No One Is Talking About What Just Happened in Canada

We got a simply brutal reminder from Canada on Friday about the true state of the global economy. Not only did the Canadians back up the US payroll weakness that we saw previously, they went even further. For Canada, it was the largest monthly job loss since January 2022. As one economist up there put it, it was a simply brutal result. Now everybody was expecting the economy to pick up in 2026. It was going to be the year of reflation. Instead, as we see all over the place, and as we're going to see all over the place, especially where it comes to labor markets, there is only growing trouble and that's before we get to the oil shock. Now there was a modest pickup in employment coming out of Canada last summer, but rather than signal the start of some turnaround, it was only another artificial high that is now giving way to the brutality of the current global jobs market. As I said, Canada hardly alone, merely the latest reminder. We've already talked about the unexpected drop in February payrolls in the US, and even before these latest American job losses, updates on GDP and incomes, they show how just difficult the situation has become. Jobs are also being shed in the UK, across parts of Europe, even Japan, where layoffs are basically forbidden. Hiring in that struggling economy has sunk just like output, just like GDP, which had already flagged Japan's unofficial recession. In other words, these labor market setbacks are merely lining up with weaker, broader indications. Last year did not end on a positive note, so it should not have been a surprise as we keep getting overwhelming proof this year starts out basically sour. But what are markets now pricing? In many bond markets, including Canada's, as we'll see, they're pricing rate hikes out of the Bank of Canada because markets know how central bankers think, and what they think about, and what they think about is oil and inflation. Even as unemployment rates soar, they cannot help themselves. They will, for a time, focus on what they think will be an effect on consumer prices, when in reality oil prices will only add more to the unemployment problem that is already considerable and growing as we start 2026. So StatCan on Friday said Canada lost a whopping 83,900 jobs during February. That's nearly the same number that was lost in the U.S. in the same month, despite disparity in population. Now this is the worst month for employment up north in four years, since January of 2022, and the negatives were widespread, hammering 13 of the 16 industry groups that are tracked by the Canadian government. And that 84,000, it also followed a pretty significant 25,000 negative in January, so already two months in a row. Plus back in December, payroll growth was zero, just barely on the plus side. So in reality, we're talking three months in a row in Canada. Now people wanted to dismiss the U.S. payroll drop in February as just, you know, some healthcare strike or cold weather. Well, the Canadian labor market data just poured freezing cold water all over those excuses. Even mainstream economists in Canada are in shock over this. After all, on average, they were expecting February to show a gain of about 10,000, a gain of 10,000, from plus 10 to minus 90. That's a big miss. So let's hear some brutal truth from some of them. Quote, in a note to clients, BMO chief economist Douglas Porter calls the February labor force survey data a simply brutal result, noting that it ranks as one of the worst non-pandemic months ever, ever for jobs. He declares the report weak almost from head to toe and points to a near absence of net job growth in the last 12 months, just like we see in the U.S., globally synchronized. The February numbers suggest a worrisome turn for Canada's job market, according to CIBC economist Catherine Judge, with a loss of 108,000 full-time jobs and 73,000 of those in the private sector. Overall, this is clearly a very worrisome report for the Bank of Canada that shows the labor market slack has increased and activity is frozen amidst trade uncertainty. Yeah, it's not trade uncertainty as we'll see. This began long before tariffs. It's forgot how to grow. It goes back to those lockdowns, to the pandemic, and to the impoverishment that came out of it. Before we go on with our video today, let me ask you a question. What if your gold could pay you every single month in more gold? That's what today's video sponsor, Monetary Metals, lets you do. And here's how it works. You still own the gold. It's still in your name. It's fully insured. But instead of just sitting there doing nothing, it actually starts working for you. 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Just like in the US, the Canadian labor market, that started to flat beverage all the way back early in 2024, around the time of that second major oil price spike, the one that was sparked by Yemeni rebels in the Red Sea. Job growth in Canada weakened during the summer of 24, right alongside the American labor market. The latter we finally see more clearly thanks to these belated benchmark revisions, but it was there the entire time. Markets told us it was. Same thing in Canada. It was never really about tariffs and trade wars. It took that modest oil shock colliding with and it produced this developed world's first brush with flat beverage in the 2020s outside of the lockdowns. We keep seeing this over and over again. But then job growth suddenly soared right at the end of 2024, especially in Canada. That surge was tariffs. An artificial high as both Canadians and some Americans were put to work front running the trade wars. And of course, economists and central bankers were running around claiming credit for the payroll bump, saying it was a fabled reaction to rate cuts rather than the artificial high the jump clearly had been. We saw that quickly enough as the weakness came right back by February 2025 in Canada, with payrolls collapsing in the summertime, mirroring flat beverage, which showed up more strongly with negative numbers finally in the US before the benchmark revisions, which made them worse. But then there was another rebound starting in September in Canada, somewhat of a divergence, though the US Household Survey did pick up something of the same thing in those same months. But anyway, Canadian employment, it turned positive for those three months, September, October, November before pivoting again, starting with December as I just went over. So it should not have been