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Posted Tuesday January 14, 2020


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Employment

Canada: Employment (December) Ending a solid year on a positive note

Employment rose by 35,200 in December, a stronger than expected rebound from a sharp drop in November; Most of the gains were in the full-time category. Additionally, the private sector accounted for all of the job gains in the month; The unemployment rate fell to 5.6%, reversing most of the increase in November by David Watt

Facts

Employment rose by 35,200 in December. This was a larger than expected (consensus: 25,000) rebound from the sharp decline in employment reported in November. The unemployment rate fell to 5.6% (consensus: 5.8%), a larger than anticipated drop from November's 5.9%. The decline in the unemployment rate offset most of the 0.4 ppt increase observed in November.

In the month, full-time employment rose by 38,400, precisely offsetting the decline in November. Part-time employment fell by 3,200, the second straight decline, and third in the past four months.

Employment gains were observed in both the goods-producing and services-producing sectors. In the goods sector, almost all of the gains came in construction. Manufacturing posted a small job gain of 3,500, a very modest increase given that factory sector employment had declined by 50,600 in the prior two months. On the services side of the economy, the increase in employment was primarily due to an increase in accommodation and food services, with small gains in health care, and wholesale and retail trade.

The private sector led the way with an employment increase of 56,900, which goes a long way to offset the decline of 73,900 observed over the prior three months.

From a year ago, employment rose by 1.7%, representing an increase of 330,200 positions. This is up from the employment increase of 195,800 in 2018, though it falls short of the 417,400 increase in 2017.

Hours worked were flat in the month, and were up by just 0.6% 3m-o-y. Average hourly wages of permanent employees fell by 0.1% m-o-m, but were still up by 3.8% y-o-y.

Implications

The December Labour Force Survey showed some greater vigour in the job market at year end than had been anticipated. Many of the details of the report were favourable, notably the gain in full-time jobs, and that the private sector added to payrolls after having been more cautious for the prior few months. As well, the unemployment rate reversed most of the increase that was observed in November, and is again near its historic lows. Wage growth also remained elevated on an annual basis, despite the small drop in average hourly wages in the month. The December employment report thus points toward some resilience in the job market at a time that other economic statistics had demonstrated that the Bank of Canada's resilience narrative had been fading.

However, there were also some features of the employment report that suggest a less enthusiastic interpretation. For example, most of the gain in employment in December came from two categories: construction, and accommodation and food services. Other industries failed to record much of a net gain in jobs.

As well, the jobs data for Q4 still suggest that job creation slowed toward year end. Total employment declined by 37,800 in Q4, the worst quarterly employment performance since mid-2009. Hours worked also declined by 0.1% annualized in Q4. This compares to a small gain in Q3, and a 1.7% increase in Q2. Thus, the employment data for Q4 confirm that the Canadian economy likely slowed compared to GDP growth of 3.2% in Q2, and 1.3% in Q3. We currently forecast GDP growth of 1.2% in Q4, but the risks are tilted to the downside.

Today's data also reinforced two trends that have been observed; a regional divide in economic performance, and that the services sector is a key driver of employment. The regional divide is highlighted by the fact that while Ontario and Quebec posted a combined employment gain of 46,200 in December, job losses were reported in the western provinces of Saskatchewan, Alberta, and British Columbia, which tend to be more sensitive to commodity prices and global trade trends. The regional divide is also reflected in consumer insolvency data, which shows that a rising proportion of households in Western Canada are struggling with their financial obligations compared to households in Ontario and Quebec.

In 2019, the Canadian economy created 320,300 jobs. All of them were in the services sector, where employment rose by 367,300. Employment in the goods sector declined by 47,000. In the services sector, the largest increase in employment in 2019 came from the professional, scientific, and technical services category which posted a gain of 85,700. One of the key drivers of growth in this category is IT services, a point highlighted by Bank of Canada Governor Poloz in a talk on 9 January 2020. Other services sectors that showed solid job gains were wholesale and retail trade (77,300), health care (75,400), and finance and real estate (74,800).

Overall, today's data suggest that there is no pressure on the Bank of Canada to change the stance of monetary policy on 22 January. However, the December employment report does not assuage concerns that the Canadian economy slowed markedly into year end, and that there are acute regional divergences in economic performance and could yet increase the pressure on the Bank to lower the policy rate in 2020.

David Watt is Chief Economist, HSBC Canada








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