The one bright spot over the past six months has been the strength of the labour market. The Labour Force Survey revealed a record-breaking 107,000 jump in employment in April. Even the more reliable Survey of Payrolls, Employment and Hours showed strong annual employment growth of 2.5% in February. Continued employment gains suggest that the worst is behind us for GDP growth. We estimate that growth rose from 0.4% annualised to 1.4% in the first quarter and 2.3% in the second quarter. Our forecast for the second quarter is far higher than the Bank of Canada’s expectation for growth of 1.3% and above Canada’s potential growth rate of about 2.0%. Employment growth looks set to slow, however. The slump in the employment series of the Markit manufacturing PMI suggests that average monthly employment gains will slow from 30,000 in recent months to around 12,500. The Spring Business Outlook Survey, released last month, gave a similar message. With employment gains set to moderate, we expect GDP growth to drop back below Canada’s potential in the second half of the year.
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