After the streak of dismal data released earlier this summer, we finally get better news regarding the Canadian economy. Following last week’s release of the July trade data showing that Canadian exporters found back their mojo, investors learned this morning that total LFS employment rose by a brisk 26K in August compared to July.
Total employment got a stronger-than-usual boost from the public sector (+57K) usually providing full-time and well-paid jobs to Canadians. This sudden contribution is much welcomed after the severe loss of full-time positions registered the previous two months (-71K in July and -40K in June).
Surprisingly, this strengthening in public sector employment does not appear to be due to the back-to-school season, which is expected to contribute positively to September’s LFS report.
The breakdown of total employment also shows a modest net hiring by private sector companies in August (+8K) and a large drop in self-employment (-39K). These numbers reinforce the main underlying story of a diversified economy pursing its adjustment to lower commodity prices and a softer currency environment.
Clearly, the diversification of the economy and the efficient reallocation of qualified workers among various sectors and job occupations explain in large part why Canadians are not overly exposed to negative unemployment shocks. The 7.0% unemployment rate figure is modestly below the cyclical peak of 7.3% observed last winter and not substantially above the cyclical low of 6.6% observed before oil prices started to fall in late 2014.
Regionally, the level of employment in Alberta and Saskatchewan has stopped declining during the last three months. Despite this sign of stabilization, the elevated average duration of unemployment still indicates that too many people are unfortunately struggling to find new jobs in these two provinces.
Also, we are not concerned by the month-to-month pullback of 7K in the level of total employment in B.C. given that the year-over-year net pace of hiring remains impressively robust (+73K) and largely surpasses the job creation performance of all other provinces. It will be interesting to find out in coming months if the on-going cooling in the Vancouver housing market will weigh on the hiring plans of B.C. businesses.
In contrast to BC’s and Alberta’s substantial fluctuations in labour market conditions seen in recent quarters, Manitoba’s job market remains in stagnation mode: the level of employment and the rate of unemployment are still both at the same exact levels as they were at the beginning of the year; this is following an extraordinary 2015 that saw the completion of several retail, office and residential projects in Winnipeg.
Also, labour market conditions have been improving at a healthy clip in Central Canada, with Quebec leading the way lately. Total employment in La Belle Province rose by 16K from the previous month and by 33K compared to a year ago; thanks to the vibrant expansion of service-oriented activities.
This, combined with a shrinking labour force (-17K since the beginning of the year), has pushed down Quebec’s unemployment rate to 7.1% in August, significantly below the usual 7.4%-8.0% range observed in the last three years.
Finally, total employment in Ontario increased by 11K from the previous month and by 37K compared to a year ago, a respectable showing but less impressive than Quebec in relative terms (given that Ontario’s nominal GDP is almost 2 times larger than Quebec’s nominal GDP).
The on-going success of export-oriented companies is contributing to the creation of high-quality jobs, particularly in the Toronto area and the southwestern communities of the Province.
In summary, the nationwide moderate increase in total employment and resilient unemployment rate both indicate that the Canadian labour market is adjusting relatively well to the past fall in commodity prices and past depreciation of the loonie.
This being said, we have to look at salaries to find out where the negative impact of lower commodity prices is felt the most. More precisely, the average hourly earnings of Canadians is rising at its softest year-over-year pace in about two years (1.6%). This weak increase is more than simply the result of companies in the resource sector cutting costs.
There is also growing sectoral evidence that some Canadians who lost their jobs in the resource sector are finding new ones that are paying less than their previous occupations. Also, some sectors, such as tourism, which are contributing more to economic growth than before, tend to pay below-average wages.
In addition to these domestic issues, the labour income of Canadians is affected by structural forces also experienced by other developed countries such as the apparent lack of productivity growth, stiff competitiveness from emerging markets, the low cost of physical capital and the rise of the robots increasingly taking over blue-collar as well as white-collar jobs.
Under these circumstances, it would be very surprising to see rising real incomes for the Canadian middle class anytime soon.
