First National Financial LP

Residential Market Commentary - A flaw in Canada’s economic armour

  • First National Financial LP

Canada’s resilient economy appears to have developed a crack.  The November employment statistics surprised everyone with a loss of more than 71,000 jobs.  The unemployment rate jumped 0.4 percentage points to 5.9% – the biggest monthly increase since 2009. 

It is the second consecutive monthly decline.  In October the economy shed 1,800 positions.  The November losses are particularly stark given that analysts had been forecasting an increase of 10,000 jobs for the month.

While the drop has market watchers perking-up and paying attention it is not likely to lead to any material changes in policy at the Bank of Canada.  One big bump does not make a trend and the Bank seems to be focused on inflation above all else.  The central bank has clearly signaled it is in no rush to adjust its benchmark interest rate, especially if it means a downward move.

There are two other factors that will tend to keep the Bank on the sidelines potentially until the middle of 2020: the new Liberal government in Ottawa will likely need to deliver a new budget – probably in the first quarter and Governor Stephen Poloz has announced he will not seek another term and will step down in June.

Poloz has often cited deep concerns about consumer debt, and worries about an overheated housing market as key reasons for holding the line on interest rates.  That is unlikely to change in his last six months on the job.