a surprise because in a couple of those months, Canadian employers were only adding part time positions while at the same time, getting rid of lots of full time ones. Another similarity, not just with the US, but this is a development that we see all over the developed world labor market, struggling employers having to reduce their costs any way they can up to and including some degree of firing. That's right where Canada is in February, joining the US, the UK and others, not just joining, but emphatically confirming the downside. Now, the bond market reaction in Canada has been to reprice the repricing. Now, yields in Canada were dropping, going lower and lower up until the end of February on economic weakness, the realization the bond market that this was taking place. However, with the oil shock and the predictable reaction from central bankers and how they view oil incorrectly as inflationary bond yields have backed up significantly since really throughout the month of March as oil prices have gone higher. They've gone up more in Canada, certainly compared to US treasuries. And it's for the same exact reason. Canadian bonds know the Bank of Canada is absolutely going to fixate on oil prices. Tiff Macklem's group was already thinking rate cuts were done before we got to this year. So they're going to be even more hawkish because of stubborn inflation as they see it, even before the Iran conflict. So if they were leaning that way in February, putting a hundred dollar oil on the table in March, bonds are hedging for hawks to be able to maybe act at least for a little while in the first half of the year, while the fallout still isn't fully clear. Let's go back to BMO's Douglas Porter. Quote, somehow the market continues to price in Bank of Canada rate hikes for later this year. But if this employment report is at all indicative of underlying economic conditions, the last thing the bank would be considering would be rate hikes. Again, market knows that the market knows about the weakness, but it also knows just how irrational central bankers have been over what they see as inflation pressures. Markets are simply interpreting right now oil as they see bureaucrats seeing the spike. But Mr. Porter's right, more bad payroll numbers like this and it forces the inflation bias right out of the central bank discussions, not just in Canada, at the Fed, the Bank of England, even the Bank of Japan. The only question is how long before that happens, because the other part of this is how policymakers have repeatedly shown just how irrational they can become over oil. In fact, I did a video just a couple of days on this point, recounting the 2008 experience. 2008, back then, the Fed, the ECB, all of them, they completely overlooked growing employment weakness, not to mention the whole credit crisis thing, because crude prices were soaring and they thought that was going to be inflationary over and above the deflation that was actually taking place. So the market right now is simply reflecting historical experience and the predictable irrationality of officials, even in the face of overt weakness today. Keep in mind as we go through this, the flat beverage world is behind a whole bunch of stuff, not just weakness in jobs or overall economy, but also the credit markets. The reason we're seeing this, the reason we're seeing the credit market bust, the reason we're seeing liquidity problems in the credit market, all goes back to flat beverage and negative payroll reports. The more we get of them, the more trouble we're going to get. Therefore, at Urdal University, we're having a webinar March 26. It's a Thursday, 6 p.m. Eastern Time. We're going to go over where things stand in the credit market bust, as well as the various stages, what they mean, what they suggest about going forward. So you're going to want to be there again, Thursday, March 26, 6 p.m. Eastern Time. There's a link in the description. You are not going to want to miss this because of everything that's going on right now. Now, also on Friday, the U.S. government reported its update on GDP, not good, as well as jolts for January and incomes and spending for January, also not good, even before we get to the oil shock. In fact, this is a month before we get to oil shock and with fourth quarter GDP, we're talking about almost a full quarter before we get to the oil shock. So GDP was much worse than previously believed, while jolts showed only a modest bounce in January relative to what had been very ugly data in December and then the income and spending statistics not really good. For GDP, the preliminary estimate was initially reported at 1.4 percent, down sharply from the third quarter and second quarter. Well, that figure was just cut in half and is now only seven tenths of a percent, which is, of course, being blamed on government shutdown during the fourth quarter. But what we really see is weakness in consumer spending because that's where the primary downward revision really was. Why? Everything we just went over, the flat beverage world for workers. The same goes for spending and income data into January. As Bloomberg puts it, quote, U.S. consumer spending barely rose in January after economic growth was weaker than previously reported at the end of last year, suggesting the economy lost some momentum. It lost a lot of momentum before the war with Iran. The backdrop has shifted dramatically since then. Payrolls fell in February, where unemployment rose, especially the unadjusted rate, which accounts for labor force dropouts, reviving concerns about the health of the labor market. And the war has boosted energy prices and dented household sentiment in recent weeks, according to a new survey from the University of Michigan. Now, the real disposable income data for January from the U.S. government, it predictably increased, though almost entirely due to government transfers, which is something we see every January. It rose two thirds of a percent on the month after being down during the entire fourth quarter of last year. However, when you exclude those transfers, real private income was barely positive yet again, rising just zero point Like real DPI, real private incomes without transfers negative in the fourth quarter, including a decline in December, which January's bounce barely made up for. So with incomes mostly this week, consumer spending, as Bloomberg reported, was indeed dim to start the year. Now, we already got retail sales for January, which were down somewhat, but personal consumption