Employment gains in both Canada and the U.S. have put a stop to the economic slowdown of the 1st Quarter. U.S. payroll employment grew by 280,000 in May and unemployment claims remain close to a 15-year low. Canada’s surprising May employment increase of 59,000 (Ontario and B.C. experienced near-record job growth) has eased recession fears prompted by economic contraction in the 1st Quarter. Surprisingly, Alberta employment has remained basically flat since the beginning of 2015.
Construction is expected to make a major contribution to further employment growth this summer and fall in both countries, where building permits are signaling a sustained high level of residential and non-residential starts. Delayed Fed rate increases will keep mortgage rates low and support the housing recovery.
New house price inflation has slowed at the national level in Canada, but Ontario is outpacing the country average. While housing markets are soft in Edmonton and Calgary, resale activity has held up better than expected, likely because job losses in Alberta caused by the oil price crash are happening primarily in rural areas.
Big savings on gasoline are here to stay, but geopolitical risk may prevent further oil price declines. Crude oil supply is proving resilient to lower prices: OPEC output is running at its highest level since October 2012 and well above its quota; U.S. field production is now up 14% y/y and increasing; Crude bitumen production in western Canada is up sharply, reflecting oil sands project completions.
Energy exports in Canada are surprisingly strong, but this is unsustainable and is more than offset by weakness elsewhere. Total Canadian exports will need to show some growth momentum to improve overall national economic performance. Since last summer, they’ve been basically flat. The latest monthly numbers suggest a downtrend.
As such, there will be a heavy reliance in the coming months on consumers and housing to support economic activity.
Fed, in Shift, Expects Slower Increase in Interest Rates
Canada adds 59,000 jobs in May
Housing sector pace increases as new starts, building permits rise
Geopolitical chaos in the region likely to spike oil prices past $100-a-barrel