EVEN POLITICIANS AREN’T FALLING FOR ‘WEAK’ EMPLOYMENT REPORT
Labour market nowhere near as bad as key numbers suggest, writes.
I waited most of Friday for a tweet from Andrew Scheer on the new hiring data, which show a big drop in employment last month. It never came.
Maybe that’s because the Opposition leader reckoned the Trans Mountain pipeline fiasco represented better material. But I’m going to give him more credit than that. Hopefully it’s a sign that politicians are learning that it’s reckless to make too much out of Statistics Canada’s monthly surveys of the labour market.
The latest says net employment declined by 52,000 in August, a confusing result, as Carolyn Wilkins, the No. 2 at the Bank of Canada, a day earlier described the Canadian economy as being “on solid footing.”
There was nothing solid about economic life in Ontario, at least according to StatsCan; employment plunged by 80,000 in just one month, the biggest decline since 2009.
Believe little of this.
The Labour Force Survey is notoriously volatile, so much so that some on Bay Street were advising clients to stop reading it.
“Our economics colleagues may have a slightly different perspective, but when it comes to the monthly throw of the dice that is the Canadian jobs report, we continually ask: why does anyone bother looking at or reporting on monthly changes in employment?” said Warren Lovely, who heads research on government debt for National Bank Financial in Toronto.
There is some value, but only if you use the newest figures to assess trends. The other trick is to dig through the more granular data that StatsCan provides, if only because that’s what Wilkins and her colleagues are doing these days.
StatsCan’s latest batch of numbers suggest job creation has stagnated this year; net employment was about 14,000 lower in August than at the end of 2017.
But that stagnation has occurred at a high level. Think of the economy like a five-speed car that’s been running in fifth for a couple of years. The unemployment rate was six per cent in August, up from 5.8 per cent, which was the lowest on records back to the mid-1970s. There probably is room for marginal improvement, but in effect, Canada’s economy has entered the zone that economists associate with full employment.
“You are more at a steady state now,” said Darcy Briggs, who helps manage about $6 billion in bonds for Franklin Bissett Investment Management in Calgary. “We’re adding employment at a pace that is non-inflationary and consistent.”
All the job losses that StatsCan recorded in August were parttime positions, leading Briggs to assume the headline number in recent months has been skewed by political parties staffing up for the Ontario election. Full-time employment increased by more than 40,000, extending a trend that suggests stronger economic growth is forcing employers to offer workers more hours and more job security. Employees worked an average of 36.1 hours per week last month, the sixth consecutive increase and the most since August 2015.
So the labour market is nowhere near as bad as the headline numbers suggests. Still, they will colour an important policy debate.
Last month, Brendon Bernard, an economist at the Canadian branch of Indeed, the digital hiring platform, was pretty sure that a half year of employment data showed the big increase in Ontario’s minimum wage in January hadn’t hurt the economy. He’s less sure of that now. The August numbers changed the trend lines; rates of privatesector employment and youth employment suddenly are weaker in Canada’s biggest province than in the rest of the country.
“It appeared some employers had been able to pass on higher labour costs to prices instead of cutting hiring,” Bernard, a former economist at Finance, told me in an email on Sept. 7.
“However, with Ontario responsible for the entirety of the August employment drop, the picture looks less rosy.”
The value of the dollar was little changed, suggesting the new jobless figures did nothing to alter expectations that the central bank will raise interest rates in October.
Policy-makers at the Bank of Canada care more for secondary indicators that offer clues about how much the economy can grow at the margins without stoking inflation.
One of those gauges is duration of unemployment, which shrank to an average of 17.5 weeks in October, the shortest since May 2016. Another one is wages. Average hourly earnings for permanent workers increased 2.6 per cent from October 2017 compared with an annual gain of 3 per cent in July, according to Toronto-Dominion Bank.
That’s an improvement from a year ago when earnings were oddly stagnant. But they should be higher, given the level of unemployment. When the Bank of Canada opted to leave its benchmark rate unchanged on Sept. 5, it described wage gains as “moderate.”
The latest data will do nothing to change that assessment. Canada’s economy is strong enough to handle higher interest rates, but Briggs said there is no need to get carried away.
“We do not see the inflation risk that the (central) bank sees,” he said. “The risks are to the downside. The right way to go is to err on the side of caution.”