Canada's jobs comeback? Too good to be true

Last 2 months ‘anomalies,’ says economist
By Louise Egan
|payroll-reporter.com|Last Updated: 05/28/2012

OTTAWA (Reuters) — Canada created a stunning 140,000 jobs in just two months this year, the most in 30 years and a source of pride for a government bragging the economy has got its moxie back.

But scratch the surface of the official data, and stir in a few secondary figures, and the picture looks far less upbeat.

Canada is definitely creating jobs but the figures are volatile at the best of times. There's also been an increase in involuntary part-time work, a decline in employment quality and a fall in real wages.

Experts say the heavy hiring in the construction industry — the main factor underpinning jobs growth in March and April — is not sustainable, and layoffs there, along with thousands of public sector dismissals, will dampen employment and drive up the jobless rate.

"I view these last two months as anomalies," said David Gray, an economist at the University of Ottawa who specializes in labour market policy.

Gray predicts continued unevenness and conditions that create "winners and losers" in the labour market, widening the income distribution gap.

Canada recovered from recession-era job losses far faster than Europe or the United States, winning back the 400,000 jobs lost in the slowdown by January 2011 as the economy bounced back from a recession that was also milder than the U.S. one.

Bust to boom

But the jobs juggernaut slowed to a crawl by mid-2011 as economic growth slowed, and suddenly Canada was the weakling compared to the U.S. Its economy added just 7,000 net new jobs from July-December.

The unexpectedly strong job gains in March and April — the equivalent of 1.3 million jobs in the far bigger U.S. economy — flipped that downturn round again in a bust-to-boom swing Benjamin Tal, senior economist at CIBC World Markets, described as dizzying.

"We have to be smart about it and focus on the trend because you cannot have negative numbers and then an 80,000 change in one month," said Tal, who favours looking at a six-month trend. "It's ridiculous. It's not telling the story."

May jobs figures are due on June 8. Canada's most-watched jobs figures come from the Labour Force Survey, released a few days after the end of the month, and based on interviews with 56,000 households.

A separate report on payroll employment, earnings and hours is based on data from businesses — similar to the main U.S. payrolls data — and appears with a six-week delay.

And the nature of the household survey means the main Canadian figures are particularly prone to sampling error.

April job growth came in at a confidence-building 58,200. But there's a 68 per cent chance the actual figure was between 29,600 and 86,800, and a five per cent chance it could be below 1,000 or above 115,400.

The household and payrolls surveys reports usually show a similar trend. But in the three months from December to February, the household survey showed a gain of 5,700 jobs while the payrolls data showed a loss of 6,000 jobs.

The Goldilocks number

Tal calculates job creation at about 22,000 new posts per month, on average. "The trend is showing that we're slowing but we're not crashing by any stretch of the imagination," he said.

The recent volatility in the figures has raised eyebrows from the experts, and Stefane Marion, chief economist at National Bank Financial, wants Statscan to release the two jobs reports simultaneously so people can cross-check the data.

Late last year, Marion was at a loss to explain why Quebec, the country's biggest province by area, appeared to be hemorrhaging jobs at a rate that could only mean a severe recession while other indicators suggested a healthy economy.

The confusion, which came as federal and provincial governments were drafting their budgets, could have influenced fiscal and monetary policy, said Marion.

"It came at a time when Europe was going downhill and so people were saying, ‘Oh, the recession is here now.’”

The Quebec job numbers eventually bounced back, but by then Marion and others had learned to treat the monthly data with a healthy amount of caution.

Involuntary part-timers

The underlying trends from the data are also not as strong than the headline numbers. In one sign of slack, about 10 per cent of part-time workers could not find a full-time job, down from 2010 but well above the pre-recession level of about 6.5 per cent.

Canada's unemployment rate at 7.3 per cent is 1.3 percentage points higher than its 2008 trough and 1.4 million workers were unemployed in April compared with 1.1 million before the crisis.

The U.S. jobless rate is 8.1 per cent, although not really comparable because of different methodologies.

Wages are another indication the market is not booming. They rose 2.3 per cent in 2011 while inflation was 2.9 per cent. In 2008, wages grew five per cent.

The employment rate, the measure of people with jobs relative to the overall population, is 61.9 per cent. The rate was above 63 per cent in the two years prior to the crisis when the labour market was very buoyant.

Finally, the quality of jobs being created has deteriorated from 18 months ago, according to CIBC's Employment Quality Index which looks at full-time versus part-time jobs, self-employment versus paid employment and comparative wages across 100 sectors.

"One of the reasons we look at the quality is the fact that the number of new jobs is really the tip of the iceberg," said Tal. "Any information about what is happening in this black box is actually good."

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