The Conference Board of Canada’s Chief Economist Craig Alexander offers the following perspectives/insights:
“The Canadian economy suffered a major employment decline in January. But given the job boom in late 2017, a pullback was overdue. The trend rate of job creation over the last six months is now consistent with the other economic data showing an economy growing at a moderate pace,”
—Craig Alexander, Senior Vice-President and Chief Economist, The Conference Board of Canada.
- The Canadian job market continues to surprise, but for the first time in many months the surprise came on the downside. After a job creation boom in the second half of 2017, the economy lost a net 88,000 jobs in January. The outcome was far worse than market expectations, which were for an increase of 10,000 positions. The national unemployment rate also surprised by increasing 0.1 percentage point to, a still very low, 5.9 per cent.
- To be frank, a correction in the employment numbers was overdue. The pace of job growth in prior months was inconsistent with other economic data that showed the economy slowing to a moderate pace of real GDP growth of around 2 per cent. The sharp decline in January brings down the 3-month and 6-month moving average of job gains to around 20,000. This is a pace of employment growth that is appropriate for the rate of economic expansion.
- The details were less negative than the headline, as a net 49,000 full-time positions were created last month. The large headline decline came from the loss of 137,000 part-time positions.
- From a regional perspective, Ontario bore the brunt of the job losses, with a decline of 51,000 that was entirely due to a drop in part-time positions. Although some might speculate that the decline could relate the large increase in the minimum wage in January, it is important to also acknowledge that there is a lot of volatility in the monthly job numbers. So, time will tell the extent to which the higher minimum wage is impacting employment. Quebec, Manitoba and New Brunswick also recorded net job losses.
- From a sectoral perspective, the job weakness was focused in services-producing industries, which lost 71,900 jobs. The retreat in services employment was broad based with 8 of 11 industries recording declines. Finance, professional services, education, health, as well as accommodation and food services each had more than a 10,000 drop in employment. Goods-producing industries lost 16,200 positions in January, with the decline concentrated in the construction sector.
- Today’s weak employment report will reduce market expectations for further Bank of Canada rate hikes in the near term. However, as already mentioned, the pace of job creation had been excessive relative to the pace of economic growth. Accordingly, too much weight should not be put on one monthly jobs report. Looking ahead, The Conference Board of Canada is forecasting continued moderate growth that will gradually absorb slack in the economy, which should support two more rate hikes this year. But, the Bank is likely to remain on hold in the near term while it assesses the risks from NAFTA renegotiation and the performance of the economy.