Canadian Jobs Blew Through Estimates, But Devil Is In the Details
Canadian employment rose 44,000 (+0.2%) in October–much stronger than expected. But all of the gain was because of more part-time work, as full-time employment fell. The unemployment rate remained unchanged at 7.0% as more people joined the labour force.
Compared to one year ago, the total number of hours worked was little changed and employment rose by 140,000 (+0.8%, mostly in part-time work (+124,000 or +3.6%). This will certainly keep the Bank of Canada from following the US Federal Reserve’s likely rate hike next month. Indeed, we cannot rule out the possibility of a BoC rate cut next year, although Governor Poloz would likely prefer to see fiscal stimulus do the heavy lifting, particularly given the concern about out-sized household debt levels.
By industry sector, construction employment continued to enjoy gains, mostly in Ontario and Quebec–notably, not in BC. Manufacturing continued weak with payrolls down -0.4% last month and down -1.5% over the past year. Natural resource payrolls were up on the month, but still down a whopping -5.6% year-over-year, dragging down the overall goods producing sector of employment.
Job gains in the service sector were better, although still lacklustre. Leading the way in this sector last month were trade, educational services, and public and other services.
Regionally, jobs were up in Ontario by 25,000 last month as the jobless rate fell two-tenths to 6.4%. In BC, employment rose by 15,000, but the unemployment rate increased 0.5 percentage points to 6.2% as more people entered the labour force. Nevertheless, BC still boasts the lowest jobless rate among the provinces. Year-over-year, job growth in BC was the strongest in the country at 2.4% (+56,000). Employment declined in Newfoundland and Labrador, taking the jobless rate up to 14.9%–the highest among the provinces (see table below).
Despite the strong headline number for employment growth, this report continues to reveal a Canadian economy that is under performing. All of the gain was in part-time work, the manufacturing sector remains weak, and there is no indication of more than a modest pace of economic activity this year, in line with this week’s fiscal update.
Provincial Unemployment Rates in October In Descending Order (per cent)
(Previous months in brackets)
— Newfoundland and Labrador 14.9 (13.6)
— Prince Edward Island 11.7 (10.8)
— New Brunswick 10.0 (9.3)
— Alberta 8.5 (8.5)
— Nova Scotia 7.6 (8.1)
— Saskatchewan 6.9 (6.8)
— Quebec 6.8 (6.9)
— Ontario 6.4 (6.6)
— Manitoba 6.4 (6.4)
— British Columbia 6.2 (5.7)
4 Days From Election and US Jobs Strengthen
Although the headline payrolls gain of 161,000 missed estimates slightly, the jobless rate fell back to 4.9%–the cycle low–and most notably, wage gains accelerated to 2.8% year-over-year, their strongest pace since the financial crisis. The prior two months’ jobs gain was revised upward by 44,000, another piece of good news. Most would argue that despite the continued long-term underemployment of some workers, the US economy is at or near full employment. The strengthening wage growth is an indication of this, and it will boost the Fed’s already-high probability of hiking rates in December.
There remains a challenge to fill highly skilled jobs. Workers have been in short supply for 13 consecutive months, according to the Institute for Supply Management survey of service-industry companies, which make up almost 90% of the US economy.
On the disappointing side, however, was the fall in the labour force participation rate and the weakness in manufacturing employment. The number of part-time workers and the long-term unemployed remain higher than before the last recession. These disaffected workers are an important component of the Trump base of support. The US underemployment rate dropped to 9.5% in October from 9.7%, while the number of people working involuntarily less than full-time remained unchanged. An estimated 5.89 million American employees were among this group.
Expect a Fed rate hike in December–the first one this year. The Fed last increased the overnight fed funds rate in December of 2015, and many had expected additional rate hikes this year. These were postponed repeatedly owing to weaker-than-expected GDP growth and low inflation. US inflation has edged up recently and the Fed signaled strongly earlier this week that a rate hike is likely when they meet next month.