Canadian economy hit with triple whammy

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Housing starts in Manitoba and across the country have tumbled this winter. Several factors are blamed, including weather. (BORIS MINKEVICH / WINNIPEG FREE PRESS ARCHIVES) Photo Store

OTTAWA -- The Canadian economy was hit by a triple dose of bad news Friday as three major indicators -- jobs, exports and housing starts -- all tumbled in unison to cast doubt on an expected rebound in economic growth this winter and spring.

The data for December and January were all far worse than economists had anticipated, even though the expectations had been modest at best.

The headliner was a surprisingly large 21,900 job-loss figure for January -- the first setback in six months -- and a 58,000 reduction in the number of Canadians looking for work, which produced the oddity of less employment coinciding with a drop in the unemployment rate to seven per cent.

But the jobs report was actually the relative bright spot for the day.

Canada's trade sector continued to worsen as exports fell 2.1 per cent in real terms in December -- and exports to the U.S. dropped a full four points -- while imports also fell.

The biggest shocker was the collapse in housing starts to 160,600 annualized for January, a 19 per cent tumble, as the combination of tapped-out households and tighter mortgage rules continued to undermine what had been a pillar of strength for the economy.

"Canada struck out this morning with uniformly negative data," said Jimmy Jean of Desjardins Capital Markets.

"To be sure, care should always be taken in interpreting a single month, but the housing-starts trend has long been in place."

Two weeks of brutally cold weather is being blamed for a 45 per cent drop in housing starts in the Winnipeg area in January.

Canada Mortgage and Housing Corp. said Friday only 189 single- and multi-family housing starts were recorded last month in the Winnipeg Census Metropolitan Area, which includes Winnipeg and 10 neighbouring municipalities. That was a 45.7 per cent decline from the same month in 2012, when 348 starts were recorded.

CMHC said the slowdown was evident on both sides of the new-homes market, with single-family starts down 21.3 per cent to 107 units from 136, and multi-family starts down 61.3 per cent to just 82 units from 212.

However, Manitoba Home Builders Association president Mike Moore said the last two weeks of January were essentially a writeoff for local builders because a combination of cold temperatures and high wind chills made it too dangerous for crews to work outside. So taking that into account, the single-starts number doesn't look so bad, he added.

"We did 107 units while working only two weeks of the month, so I actually found the number to be fairly encouraging. I thought it would be a lot lower than that..."

Dianne Himbeault, CMHC's senior market analyst for Winnipeg, also noted there was an unusually high number of starts in January 2012.

"Last January was pretty remarkable. You generally don't get above 300 (starts for that month)," she said.

Himbeault also noted the biggest decline last month was on the multi-family side, where the number of starts can fluctuate wildly from month to month, depending on the number and size of the new projects that get underway.

The slowdown in new-home construction was in sharp contrast to the resale-homes side of the market, which had the second-best January on record for Multiple Listing Service (MLS) sales. The Winnipeg Realtors Association said Wednesday 614 properties sold through the MLS, second only to the 660 that changed hands in January 2007. It was also a nine per cent improvement from a year earlier, when 564 homes were sold. The increase in dollar volume was 10 per cent -- $146.9 million versus $133.3 million.

The Canadian dollar dropped almost half a cent to below parity at 99.74 cents US on the gloomy economic news.

The negative results led to more calls for the government to switch to a more stimulative approach to the economy.

"With growth slowing to a snail's pace and commodity prices still low, it is becoming increasingly clear that the Conservatives' status-quo approach isn't working for Canadians," said Peggy Nash, the NDP's finance critic.

Earlier in the week, Finance Minister Jim Flaherty was adamant his main focus was on eliminating the deficit by 2015, although he conceded if conditions take a turn for the worse, he would be "practical."

In Vancouver on Friday, Prime Minister Stephen Harper said he was "disappointed," but that he remained optimistic the trend in 2013 would be positive.

"We are in uncertain times. We keep telling Canadians this, and volatility in our economy, given events in our export markets in particular, is something we should not be surprised about from time to time," he said.

The negative economic reports Friday didn't come as a complete shock, although the misses in the key sectors were larger than expected.

Housing indicators have been dropping for most of the past six months in reaction to Ottawa's decision to increase the cost of taking out mortgages, a move that was widely praised by the economic community at the time but may prove too toxic a medicine, some say now.

Soft global markets, the high loonie and special factors in the U.S. -- including disruptions from Hurricane Sandy and concerns political intransigence would drive the U.S. budget over a cliff -- had been hammering Canada's exports for months.

Also unsurprising was the jobs setback, as payback was long overdue, analysts say. The 88,000 jobs gained in November and December alone had put the labour market well out of step with overall economic weakness.

"Employment seemed to be defying gravity," said Doug Porter, chief economist with the Bank of Montreal. "This, to me, is a reflection of relatively sluggish growth in the second half of last year."

The question going forward is how long the current rough patch lasts. There are encouraging signs throughout the world, including Europe, where recent reports show economic growth picking up.

-- The Canadian Press, with file from Murray McNeill

Republished from the Winnipeg Free Press print edition February 9, 2013 B17