Weekly Economic Watch - August 13, 2013‏

– The merchandise trade deficit narrowed to C$0.47 bn in June from a revised deficit of C$0.78 bn in May (initially reported as a deficit of just C$0.3 bn). The improvement in June’s trade balance was due to nominal exports (+1.4%) rising faster than imports (+0.6%). There were export gains for autos (+5.5%), electronic equipment (+6.7%), metal products (+11.6%) which more than offset declines in exports of agricultural products (-9.4%), forestry (-7.3%) and energy (-1.4%). The non-energy trade deficit narrowed by C$1 bn to C$5.4 bn, while the energy trade surplus fell a bit to C$4.9bn. Imports were boosted by energy (+20.1%) and aircrafts (+27.3%) which dwarfed declines in several other categories. In real terms, exports rose 1.45% while imports fell 0.3%. June`s gains in real exports, however, do not make up for May`s slump, which is why export volumes grew just 1.4% annualized in Q2 (after Q1’s 5.6% advance). Real imports grew 1.7% in Q2 after Q1’s 3.9% increase. So, trade may be a bit of a drag to Canadian GDP in the second quarter. Real imports of electronic equipment grew at an annualized pace of 35.3% in Q2 pointing perhaps to some support for business investment spending in the quarter. All told, we remain on track for GDP growth of just under 2% annualized in the second quarter.

Also in June, building permits contracted 10.3% in dollar terms with declines in both non-residential (-6.1%) and residential (-12.9%) sectors. In real terms, residential permits 12.2% with multis slumping 16% and singles declining 4.1%. Single permit applications (in real terms) are now at their lowest since 2009. The sharp drop in residential building permits shouldn’t come as a surprise given reports of accumulating inventories by developers, particularly for multiple units. With half of the year’s data now available, 2013 real residential permits are tracking below last year’s pace for both singles and multis.

The first few data points for the current quarter also became available this week. July’s Labour Force Survey suggested that employment fell 39.4K in the month. That was softer than consensus expectations which were at +10K. The participation rate fell two ticks to 66.5% but, given how bad the jobs purge was, even that didn’t prevent a one-tick increase in the unemployment rate to 7.2%. The massive job losses in the public sector (-74K) dwarfed the gains in the private sector (+31.4K). The goods sector employment (+16.5K) were boosted by manufacturing (+13.5K) which more than offset declines in construction (- 6.1K). The services sector lost 56K jobs, with a 47.3K decline in health care and a 16.4K drop in education. Full time employment fell 18.3K.

However, hours worked rose 0.3%, perhaps a reflection of the increase in employment for the age cohort 25 years old and over in sharp contrast to the slump in employment for the youth (typically parttimers). Overall, the July jobs report was disappointing, although some of the details aren’t as bad as suggested by the headline figure. The jobs purge was concentrated in the public sector (a reversal after outsized gains earlier in the year). The private sector created jobs which is good news — although the pace year-to-date isn’t great, i.e. under 4K/month average. With one month of data, hours worked are tracking an annualized increase of 0.7% in Q3, a small improvement from Q2’s pace, suggesting some support to the economy in early Q3 albeit still consistent with another lacklustre quarter.

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