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Tuesday April 10, 2018

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Employment

An upside surprise, as thepublic sector steps up hiring pace

Employment rose by 32,300 in March, as full-time employment increased by 68,300; Job gains in February and March partly offset the sharp drop in January following the increase in minimum wages; There has been a key shift in the job market. Private sector hiring has cooled, while the public sector is now a more important factor

HSBC reported that employment rose by 32,300 in March. This was a better result than the consensus expectation of an increase of 20,000. The job gains were in the full-time category, where employment rose by 68,300. Part-time employment fell by 35,900.

The increase in employment came in the public sector and among the self-employed. Public sector employment rose by 19,600, and self-employment increased by 19,800 in March. Meanwhile, private sector employment fell by 7,000.

The goods sector led the way in terms of job creation in the month, adding 21,700 positions. Gains in construction and agriculture more than offset a decline in manufacturing. The services sector added 10,600 workers, with increases reported in education, health care, and the public sector. These gains offset declines in trade and information and culture.

Through Q1, the economy has lost 40,300 jobs. Much of this can be attributed to the sharp decline in part-time employment in January in response to higher minimum wages.

The unemployment rate remained unchanged at 5.8%, as the labour force increase essentially matched the employment increase. The unemployment rates in Ontario, Quebec and British Columbia were unchanged at 5.5%, 5.6%, and 4.7% respectively. Meanwhile, in the Prairies the unemployment rate in Alberta fell to 6.3% from 6.7%, and is now at its lowest level since August 2015. That good news was partially offset by increases in the unemployment rates of Manitoba and Saskatchewan.

The average hourly wage rate rose by 0.2% month-on-month, the 8th consecutive monthly increase. From a year ago, average hourly wages are up by 3.3%. While some of this can be explained by higher minimum wages boosting the wage rates of temporary employees, note that the average hourly wages of permanent employees are up by 3.1% year-on-year, with little evidence that this is driven by mandated increases in minimum wages.

Despite the rise in full-time employment, hours worked were flat in the month.

Implications

Job gains in February and March are helping to offset the sharp drop in employment in January owing to an increase in minimum wages. As a result, we see some encouraging signs in the job market, even though employment fell by 40,300 in Q1.

As evidence we would point toward the 78,000 increase in full-time employment in Q1. This is important as full-time employment accounts for over 81% of total employment, and is a key driver of consumption trends. The weakness in the employment sector has largely been contained in the much smaller part-time category. Wage trends also remain quite healthy even taking into consideration some of the volatility owing to the impact of mandated increases in minimum wages.

That said, despite some encouraging signs in the job market, we do not the job market to be as strong as it was through 2016 and early 2017. Notably we believe that there has been a key shift in where job growth is coming from. In particular, private sector labour demand seems to have cooled, which we think is consistent with the slowdown in GDP growth in 2017 H2.

In Q1, private sector employment declined by 69,300 accounting for the drop in total employment in the quarter. It was also the first negative quarter for private sector employment since 2015 Q4. Much of this drop in private sector employment came in January, and was the result of the increase in minimum wages.

However, private sector employment has only increased by a total of 1,400 over the past two months, which does not include the volatile January data. This compares to an average monthly increase of 18,100 per month through 2016 and 2017. The decelerating trend in private sector job creation is shown in Figure 3. As a result, even though the job data over the past two months has been somewhat encouraging, the public sector has been the main factor driving employment gains.




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