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Posted Tuesday May 13, 2019


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Employment

A record-breaking month of job creation in April

Employment rose by 106,500, the largest one-month increase on record; The unemployment rate fell to 5.7% (cons: 5.8%), and wages of permanent employees rose by a better than expected 2.6% y-o-y; Strong jobs gains but moderate growth in hours worked

Facts

Employment increased by 106,500 in April. This was far higher than the consensus expectation of an increase of 11,600. The increase in April was the largest one-month increase in employment on record. In fact, it was the first time that monthly job growth had exceeded 100,000. From a year ago, employment has grown by 2.3%, up from 1.8% in March, and among the largest growth rates in the post crisis era.

Though job gains were observed in both the full-time, and part-time categories, the full-time sector dominated with an increase of 73,000. Most of the jobs created were also in the private sector, which posted an increase of 83,800 in the month.

By sector, employment in goods-producing industries rose by 39,700, with most of the increase in the construction sub-category. Services-sector employment increased by 66,900, with gains in trade (wholesale and retail), information and culture, and other services. Since the start of the year, services sector employment has increased by 203,500, led by trade, and public administration. Goods sector employment has increased by 18,500 so far this year, with gains in construction and manufacturing.

By cohort, youth employment has been an important driver of jobs gains in 2019. In April, employment among those 15-to-24 years of age rose by 47,200, lifting the total gain in employment through the first four months of the year to 127,600. The youth labour force has also increased in recent months. Hence, the youth labour force participation rate has increased from a 20-year low.

Meantime, even though the labour force rose by 108,100 in April, the unemployment rate fell to 5.7%. The consensus expectation had been for the unemployment rate to remain unchanged at 5.8%.

Average hourly wages of permanent employees accelerated to a growth rate of 2.6% y-o-y, up from 2.3%. The consensus expectation was for wage growth to remain unchanged.

Hours worked increased by 0.4% m-o-m. Over the past three months, hours worked have declined at an annualized rate of 0.6%.

Implications

The job market continues to surprise to the upside. Not only did job growth far exceed expectations in April, the 106,500 increase in employment was the largest one-month increase on record. The gain lifted the pace of job growth to 2.3% y-o-y, up from the prior 1.8% in March.

There was quite a bit of good news in the details of the report. Most of the job gains were in the full-time category, and the bulk of the jobs created were in the private sector. In fact, through the first four months of the year, private sector employment has increased by 209,800, the largest on record. While other economic data might suggest that the economy is observing only moderate growth, the labour market remains a powerful counterpoint that there are strong positive undercurrents. The ongoing strength of the job market implies that the Bank of Canada is unlikely to cut rates anytime soon. On the contrary, today's report provides some support to Bank of Canada Governor Poloz's contention that the economy has been going through a temporary detour.

There was further good news in the increase in the rate of wage growth (for permanent employees) to 2.6% y-o-y from 2.3%. Along with the dip in the unemployment rate, the numbers suggest that the labour market remains tight. Note that in the recent Bank of Canada Business Outlook Survey, firms suggested that labour market shortages were decreasing and becoming less intense. This helped to justify the Bank of Canada leaving the policy rate unchanged and adopting a neutral stance. Today's data suggest that the job market might be tightening in the first half of 2019.

Despite all of the positives in the jobs report, there are still some signs of internal inconsistency. For example, despite the strength of job creation, which has been primarily in the full-time category, the rate of growth of hours worked remains quite modest. For example, even though full-time employment rose by 73,000 in April, hours worked rose by just 0.4%. Further, even though employment growth has been strong since the start of the year, hours worked has declined at an annualized pace of 0.6% over the past three months.

Hours worked are growing at a pace far lower than that observed from mid-2017 through mid-2018. In fact, hours worked remain consistent with annual GDP growth remaining below 2%. Hence, despite the strength of the job market, hours worked continue to point toward an economy that is in a period of moderate growth. Meanwhile, other economic data have generally pointed toward sluggish economic growth into 2019 Q2.

Overall, we still see mixed signals regarding the performance of the economy. As a result, we continue to expect the Bank of Canada to leave the policy rate on hold in coming months.

David Watt is Chief Economist, HSBC Canada









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