The January labour market report provided a
mixed picture going into 2010. Disappointingly, job declines continued into
January falling 20,000 in the month with the drop in December deepened to
150,000 from the previously estimated 85,000 decline. The increase in November
was raised to 64,000 from a previous 4,000 gain. Market expectations had been
for a return to job growth in January with payrolls rising 15,000. Part of the
optimism for employment was based on expectations that temporary hiring for the
census would boost employment although the BLS indicated that this factor only
added 9,000 jobs. The household survey, however, provided a different picture
with 541,000 new jobs created in the month that almost fully reversed a 589,000
drop in December. With the labour force up only 111,000 in January, the
unemployment rate unexpectedly sank to 9.7% from 10.0% in December.
The overall decline reflected goods-producing jobs dropping 60,000 in the
month, which was partially offset by service-producing jobs rising 40,000.
Within the former component, manufacturing employment managed to rise 11,000,
but it was more than offset by a 75,000 drop in construction jobs. The gain in
service producing jobs was led by gains in temporary help services (+52,000) and
professional and business services (+44,000). Offsetting declines were led by a
19,000 drop in the transportation and warehousing component.
The workweek provided a more encouraging picture than payroll employment,
with this measure unexpectedly rising to 33.3 hours from 33.2 Hours in December.
The manufacturing workweek rose an even greater 0.2 percentage points to 40.8
hours while overtime hours rose to 3.5 from 3.4 in December. The index of
aggregate weekly hours, which reflects the effect of both employment and hours
worked, was up 0.3% following no change in December. The comparable measure for
manufacturing was up an even greater 0.7%.
The index of average hourly earnings, the main wage measure in the report,
was up 0.3% in the month and 2.5% compared to the past year. In December, this
wage measure was up 2.4% on an annual basis.
Today’s report included benchmark revisions to earlier months. As had been
expected, these revisions implied even greater job losses during the recession.
Payroll employment is now estimated to have dropped by 8.4 million between
December 2007 and January 2010. It was previously estimated that 7.2 million
jobs had been lost between December 2007 and December 2009.
The decline in January payroll employment is disappointing, yet a much
stronger read on employment from the household survey resulted in the
unemployment rate unexpectedly sinking to 9.7% from 10.0% in December. As well,
today’s report suggested broad-based increases in hours worked; however, the
unemployment rate still remains at a high level still implying considerable
unused capacity in the economy. The persistence of slack in labour markets will
act to keep both inflation pressures quiescent and the Fed on the sidelines
during the near term, which will encourage more sustained improvements in labour
markets. We do not expect Fed funds to rise from its current range of 0% to
0.25% until the fourth quarter of 2010.
43,000 new jobs created in Canada during January
Canada's economy created 43,000 new jobs in January, a much larger gain than
forecasts of a modest 15,000 job increase. This rise more than reversed the
28,300 job losses reported in December. The December decline was revised by
Statistics Canada last week from the initially reported 2,600. The unemployment
rate slipped to 8.3% from a revised 8.4% during December as the strong
employment gain outstripped the 18,900 rise in the labour force in the
month. This was contrary to market expectations for the rate to rise to
8.5%. Gains in Ontario, BC and Manitoba led the January increase.
The details of the report showed January's gain in employment reflected a
41,500 jump in part-time employment, the third increase in a row. Full-time jobs
increased by a marginal 1,400, and a total of 12,600 full-time jobs were lost
over the past three months. Over the past six months, however, gains in
employment have been concentrated in full-time positions (+149,000). Gains
were concentrated in the services-producing industries, where employment rose
66,100. Retail and wholesale trade employment rose supplemented by gains in
business, building and other support services and finance, insurance and real
estate, and food and accommodation services. Public administration posted
an 11,000 job increase in the month. Thegoods-producing industries cut back in
January with 23,100 jobs lost. Manufacturers trimmed another 15,700 from their
payrolls while employment in construction was flat. Private companies accounted
for the bulk of the hiring, with the public sector increasing payrolls as well,
while the number of self-employed fell in January.
The annual gain in the average hourly wage rate for permanent workers held at
2.2% in January 2010, which was well down from the 4.7% pace recorded in January
2009.
Statistics Canada, last week, released revised labour data, which showed that
in 2008 there were fewer jobs created than previously estimated (63,500 compared
to 79,800), and in 2009 fewer jobs were lost (-189,000 compared to -240,000). On
balance over the two year period, Canada's economy lost 125,500 jobs, less than
the previously estimated 160,100. As a result, there were minor changes to
the unemployment rate which still peaked at 8.7% in August 2009 but was lower
than previously estimated at 8.4% in the three-months ending December. These
revisions and January's report showing that the unemployment rate slipped to
8.3% led us to revise down our unemployment rate forecast over 2010 and 2011. We
now expect the rate to peak at 8.6% in the months ahead and end 2010 at 8.1%
(from 8.2%). In 2011, the strengthening economy and narrowing output gap is
forecasted to result in the unemployment rate falling to 7.4%.
The revised labour data showed that 65,700 jobs were created in the
final-three quarters of 2009, a sharp improvement after a gob-smacking loss of
378,700 jobs from October 2008 to March 2009. The increases were in line with
the generally improving tone in the economy, and January's job gain augurs well
for the pace of expansion to remain firm in the first quarter of 2010. At the
same time, considerable slack was generated during the recession; and until this
output gap narrows, the unemployment rate will remain elevated. Our
forecast, that the growth in the first half of 2010 will see the recovery's
momentum build, sets up the unemployment rate to peak soon and then gradually
drift lower. As this occurs, the Bank will look to remove monetary stimulus
although conditions are not likely to warrant rates to start moving higher until
the third quarter of the year.
