Forward Guidance: Canadian Job Recovery to Take a Step Back in April

Fundamental analysis of Forex market

Canadian employment likely pulled back in April as virus containment measures were re-imposed in parts of the country. We expect an 85k drop, heavily concentrated in another round of job losses in the retail and hospitality sectors. That would still only rectrace about 15% of the whopping 562k job gains over February and March during a lull in virus spread between the second and third waves. Outside of those high-contact service sectors we expect job growth to be largely unscathed from targeted restricton measures. We look for the unemployment rate to edge up to 7.7%

As in prior waves, job growth is expected to bounce back once virus spread and containment measures once again ease. In the mean-time, government supports are helping to put a floor under incomes for those losing work, and those programs have been extended to last through the summer. So household incomes will continue to hold up better than employment counts, and that is leaving substantial household purchasing power in place. The key to a more sustainable, and broadly-based, recovery in labour markets remains a ramp-up in vaccine distribution. And, on that front, deliveries of the Pfizer/BioNtech vaccine set to double to about 2 million starting next week. Provided those vaccines are distributed and remain effective against new and emerging variants – and that is still the most reasonable base-case assumption – any near term jobs market softening will reverse when the economy begins to reopen.

Week ahead data watch:

  • Canada’s trade balance is expected to narrow to $0.5B in March as import growth outpaces exports. Continued supply chain issues will likely keep auto sector trade flows depressed in March.
  • US payroll employment likely surged higher in April as the economy begins to re-open alongside rapid vaccine distribution.
  • Active covid cases in Canada have been trending down in recent days. We look to see vaccines acceleration reinforce this trend in containing virus spread as a greater share of the Canadian population gets innoculated. There are currently enough vaccines supply to cover nearly 40% of Canadians with one shot and over 30% of Canadians received at least one dose.