Posted on May 8, 2015

More Bad News For Canada

Employment data for the U.S. and Canada were released this morning, and once again, there was more bad news for Canada. Employment edged down in April (-20,000) on the heels of relatively flat numbers for the year so far. This was the largest decline in employment since August. Gains in full-time employment were more than offset by declines in part time, leaving the jobless rate unchanged at 6.8 percent for the third month in a row. This was the biggest drop in part-time work in four years, reflecting the damage done to the economy by the collapse in oil prices.

The natural resource sector, which includes forestry, fishing, mining, quarrying, and oil and gas extraction, continues to be an enormous drain on the economy, falling 0.3 percent from March to April, bringing the year-over-year decline to a whopping -6.6 percent. Indeed, the only gain in employment in the goods-producing sector in the past year was in construction, up 1.5 percent. Manufacturing jobs were down just under 1 percent in the past year.

The strongest gains in employment were in the service sector with job formation in education leading the way, followed by employment gains in transportation and warehousing services, hospitality and healthcare. This continues the trend evident since oil collapsed last year.

The good news is that oil prices have recently risen to over $60 a barrel for West Texas Intermediate, but still down from more than $100 last year. Prices have crept up in recent weeks from lows of below $45 a barrel.

Oddly, employment rose in the hard-hit oil provinces of Alberta and Newfoundland last month, while it fell in British Columbia and Nova Scotia. Month-to-month movements in these jobs data can be noisy, however. For example, despite the 29,000 job loss in BC this month, pushing the unemployment rate up 0.5 percentage points to 6.4 percent, employment in the province is little changed over the past 12 months.

U.S. Jobs Report

In contrast, the employment news for the U.S. was relatively good. U.S. stocks jumped after the report. Payrolls rebounded in April following an even bigger setback the month before. This is a sign that companies are confident the U.S. economy will reboot from the weather-depressed first quarter weakness. The unemployment rate dropped to 5.4 percent, its lowest level since May 2008 as more Americans entered the labour force and found work.

April 2015 U.S. Jobless Figures

The historically low labour force participation rate in the U.S. has been troubling the Fed, so any rise in this figure is a good omen. However, wages remain weak as average hourly earnings climbed less than expected. Compared with a year earlier, hourly pay was up only 2.2 percent last month despite tightening labour markets and relatively low unemployment.

Construction and health care were among the industries that accelerated the pace of U.S. hiring last month as the economy emerged from temporary setbacks that included bad weather and a labour dispute at West Coast ports. Such job growth and steadily rising wages may keep the Federal Reserve on track to raise its benchmark interest rate later this year. However, the slowdown tied to cheaper oil prices persisted in April. The U.S. mining industry, which includes oil extraction and services, lost 15,000 jobs last month, the most since May 2009.

Bottom Line: The losses in Canadian employment in April contrast with Bank of Canada Governor Stephen Poloz’s comments last week that non-energy companies were starting to take over from the weakness in the oil patch. Oil and gas producers have cut back on new building projects this year while the retail industry has been battered by store closures at Target Corp. and Best Buy Canada (via their Future Shop division). Moreover, another 18,900 people left the labour force. Capital spending in Western Canada’s energy industry will fall 33 percent in 2015, the Canadian Association of Petroleum Producers said on Jan. 21. The number of wells drilled in the region is forecast to drop 30 percent in response to the price plunge.