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Strong Canada jobs growth raises data questions
Fri Feb 9, 2007 2:57 PM EST
http://ca.today.reuters.com/news/NewsArticle.aspx?type=businessNews&storyID=uri:2007-02-09T19565...
By Cameron French

TORONTO (Reuters) - Canada's blockbuster January job growth has deepened confusion about the state of the domestic economy, where a booming jobs market contrasts vividly with a fourth-quarter economy that has apparently slowed to a crawl.
After four months of strong jobs growth at the end of 2006, many economists had expected January data to show a flat labor market, or perhaps a decline in jobs, bringing the trend into line with the weakening economy.
But Statistics Canada reported an expectation-busting gain of 88,900 jobs in January, the biggest rise since May 2006.
Now, analysts have to decide if the dichotomy points to an even steeper drop in Canadian productivity or to past errors in economic data, a possibility under the spotlight since Statscan said last week it would reexamine its growth figures.
"It's hard to believe that given the kind of GDP growth numbers we're monitoring ... why firms would be hiring to the extent that they are," said Paul Ferley, assistant chief economist at Bank of Montreal
"Something doesn't seem to be squaring properly."
Ferley said fourth-quarter growth forecasts range between one and two percent -- the Bank of Canada expects 1.5 percent. But the strong labor market would suggest growth of 3.5 to 4 percent, given historical labor productivity trends.
Taken at face value, the divergence between jobs and growth data suggests that productivity continues to weaken -- an alarming prospect as it reduces the rate at which Canada's economy can growth without generating inflation.
But some analysts now suggest that Statscan may have underestimated the economy's strength.
"It would actually be my guess now that what we're going to end up getting is a revision upwards to GDP," said Scotia Capital economist Carolyn Kwan.
Analysts agree it is hard to calculate output in Canada's resource sector, where companies may hire workers for projects that may not produce for years, as well as in the growing services sector, where output is gauged by hours worked.
STRONGER GROWTH?
Statscan senior economist Phillip Cross played down the significance of the strong jobs figures, noting that growth data for December and January are not yet out, and other indicators, such as January housing starts, point to a resurgent economy in early 2007.
"It could just be an indicator that GDP itself could be quite strong in December (and) in January when we get around to compiling it," he said.
Statscan releases December and fourth quarter GDP figures on March 2.
The strong January jobs growth propelled the Canadian dollar to its highest level in nearly three weeks, and sent bond prices lower, as it seemed to quash talk that the Bank of Canada might cut interest rates this year.
Signs that output has been stronger than expected could also signal a further shift in the rate outlook, some say.
"The expectation now is that if the GDP numbers were indeed underestimated, then there's absolutely no need for the bank to cut rates," said Kwan.
"If anything, perhaps there should be even at least some discussion of the possibility of rate hikes."


This is my take on what is going on in the world right now. Everybody please chime in.
If the statistcs are out of whack here in Canada then I can only imagine what is going on in the US! Ladies and gentlemen ... you heard it here first ... The North American rates will go up sooner than you think. That means EUR/USD and GBP/USD down. I am progressively averaging up and shorting GBP/USD .... sell the spikes is my strategy. What do you guys think? The Canadian economy is more nimblle than the US economy. If the Canadian job market is doing well the then US will do well too. Or god forbid, the statistics are all wrong and we are being taken for a penny stock ride.