expenditures or PCE, which also includes spending on services, they only increased by a tenth of a on the month when adjusted for price changes. And PCE was only up zero point zero eight percent in December and just zero point one two percent in November. And it wasn't any good in either October or September to begin with. So that makes five months in a row with sluggish gains. Not surprising given the situation with jobs. It really is getting to be a flat beverage world. And that was before the oil spike. I know I keep saying that, but it is absolutely true. It's not inflationary. It adds more pressure to an already pressured situation. And in the case of the U.S. data, we're talking several months before the energy shock and then things accelerating like we see in payrolls, both Canada and the U.S. into February. Now, we've been following flat beverage and other key parts of the global economy, too. And keep in mind, always keep this in mind. This weakness is developing and continuing in twenty twenty six. Despite all the global rate cuts, all the stimulus and accommodation, according to central bankers, because as I've been telling you for you, I've been telling you ever since I started writing lower interest rates, rate cuts, they are not stimulus. They are a reaction to any reflection of legitimate weakness. By the way, flat beverage simply refers to a labor market where demand for workers has dimmed so much there's no longer enough work for the companies to keep employing the number of workers they currently have on staff. And when that happens, firms begin cutting back on hours, scaling back on raises. We know they stop hiring, something we've been seeing for years now. And if the economy gets a little flatter on the beverage curve, that means there starts being layoffs on top of everything else. And we definitely got those in Canada in February and some in the U.S. as well. Now, they've been more consistent in places like the U.K., the layoffs where payroll losses have been ongoing for almost two years. Again, notice the same pattern. Early twenty twenty four. That's when the flat beverage really starts to show up in these places. For the Brits, the initial weakness was more pronounced than even Canada. They also have the artificial high. We see the same thing to close out twenty twenty four than more sustained job losses throughout twenty twenty five right into twenty twenty six. In fact, the unemployment rate in the U.K. for December, the latest data that they reported, it spiked to five point two percent as a result. Five point two percent nearly matches the highs, the highs from twenty twenty and twenty twenty one. And outside of those lockdown months, it's the most official unemployment in the U.K. since twenty sixteen. Yet the Bank of England, like the Bank of Canada, is almost certain to be more responsive to crude oil prices in the near term than the painful, yes, painful unemployment levels, at least for the next little while. And other than the U.K., I've also brought up Switzerland because Switzerland is a global bellwether. Unemployment there isn't high, but it never really gets high. Even so, at the margins, joblessness has crept into Switzerland anyway, getting to be higher than the lows in the late 2010s. It's some flat beverage in a place where you wouldn't expect to find any. And since Switzerland's economy is often a reflection of global conditions and changes, change is the important one. It's yet another example of growing employment problems, therefore deeper economic problems. Same goes for Japan, even though the Japanese don't really do unemployment. Japan's official unemployment rate is always among the lowest in the world. And right now, no exception. However, even the official rate has moved up a small yet noticeable amount during this latest unofficial recession over there. I've already told you I went over GDP fell sharply in the third quarter and then basically failed to respond during the fourth. While governments won't admit it's a, they never admit it's a recession, we're seeing the negative effects from it anyway, even in Japanese jobs. In addition to the rise in unemployment, other hiring indications show the loss of activity, the slide in demand consistent with flat beverage, the slide in demand for work and workers, totally flat beverage. For one, the jobs to application ratio dropped during the second half of last year, same as when GDP was down. And it had been sliding since 2023 with repeated recessions and weakness ever since then, forgot how to grow, even after it only rebounded to 1.35 at the high in 2022, which as you'll see, far below pre-pandemic levels. But from 1.26 in April 2025, the ratio then fell to just 1.18, which is incredibly low, where it currently sits in the latest figures from the Japanese government. Relatedly, the number of new job offers from the cabinet office, which they include in their set of leading economic indicators, it shows the same exact thing, consistency, corroboration, corroboration inside of Japan, corroboration globally. The recession in the back half of 2025 really did reduce the demand for workers, Japanese, Canadian, UK, American, it's consistent all over the place with the rest of the global economy that did indeed struggle very badly last year and so began this year going the wrong way. It's just that people weren't expecting that, they weren't looking for it, so now they're all shocked and surprised. So the alarming loss of Canadian jobs in February really is a brutal reminder of just how bad a shape the global economy was in even before the oil shock shows up. We see flat beverage confirmation and more of it in all of these different places. While some in the U.S. wanted to question labor data, especially February payrolls and the big negative there, here we see consistency in all of them. Canada, U.S. data, even the Japanese, they are struggling badly with downturns, recessions, flat beverage weakness. This year was supposed to begin on the right foot. Instead, as we got last year, the global economy became more certain, not more uncertain, and this weakness along with the oil shock, not going to be inflationary, it's only going to add even more certainty. I really don't think people realize just how fixated central bankers become on oil prices for all the wrong reasons, including 2008. I went over that in the video link below. As always, thank you very much for joining me. Huge thank you, URUtah University members and subscribers, and until next time, take care.