Posted on April 7, 2017

Canadian Jobs Beat Expectation in March, But Wage Growth Is Sluggish

Canada’s economy continue to generate job growth in March, extending an employment rally that is the strongest in years, but with increasingly sluggish wage increases. Canadian employment grew by 19,400 in March–exceeding economists’ expectation for the fourth consecutive month–while the unemployment rate increased 0.1 percentage points to 6.7% as more people searched for work.

This brings job gains in the first quarter to 83,000 or 0.5%, which is comparable to the last quarter of 2016 and well above the first quarter of last year. This further flags a surge in Canadian economic activity in Q1, as real GDP growth is likely to come in at a 3.5% pace.

Another piece of very good news is that most of the employment gain was in full-time work. The net job gain in March reflected an increase of 18,400 full-time jobs and a gain of 1,000 part-time workers. The year-over-year increase in employment is posted at 276,400 (+1.5%), now mostly in full-time work, as the total number of hours worked rose by 0.7%. Canada has added 223,100 full-time jobs over the past year versus 53,300 part-time jobs.

Yet, the pace of annual wage rate increases fell to 1.1% in March, the lowest since the 1990s. The weakness in wage gains seems to be an Ontario phenomenon. The province, which has led employment increases over the past year, recorded an annual 0.1% increase in wages in March, also the lowest on record. On the brighter side, manufacturing looks like it came back in March, with a gain of 24,400 positions, the most since 2002. The rise in the number of hours worked helped to offset the weakness in wages.

Leading the way was strength in job growth in hard-hit Alberta, showing gains of 20,000, all in full-time work. More people sought jobs in the province last month, leaving the jobless rate unchanged at 8.4%–down from a peak of 9.0% in November. Job gains were also recorded in Nova Scotia and Manitoba. Employment in March fell in Saskatchewan, while it was relatively stable in the remaining provinces.

There were more people working in manufacturing; business, building and other support services; wholesale and retail trade; and information, culture and recreation. On the other hand, declines were recorded in educational services; transportation and warehousing; “other services”; and public administration. The rebound in manufacturing was the largest one-month increase since August 2002. This is on the heels of a downtrend in factory work throughout 2016.

The strength of today’s jobs report for March gives the Bank of Canada a lot to ponder when it meets next week. Real GDP is on track to beat the Bank’s forecasts for a third consecutive quarter and the unemployment rate at 6.7% remains below the 10-year pre-recession average, a time when the economy was considered to be at full-employment. The Bank has played down the recent upswing in economic data and this report will likely fuel their concerns even with the gain in employment. While economic growth has accelerated and employers are hiring, it’s tough to be sanguine about the expansion without a pick-up in wages. Wage rates are growing at only half the pace of the cost of living. The Bank of Canada will likely hold interest rates at today’s low levels despite the Federal Reserve’s rate hikes.

Provincial Unemployment Rates in March In Descending Order (percent)
(Previous months in brackets)
   — Newfoundland and Labrador       14.9 (14.2)
— Prince Edward Island                       10.1 (10.0)
— Nova Scotia                                           8.6   (8.1)
— New Brunswick                                     8.4   (8.9)
— Alberta                                                       8.4   (8.3)
— Ontario                                                      6.4   (6.2)
— Quebec                                                       6.4   (6.4)
   — Saskatchewan                                         6.0   (6.0)
— Manitoba                                                   5.5  (5.8)
   — British Columbia                                   5.4  (5.1)

US Job Growth Slows While Jobless Rate Hits Lowest Level Since 2007

US payrolls rose 98,000 in March following a 219,000 gain in February that was less than previously estimated. This was well below the median forecast in a Bloomberg survey of economists. The divergence in March from the prior month likely reflected, at least in part, swings in weather disturbances–there was a snowstorm in the March payrolls survey week that dumped 10-to–20 inches of snow over a large swath of the Northeast, following an unusually warm February.

The unemployment rate unexpectedly fell to 4.5% from 4.7%, and wage gains slowed to a 2.7% year-over-year pace.

While the payrolls data are the weakest since May and represent a pullback from the first two months of the year, it may reflect just how close the US is to full capacity. This has led the Federal Reserve to hike interest rates in March and forecast two more rate increases this year. Businesses have reported labour shortages, confronting a dwindling pool of unemployed, and are gradually giving in to pressures to raise wages in order to attract and retain talent. This is in direct contrast to the situation in Canada. With the economy moving ever closer to full capacity, US monetary policy will be more focused on pulling back on the unneeded liquidity in the system. This is expected to keep the central bank tightening going forward via raising overnight fed funds rate along with a shrinking Fed’s holdings of government bonds and mortgage-backed securities.

This despite other evidence surfacing of a slowdown in the US economy, as consumer spending barely advanced in February and demand for autos slowed in March. US growth in the first quarter of this year is expected to be under 2.0%, well below the 3.5% expectation for growth in Canada. A second-quarter rebound, while expected, could depend on the strength in the labour market.

Notably, the retail sector in the US has been very weak. Retailers cut around 30,000 positions for a second month amid reports of store closings, while gains in construction and manufacturing eased. This was mirrored by reports in Canada of layoffs and belt-tightening by Hudson Bay Company, which owns Saks Fifth Avenue and Lord and Taylor’s in the US, as well as The Bay in Canada.

President Trump continues to emphasize job-market indicators that measure slack, including the number of Americans who have given up looking for work and therefore aren’t counted in the labor force. The number of discouraged workers fell by 62,000 in March to 460,000. The underemployment rate, a measure that includes those working part-time who would take a full-time job if it were available, fell to 8.9%, the lowest since December 2007, from 9.2% in February. The labour force participation rate has been historically low in the US, but it may well be held down by the growing number of older workers who are leaving the labour force.