by varying amounts.
Now that the four Conservative-led provinces have the federal carbon levy, with the feds providing rebates to most of those province’s consumers, the big loser is small and medium-sized business.
“If we try to change the world by ourselves, it’s not going to work. It’s not going to make any difference. We’re just going to hurt our firms,” Cross said.
He says Canada should just do what the United States does when it comes to climate change policy. That way, the policy doesn’t become a relative disadvantage to Canada’s businesses.
Cross cites the United States reducing its GHG emissions as factories switched from coal to natural gas due to the drop in its price. Thus it appears possible for countries to reduce GHG emissions without explicitly having a policy targeting them.
The Canadian Chamber of Commerce also made it clear that the costs of new climate policies should be offset by other regulatory reductions. The organization is concerned about the tax inefficiencies, which also render compliance challenging and increase costs on small businesses and households.
Many doubt the tax’s effectiveness in reducing greenhouse gas (GHG) emissions meaningfully. Economists say energy demand is inelastic—consumers and businesses can’t simply flick a switch and not use it.
The Canadian government admits that the anticipated effects of the current level of the carbon tax won’t be sufficient to meet Paris targets. And that includes the cost of the carbon tax rising by $10 a tonne for the next three years.
The reality is that the level that the carbon tax has to reach to truly change energy consumption—academic economists suggest $150 to $200 per tonne or even much higher—is wholly unpalatable and politically unfeasible.
Epoch Times reporter Rahul Vaidyanath contributed to this report.