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Canada jobs drop steepest in half year, house starts plunge

Jennifer Kwan

Canada's economy shed 22,000 jobs in January, worse than the small gain the market had been expecting and the biggest decline in half a year.

In what has been characterized as a "reversal of fortune," the losses were concentrated in full time positions and shared between both the private and public sector. On an industry basis, only six of 16 industries reported higher payrolls.

The country’s jobless rate ticked down to 7 per cent in January from 7.1 per cent as fewer people looked for work, Statistics Canada said on Friday. The main source of weakness was from finance, utilities, manufacturing and educational services.

Economists had expected 5,000 new jobs and the jobless rate to edge higher to 7.2 per cent.

Given Friday's data, the question is does the data spark a new trend in the labor market?

"You need to put it into the context of what job growth we've seen over the last couple of months," said David Tulk, chief Canada macro strategist at TD Securities.

"We view this weakness as payback following a period of surprising strength and not the beginning of a new trend," he said.

He said with economic growth expected to remain soft through the first half of 2013, a modest pace of employment is expected in keeping with softer hiring intention surveys.

Charles St-Arnaud, economist and currency strategist at Nomura Securities in New York, said January's losses were the steepest since July. But while the report is largely negative, it follows the previous five months when the Canadian economy created more than 180,000 jobs.

"We believe that weakness in the labour market should continue, but do not expect big job losses, but rather a stagnant labour market," said St-Arnaud.

Big drop in house starts

Canadian housing starts plummeted in January, the Canada Mortgage and Housing Corp. said on Friday, far weaker than market expectations of 195,000 starts.

The seasonally adjusted annualized rate of housing starts dropped nearly 19 per cent to 160,577 units in January, down from 197,118 in December. The weakness was in both single and multiple starts, with noticeable weakness in Ontario.

"After hitting a recent peak of 228,300 annualized units last August, new home construction established a decidedly downward trend in the last five months of 2012 and today’s report indicates that this has carried into 2013," economists at Royal Bank of Canada said. However, the trend rate provided by CMHC shows a more gradual cooling.

The data underscores the country's once-hot housing market is slowing down following measures by the federal government to tighten mortgage-lending rules.

In recent weeks, a number of reports have highlighted Canada's housing market. Even while it has showed signs of cooling, it remains overheated, according to The Economist.

Overvaluation in Canada comes in at an eye-popping 78 per cent, by the magazine's price-to-rents ratio, topping Hong Kong's rate, it said in an analysis of the global housing market in January. That compares to Japan's undervalued market at 37 per cent.

The price-to-rents measure is analogous to the price-earnings ratio used for equities, with the rents going to property investors -- or saved by homeowners -- equivalent to corporate profits, the Economist says.