Posted on August 5, 2016

July Employment Great in U.S., Terrible in Canada

Another woeful jobs report in Canada for the month of July triggers further pessimism. Following three consecutive months of stagnant employment, payrolls fell by a much-worse-than-expected 31,000 in July as the unemployment rate increased 0.1 percentage point to 6.9 percent. Gloomily, all of the loss was in full-time employment, which fell by 71,000 from June to July, while part-time work was up 40,000.

On a year-over-year basis, total employment in Canada increased by 71,000 or 0.4 percent, with all of the growth in part-time work. Hardest hit last month were young people aged 15 to 24 whose unemployment rate hit 13.3 percent. Youth unemployment in the summer months is often quite volatile, but compared to the same month one year ago, payrolls were down 2.7 percent.

Employment fell in Ontario and Newfoundland and increased in British Columbia and New Brunswick. This was the first decline in Ontario since September 2015, where the unemployment rate currently stands at 6.4 percent. B.C.’s positive jobs performance extends an uptrend that began in the spring of last year. The unemployment rate in B.C. is the lowest in the country, at 5.6 percent, helping to explain–at least in part–the booming housing market in Vancouver and environs.

In direct contrast, the jobless rate in Alberta increased sharply to 8.6 percent, its highest level since September 1994. Alberta’s economy has been brutalized by the oil price rout, which began in June 2014 and, more recently, the Fort McMurray wildfires. Oil prices have come under renewed downward pressure in recent weeks, largely reflecting seasonal forces.

From an industry perspective, all of the decline in Canadian employment last month was in the government sector.

In another piece of bad economic news released today, Canada’s trade deficit widened to $3.6 billion in June, hitting a record high. The Bank of Canada has long been hoping that non-energy exports would help offset the weakness in Canada’s energy sector.¬†Clearly, the Bank of Canada will remain on the sidelines for an extended period. It is unlikely they will risk cutting interest rates again given the surge in household borrowing.

A Very Welcome U.S. Employment Report–Welcome for Hillary

U.S. payrolls jumped in July for a second month and wages climbed, which is great news and portends  sustained growth in consumer spending in the second half of the year. Employment climbed in July by 255,000 well above the 180,000 expected job gain, which followed an upwardly revised increase of 292,00 in June.Gains in July payrolls were broad-based, including manufacturers, health-care and retailers.

The unemployment rate was unchanged at 4.9 percent as many formerly discouraged workers streamed back into the labour force. Even the broadest measure of unemployment, so-called U-6, which includes discouraged workers and those involuntarily working less than full-time, has moved down to 9.7 percent, compared to over 17 percent in late 2009. As well, the average duration of unemployment has fallen considerably.

Other indicators of the labor market are sending clear, positive signals. Jobless claims have held below 300,000 for 74 straight weeks — the longest stretch since 1973 and a level economists say is typically consistent with a healthy labour market. Job vacancies are hovering near 15-year highs, with just 1.4 unemployed workers for every available role. And the quit rate, which measures voluntary job exits, has trended upward since early 2010 suggesting improved confidence.

The long-awaited wage growth showed promising signs of acceleration last month, with average hourly earnings rising a more-than-forecast 0.3 percent. Year-over year gains remain at 2.6 percent. Wage growth has been sluggish throughout the expansion even as unemployment has diminished. Normally, a tightening labor market prompts hiring managers to offer more pay to attract and retain skilled and experienced workers. However, a potentially more representative data series created by the Atlanta Fed. theWage Growth Tracker, shows an uptrend in annual worker compensation growth to 3.6 percent.

Last week, the Commerce Department  reported that the U.S. economy grew at a mere 1.2 percent annual rate in the second quarter, less than half the median projection of economists. It is obvious that potential noninflationary growth in the U.S. has slowed as labour force growth diminishes owing to demographic factors. In other words, judging from the payroll figures, the U.S. economy is at or near full-employment. Second-half GDP growth in the U.S. is likely to pick up to about a 2 percent pace.

Though many have judged the likelihood of a Fed tightening move this year to be relatively low, policy makers last week did affirm that risks to the U.S. economy have eased and the job market has continued to tighten. This suggests that a boost to borrowing costs at the Fed’s next meeting September 20-21 remains a real possibility.