For instance, despite strong auto sales and a blockbuster labour market report from Statistics Canada on Thursday, wholesale trade has dipped, and housing starts were flat across Canada in February.
There are also worries about consumer spending and sky-high household debt levels – reiterated by Bank of Canada governor Mark Carney.
Other reasons for caution include the still-simmering sovereign debt crisis in Europe and continuing worries over the U.S. recovery, the latter brought into focus on Friday by a disappointing jobs report.
It will take months before Statistics Canada releases its official report on the country’s gross domestic product for the first quarter.
But so far, the signs suggest the Canadian economy is at a crossroads, said Jennifer Lee, senior economist at the Bank of Montreal.
“February wasn’t as strong as we had hoped,” Lee said. “So far in March, things seem to have picked up the pace a bit, but there are still concerns about the U.S. economy and how sustainable the recovery is.”
Next week all eyes will be on China as it releases its estimate for economic growth in the first quarter. Forecasters expect the emerging market giant chalked up an expansion of 8.4 per cent. While that’s many times stronger than any growth rates in the developed world, it would be China’s slowest pace in three years.
Back to Canada, where the economy added a staggering 82,300 jobs in March, pulling the jobless rate down to 7.2 per cent, its lowest point since the recession.
That more than makes up for the 2,800 jobs wiped out in February, and eclipses the 2,300 new jobs the economy added in January.
“Overall it shows the Canadian economy wasn’t as soft as we were expecting, but there could be underlying factors and we could see a sharp reversal in the coming months,” Lee said.
In particular, the rate could head south as a result of the 19,200 job cuts in the public sector announced by the federal government late last month.
Last year ended on a high note, as the economy grew by 3.7 per cent in the final quarter. It was a decent rebound from the slowdown that rippled out from the earthquake and the tsunami that devastated Japan in the spring.
But economists cautioned that a slowdown was coming for 2012 amid concerns about the euro zone, where unemployment just hit its highest level since 1999, and the U.S.
Case in point: Employers in the U.S. added 120,000 jobs in March, the fewest in five months, according to the latest report from the Labor Department.
The report was disappointing, but still registers as the 18th consecutive month of job gains in the U.S. economy, Lee noted.
“All things considered the U.S. economy is still growing,” she said. “You have to take a step back and say this is bad for March, but overall the job market is still improving.”
Analysts now expect that when first-quarter reporting season starts next week, U.S. firms will show the slowest rate of growth in operating earnings in three years.
In Canada, growth in manufacturing improved in the first quarter, but still remains modest compared to 2011, Paul Ferley, assistant chief economist at Royal Bank of Canada, said in an interview this week.
RBC expects growth in the first quarter came in at about 2.5 per cent, and that the economy will expand by 2.6 per cent in 2012.
“We’re talking about fairly modest growth. In that kind of environment, often indicators are mixed,” Ferley said.
Carney told Canadian Press in an interview this week that he views record high household debt the number one domestic risk to the economy, but believes he would hurt the recovery if he raised interest rates to slow borrowing.
The Bank of Canada governor said he would be prepared to intervene if things got out of hand.
“In exceptional circumstances, if there are issues that threaten financial stability, such as household debt ... the bank could use monetary policy for that purpose,” he said. “That factors into our decision-making without question.”
Household debt has been a preoccupation for many Canadian policymakers, including the Office of the Superintendent of Financial Institutions.
On Thursday, OSFI weighed in again, telling bank executives that they have not always been following policies recently set down by their boards of directors on lending risks.
“Going forward senior management will have to provide a declaration to the board that the financial institution is in compliance with the OSFI guideline (that they are following board policy),” OSFI head Julie Dickson said.
Original Article
Source: Star
Author: Madhavi Acharya-Tom Yew
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