The Canadian economy has been hitting all the right notes recently. This week, we'll find out if the job market is still humming the same tune.
Statistics Canada releases its labour-force survey for May on Friday – the statistics agency's first and most closely watched monthly estimate of employment conditions in the country. The consensus among economists is that the economy likely added about 11,000 jobs last month – a relatively small gain, on top of the negligible 3,200-job gain reported for April.
The monthly job numbers are notoriously hard to predict, but the message from economic pundits is that with the economy continuing to give off positive signals, there's every reason to think the job market will keep growing, too. Any positive reading at all would extend the country's job-growth winning streak to six straight months.
Still, it hasn't escaped notice that while Canada's economy has boomed in the early part of this year, hiring has slowed. After adding nearly 240,000 jobs in the six months from July to January, the Canadian economy tacked on only 38,000 jobs from February through April – or fewer than 13,000 a month. Economists believe that the labour market got ahead of the economic recovery, with businesses hiring in anticipation of a pickup in business; now that the demand is at their doorstep, many may have already filled their hiring needs.
And despite the expected modest job gains, economists anticipate that Canada's unemployment rate might actually edge up a notch, to 6.6 per cent from April's 6.5 per cent, which was the lowest since the 2008 financial crisis and recession. The April reading reflected a surprise dip in the labour-force participation rate (the percentage of working-age Canadians either working or actively seeking work), which had generally been trending upward along with the improving economy since the middle of last year.
Economists think the participation rate will bounce back somewhat as the strong economy lures workers back to the market; with more people entering the labour force and the addition of a relatively small number of new jobs, that should nudge the unemployment rate up slightly.
With the quantity of jobs expected to be modest, observers will focus more on indications of quality in the labour market. In April, full-time employment slumped 31,000, while private-sector jobs fell by more than 50,000. Economists will want to see an improvement in both those two higher-quality employment indicators to be persuaded that the job market remains solidly on track.
The other big attention-getter of the week will come the day before the jobs report, on Thursday, when the Bank of Canada issues its Financial System Review. The FSR is one of the central bank's marquee reports, a twice-a-year detailed assessment of the risks to the stability of the Canadian financial system – which, as we learned all too well during the 2008 financial crisis, is closely tied to the well-being of the economy.
This FSR will be particularly closely watched in light of the saga that has played out at Home Capital Group Inc., the mortgage lender that reportedly teetered on the edge of failure earlier this spring. Bank of Canada Governor Stephen Poloz broke his silence on Home Capital last month to say that the central bank didn't see the lender's problems spreading to the broader financial system. But the FSR will be the first opportunity for the central bank, as the key overseer of the country's financial system, to provide a detailed analysis of the Home Capital situation and its implications.
Even if the Bank of Canada opts not to give a thorough accounting of its conclusions about Home Capital (which is possible, since as a rule the central bank doesn't expound on individual financial institutions), the FSR will still be closely watched for the bank's update of its read on Canada's housing sector – which it has long viewed as a key potential risk to the country's financial stability.
In the last FSR in December, the Bank of Canada spilled considerable ink talking about the new measures introduced by the British Columbia and federal governments aimed at cooling the Vancouver housing market (in B.C.'s case) and stemming the growth of higher-risk mortgage debt (in Ottawa's case). It also shone its spotlight on the growing housing concerns in and around Toronto, noting that soaring prices had resulted in not only surging numbers of dangerously indebted homeowners, but in a spread of debt problems into an increasingly vast area surrounding the city.
Since then, the Toronto housing sector has gone from hot to volcanic: The average resale price of a home in Greater Toronto surged a dizzying 26 per cent from December through April. Six weeks ago, the Ontario government stepped in with its own measures to try to calm the frenzied market.
Mr. Poloz has said he's pleased Ontario is taking steps to address the problem, but the FSR will be the central bank's first chance to provide a more thorough assessment of the policy measures. Observers will also be looking to see how the bank incorporates the early 2017 price surge into its analysis of the risks posed by housing prices and housing-related debt.