OTTAWA (Reuters) - Canada’s jobless rate jumped to a two-year high in December and the housing market began to crumble, reports showed on Friday, adding to growing evidence the economy slid into a recession late last year.
Statistics Canada said employers cut a net 34,400 jobs in December, more than expected, and the unemployment rate jumped to 6.6 percent from 6.3 percent. The construction sector took the biggest hit.
The news prompted a decline in the Canadian dollar versus the U.S. dollar and cemented the market’s view that the Bank of Canada will aggressively cut interest rates on January 20.
Finance Minister Jim Flaherty warned that worse was still to come.
“We’re in for a very difficult year. We regrettably are going to have to expect continuing job losses in Canada,” Flaherty told reporters in Thornhill, Ontario.
Flaherty said he would address growing unemployment in his budget on January 27, mentioning possible measures to encourage retraining and job-sharing.
The downturn in construction -- and housing in particular -- was confirmed by another report showing housing starts fell 0.4 percent in December after plummeting to a seven-year low in November.
November building permits -- an early indicator of construction activity -- signaled the growing cracks in the housing market. The overall value of permits fell 11.8 percent in the month to a 21-month low and residential permits sank 9 percent.
“The Canadian housing correction is here, and will continue to weigh on construction activity,” said Robert Kavcic, economist at BMO Capital Markets.
Canada’s housing market has been far more robust than that of the United States, shielded from the subprime mortgage crisis by more conservative lending practices.
The latest numbers reflect an “orderly unwind” rather than a meltdown, according to Ian Pollick, economics strategist TD Securities. But Stewart Hall, markets strategist at HSBC Canada, says the lesson from the 1990 housing crash was that “once the housing markets begin to slide, the slide is often steep.”
“And there are grounds to suggest that just such a slide has begun,” he said.
The dismal fourth-quarter data may push the Bank of Canada to reduce its overnight lending rate, already at a 50-year low, by another half-point this month to 1 percent. Some analysts expect a milder quarter-point cut.
“It definitely puts the bank in the hot seat in terms of having to deliver another rate cut. I don’t think there should be any debate about whether we’re going to get a cut,” said Andrew Pyle, wealth advisor at ScotiaMcLeod.
In the jobs data, markets focused on the loss of 70,700 full-time workers in December, partially offset by a gain of 36,200 part-time positions.
The construction sector was by far the worst performer with 44,000 taken off the payrolls.
“Given the weakening and the softening in the housing sector in Canada in December -- though nothing compared to the States -- builders are responding,” said Pyle.
In the first three quarters of 2008 Canada’s labor market had appeared immune to the effects of the slowing economy, but economists expect the fourth-quarter hemorrhaging to continue through 2009. Employment growth last year was 0.6 percent compared with 2.2 percent in 2007.
“I think Canada has lost its job market resilience,” said Derek Holt, economist at Scotia Capital.
“But the more disturbing thing is the hit to pay, which I think is worse than the body count, because this was all about lost full-time jobs as reduced hours drove part-time gains,” Holt said.
The average hourly wage of permanent employees grew 4.5 percent in December from a year earlier, down from 4.7 percent in November.
Additional reporting by Frank Pingue and Jennifer Kwan in Toronto; editing by Rob Wilson