Canadian employment picture brightens…but questions remain

Employment picture brightens

Stats Canada released the latest job figures today:

Employment edged up for the second consecutive month in December, with an increase of 22,000. The unemployment rate held steady at 7.6%. Compared with December 2009, employment increased by 2.2% (+369,000), following a decline of 1.1% the previous year.

Lots of good news in this report.  Unlike most recent employment reports, the bulk of the new jobs in this case were added in the private sector and were full time positions.  Excellent news.

Interestingly, while most provinces saw gains in employment, British Columbia was the notable outlier.

Employment in British Columbia fell by 23,000 in December, pushing the unemployment rate up 0.7 percentage points to 7.6%. Compared with December 2009, employment in the province grew by 1.5% (+35,000).

Questions remain

Despite the broadly positive news, it would bear considering the following questions before extrapolating this trend into the indefinite future.  Note: All graphs are taken from the Stats Can publication highlighted above.

1)  Will the coming fiscal austerity hinder growth in the public sector which, despite the recent private sector hiring spree, has accounted for the vast majority of new job creation since the recession?

2) Can gains in construction sector employment continue to outpace broad job market increases in the face of a slowing real estate market and falling housing starts?  The sector currently employs nearly 1.3 million Canadians.  Housing starts have averaged nearly 200K for the past few years, outpacing net household formation (175K) and virtually assuring a slowdown absent significant government spending and/or business expansion.

Of note, while the recent rise in oil and gas prices have benefited that sector, employment in the oil and gas industries is less than 1/5th that of construction.  In addition, rising oil prices squeeze consumer spending resulting in at best a net balance of job creation.

My position remains that the full force of monetary deflation has yet to be felt.  House prices remain significantly elevated relative to fundamentals and at best sit in a precarious position with interest rates still hovering near all-time lows, and consumer debt and home ownership rates at all time highs.

As I have often argued, the employment and economic boom of the past half decade has been largely fueled by an expansion in credit, most of it tied to residences in the form of mortgages and HELOCs.  Coupled with low savings rate it has created a feedback mechanism of rising home prices floating on a sea of ever-expanding credit, rising consumer confidence and consumer spending, lower unemployment, and strong though illusory economic growth.  It is the great connection.

Should HELOC growth return to low single digits, which is quite likely if real estate experiences even a flat market, it would choke consumer spending by between 5 and 10 percent given recent CAAMP figures.  I estimate that this would represent a 2-4% drag on GDP growth, enough to cause negative economic growth absent unforeseen strength in other areas or significant government spending to cushion the blow.

I will be much more optimistic when I see employment growth occur alongside a reduction in consumer debt/credit outstanding, a move towards balanced budgets at the provincial and federal levels, and normalized interest rates and savings rates.  Until that point most economic growth and employment growth by extension will likely prove fleeting.

Cheers

Ben

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14 Responses to Canadian employment picture brightens…but questions remain

  1. TS says:

    I would like to stay positive and believe Stats Can. I always felt labour data did not represent reality. I went to the data quality page and note this.
    About the Labour Force Survey
    The statistics contained in this report are based on information obtained through a sample survey
    of 53,000 representative households across the country.
    I thought they would receive the data from Rev Canada and remittances. We are not seeing employment increases in the Construction Industry.
    I hope Stats Can is not selling itself out to please our politicians but that would not surprise me. Nothing does anymore when it comes to statistical data and how it is being manipulated.

  2. Gordan says:

    TS, Please say that isn’t so.

  3. Sam says:

    Well, Well, Well…Ben good to see you are coming around and giving more balanced arguments were they are due.

    • Chad in Burnaby says:

      This blog stands above the rest precisely because it doesn’t cherry pick the facts. If only the newspapers did the same we could have news instead of one-sided opinion.

    • jesse says:

      Indeed it seems Ben uses data and analysis when forming opinions and conjectures. It is not evident that some commenters here do the same. Heckling’s easy; try writing a post with some meat on it and submitting it to Ben; I’m sure he’d be more than pleased to post it for critical review.

      • Chad in Burnaby says:

        I can’t imagine the armchair critics getting up to find ‘meat’…oh wait…they don’t even have to get up in the age of the innernay!

  4. Yes I’ve definitely needed to be ‘kept in check’. This must be your favourite blog, Sam. You’re here all the time posting multiple times per day. I’m glad you appreciate it.

    • Sam says:

      It is a fantastic blog Ben – you have done great job in gathering data and forensic analysis of your view. Bulls can’t be successful if bears don’t give them the ammo to think about everything in holistic way

  5. Mr. Poppinfresh says:

    Please forgive Sam for being so obnoxious, Ben: things are very quiet in Vancouver-area realty offices these days, and he has a lot of spare time on his hands…

  6. Ed Sager says:

    It is refreshing to see solid information rather than the ‘adjusted’ figures that are so often quoted in the media.

  7. Michelle says:

    Not so fast! Jobs numbers might look ‘ okay’, the fact must be remembered that it only happened because world governments were willing to go to debt to accomplish very little in the long term.

    Most of the money our own Government has spent, will be empty by early 2012. I would say, the way the world is in debt, there is no way for any serious recovery in the future.

    Those who believe that all you have to do is spent, borrow, and create bubbles and Bingo and you have long term prosperity is a BIG FOOL!

  8. BearClaw says:

    The chart shows that the public sector wasn’t hit as hard during the recession and that in percentage terms it is up more compared to 2007. It doesn’t show that the recovery is based on the public sector entirely. In fact, since the labour market bottomed in July 2009 private sector employment has increased by 389K while the public sector has added 171K jobs.

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