Canada’s jobs surge recoups losses from crisis
But recovery still has ways to go
The recovery from the COVID-19 recession is almost complete, at least judging by the latest jobs report. Canada’s economy added 157,000 jobs in September, an unexpected surge that pushed employment to 19.131 million, compared with 19.13 million on the eve of the first wave of COVID-19 infections in February 2020, Statistics Canada said on Oct. 8.
The agency’s data show Canada recouped the three million jobs lost during the pandemic in 19 months, compared with the 27 months it took to claw back the 411,000 positions lost during the Great Recession, an argument in favour of the aggressive economic rescue packages assembled by the Bank of Canada and Justin Trudeau’s government.
Ultra-low interest rates may have sown the seeds for a future financial crisis, and all that new federal debt could become a challenge if economic growth ever falters. But if the mission was to avoid a painfully slow recovery, the strategy worked. The playbook for fighting recessions has been rewritten.
“We are building an economy that leaves no one behind,” Mona Fortier, the junior finance minister, tweeted after the latest hiring data were released.
There is still lots of work to do on that front, unfortunately, as relatively highly skilled and highly paid workers are doing better than they did before the crisis, but Statistics Canada’s latest hiring data suggest that thousands of the working poor remain on the sidelines, as there were 654,000 fewer workers making less than $20 per hour in September than there were at the start of the pandemic.
The employment rate, which measures the percentage of the population with jobs, was 60.9 per cent, the highest since the start of the crisis, but low by historical standards. And the total hours worked were 1.5 per cent lower than in February 2020, while the jobless rate was 6.9 per cent, compared with pre-pandemic levels that hovered around 5.5 per cent. It’s too soon to declare victory. “There is little debate that the labour market is still far from full health,” said Douglas Porter, chief economist at Bank of Montreal.
Still, the headline number was undeniably positive. Bay Street forecasters had predicted a fourth consecutive increase, but the median of their estimates was less than half the gain that Statistics Canada’s latest Labour Force Survey actually produced.
The numbers look even better when compared to those of the United States, where employment data disappointed for a second consecutive month, and it’s still three per cent below its pre-pandemic level.
The latest jobs data will likely prompt the Bank of Canada to further curtail its purchases of Government of Canada bonds, perhaps even all the way to zero from its current level of $2 billion per week, when it updates its policy settings on Oct. 27. Some Bay Street economists have even begun speculating about the possibility of an early interest-rate increase.
Governor Tiff Macklem has signalled that he is open to tapering bond purchases, an aggressive form of monetary policy known as quantitative easing (QE). But he has explicitly said he intends to leave the benchmark interest rate pinned at 0.25 per cent until at least the second half of next year, hoping such clear guidance will encourage businesses and households to spend and invest.
A reversal could harm the central bank’s credibility. Yet some investors are betting that rising inflation will force the governor to go back on his word. Derek Holt, a Bank of Nova Scotia economist, on Oct. 8 noted that the prices for financial assets linked to short-term interest rates suggest investors are expecting an interest-rate increase in the first half of 2021, not the second half. That’s probably because the consumer price index (CPI) increased 4.1 per cent in August from a year earlier, much faster than the central bank’s target of two per cent.
“Markets are pushing the BOC to get on with hiking,” Holt said in a note to his clients. “Extreme stimulus was put into place at the start of the pandemic because of deflation fears, because vaccines were nowhere in sight, and because fiscal policy-makers were fair-weather friends. Standing here today, such conditions for maintaining extreme monetary policy stimulus are gone.”
The Bank of Canada has raised interest rates ahead of schedule before. It last deployed extraordinary forward guidance in the aftermath of the Great Recession, under former governor Mark Carney, and it ended up raising interest rates a few months sooner than planned. Macklem has been careful to say that his timeline is contingent on the Bank of Canada’s outlook for growth and inflation.
It’s possible that those who think inflation will spook the Bank of Canada are misjudging the determination of policy-makers to avoid a slow-motion recovery, such as the one that followed the Great Recession. There is a widely held view among the world’s policy elite that they let up too soon back then, and the result was economic stagnation, widening income inequality and political instability.
Macklem is among those who have vowed to do things differently this time, having said he wants to orchestrate a “complete” recovery that gets as many people as possible back to where they were when the pandemic swept into North America.
At this point, the recovery is far from complete, and it’s also become imbalanced.
One indicator the governor watches closely is the distribution of hiring by wage rates. Employment of workers who make more than $30 per hour was 14 per cent above its pre-pandemic level in September, and it was eight per cent higher for those who earn between $20 and $29.99.
But employment of workers lower on the pay ladder took a step back last month. The number of people earning between $12 per hour and $20 per hour was still 11 per cent below what it was in February 2020, and longterm unemployment remained a significant worry. Still lots of work to do.