Financial markets have faced their first big sell-off scare of the year, but investors might have to endure a few more stock shocks in the coming days, weeks — or perhaps even through 2018. Such is the nature of the beast.
At this point, the most recent data show the Canadian economy still rattling along as predicted, with slower but more sustainable levels of growth. Equity markets, however, are not doing as well at the moment.
Still, after a surprisingly strong performance in what was forecast to be much milder growth in the second half of 2017, gross domestic product gained 0.4 per cent in November, or 3.5 per cent on an annualized basis. Overall, the Bank of Canada is forecasting a three-per-cent gain for 2017, followed by a 2.2-per-cent pace this year as the economy adjusts to a more moderate and sustainable pace.
The labour market, as well, enjoyed a trend of strong job growth in 2017 — at 2.3 per cent, or a gain of 423,000 positions, compared with a 229,000 increase in the workforce a year earlier, or a pace of 1.3 per cent. More Canadians found work, in both full and part-time positions.
Obviously, job creation is not immune to the impact of a slower economy.
January marked the first monthly workforce decline in 16 months — and a whopper loss at that, with 88,000 positions wiped out. Much of that weakness was due to the slowdown in GDP, but also to recent and planned increases in provincial minimum wages.
“We often caution against reading too much into any one month of Canadian employment data, and that holds for both strong reports and weak results,” said Douglas Porter, chief economist at BMO Capital Markets.
Indeed, Friday’s sudden “sour news is at least in part an offset to the unusually strong gains seen late last year, and most likely does not represent the start of new trend,” Porter added.
“However, it does bring the job market back down to Earth, and reinforces the view that the Bank of Canada will proceed ultra-cautiously through the rest of this year.”
The central bank’s trendsetting interest rate is now at 1.25 per cent, set on Jan. 17.