After last week’s relatively encouraging patch of data (real GDP, exports), the disappointing LFS report released this morning reminds us that Canada’s economic soft patch is far from over.
Total Canadian employment stalled in February (-2K), below the consensus estimate of +10K. Luckily, the plunge in full-time jobs (-52K) was neutralized by the addition of 50K part-time positions. The biggest disappointment in the report is the inexplicable loss of 49K full-time jobs in the Province of Ontario; predominately women aged 25 years old and over as well as 15 to 24 years old workers in the service sector (-36K). Historically, fallouts of this magnitude in Ontario have strictly occurred during recessions. Yet, we believe these numbers understate Ontario’s thriving and robust expansion in the professional and tech industries. We would not be surprised if this “winter blues period” turned out to be temporary and job creation in Canada’s largest province soared in March.
This being said, our main source of concern remains Alberta’s labour market, where the unemployment rate soared its highest level since the mid-1990s (7.9%). Total employment fell by 21K during the last twelve months, driven by the loss of 56K full-time jobs. One big problem is that less than half of the unemployed in Alberta are receiving Employment Insurance (EI); in comparison, 7 out of 10 unemployed received EI benefits in 2009-10 when President Obama extended them to 99 weeks. We believe that the 2016 federal budget is very likely to enhance the EI program in order to ease some of the financial pressures faced by a growing number of households in Alberta. Regardless, these unemployed workers will continue to have a difficult time finding a new job given that the province’s economic activities are insufficiently diversified. Our view is supported by the increasing average duration of unemployment, now at 15 months instead of 12-13 months prior to the oil shock. Consequently, larger-than-expected outflows of interprovincial migrants represent a significant risk for the Alberta economy, particularly for consumer spending and housing activity. Already, Alberta’s labour force is increasing at half the pace observed when the price of WTI oil stood at US$100 per barrel. If this trend intensifies and the labour force stalls or even shrinks, the unemployment rate will stop rising and understate the weakness of the Alberta economy.
In comparison to Alberta, the unemployment rate has risen to a lesser extent in N&L (14.1%) and Saskatchewan (5.9%) in both February and during the last year. Elsewhere in the country, there is nothing new to report. Both BC’s (6.6%) and Quebec’s (7.6%) unemployment rate figures were unchanged from the previous month. Full-time hiring continues to be the main driver of total employment gains in the Province of Quebec (+3K in February; +17K in the last 12 months) while part-time job creation is a larger contributor to total employment growth in the Province of BC (+14K in February; +69K in the last 12 months).
Bottom Line: February’s LFS report was weak. The next LFS report due in early April for the month of March will probably bring more clarity regarding what appears to us as a temporary blip in Ontario. Nevertheless, excluding the 2008-09 recession and the brief economic slowdown of 2001, the pace of job creation observed since mid-2014 has been the softest observed since the mid-1990s. Indeed, during the last 12 months, total and full-time employment in Canada rose respectively by 117K and 81K; a softer pace than the labour force (+213K). In turn, the national unemployment rate figure increased by another 0.1pp in February, to a 3-year high of 7.3%.
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