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Tuesday May 15, 2018

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Employment

April 2018 employment numbers called a "Headline miss with some encouraging details"

Employment fell by 1,100 in April, versus the consensus expectation of a 20,000 gain. The unemployment rate remained at 5.8%; Full-time, and private sector job gains, along with improving wages help offset the sting of the headline miss; However, there is also a growing body of evidence that the pace of job growth has slowed relative to 2016/17

Employment fell by 1,100 in April. This was a downside surprise compared to the consensus expectation of a 20,000 increase. From a year ago, employment is up 1.5%, the slowest pace of growth since late 2016.

Despite the weaker-than-expected headline, the unemployment rate, as expected, remained at a historically low 5.8% (Figure 2). In recent months the unemployment rate has stabilized near 5.8%.

The change in employment reflected a 28,800 increase in full-time employment and a 30,000 drop in part-time employment. Looking at employment another way, the gains were primarily in the private sector compared to declines in the public sector and in the self-employment category.

Employment declined by 15,900 in the goods-producing sector, primarily due to job losses in construction, though there were also small losses in natural resources, and manufacturing. Services employment increased by 14,800, with gains in the professional and scientific category, and in accommodation and food services. These offset declines in trade, transportation and warehousing, and finance.

Provincially, employment changes were generally small and balanced with five provinces reporting declines including Quebec, and Saskatchewan. Meanwhile, five provinces reported employment gains led by Ontario, and British Columbia.

Implications

In our view, the job report was mixed, with some positive factors that help to offset some of the disappointment of the headline miss. The gain in full-time employment and the increase in private sector employment were important positive developments. As well, average hourly wages of permanent employees, a key wage indicator, rose by 0.2% in the month, and are now up 3.3% year-on-year. This was the fastest pace of wage growth for permanent employees since mid-2015. Meantime, the increase in employment in the professional, scientific and technical services category is a very encouraging sign on the health of the IT industry in Canada.

There were also some developments that suggest that job growth has peaked. Short-term job market momentum has slowed sharply. While this reading partly reflects the sharp drop in employment in January owing to the sharp increase in the minimum wage in Ontario, there are other reasons to believe that the job market is entering a more moderate growth phase.

One reason is that GDP growth has slowed, suggesting that demand for labour might eventually cool. Between mid-2016 and mid-2017, GDP growth averaged 3.7% per quarter. The average rate of growth slowed to just 1.6% in 2017 H2. Slower job growth would thus be consistent, in our view, with slower economic growth in the second half of 2017. We would also note that the unemployment rate has remained essentially unchanged in the past few months. This stands in contrast to the persistent decline in the unemployment rate that started in early 2016.

We have also found another intriguing development that suggests that the job market has lost some of its prior momentum. Specifically, we see signs that the period of sustained upside job market surprises might have passed. Note that between August 2016 and December 2017, as job growth accelerated, there were 14 upside employment surprises versus just 3 downside surprises. Analysts were constantly playing catch up as the job market strengthened. So far in 2018, there have been three downside surprises, versus just 1 upside surprise. Thus, we have already had as many downside surprises in 2018 as there were in the prior 17 months. This cannot be solely explained by the weak January employment report. While not definitive we see the downside surprises in early 2018 as consistent with a growing body of evidence that the labour market is slowing.

Source David Watt HSBC Chief Economist, Canada



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