CA: Labour Force Survey

Fri Sep 04 07:30:00 CDT 2015

Consensus Actual Previous
Employment -2,500 12,000 6,600
Unemployment 6.8% 7.0% 6.8%

Following a slightly stronger than expected report in July, employment was again more buoyant than anticipated in August. A 12,000 increase was the best performance in three months but with the participation rate up a tick at 64.0 percent, the jobless rate still rose 0.2 percentage points to 7.0 percent. This was its first increase since February and its highest level since last August.

Promisingly, last month's rise in headcount was largely due to a 54,400 jump in full-time jobs as part-time positions dropped fully 42,400. Private sector payrolls expanded a modest 6,300 and government added 27,200 but the number of self-employed was down 21,600.

Goods producing industries saw a drop of 5,200 within which manufacturing posted a 3,200 decline and construction a 3,600 decrease. Other changes were only minor although natural resources advanced 2,300.

Consequently, it was a 17,200 spurt in services that was responsible for the headline increase in employment. Here, much of the work was done by education (11,100), and public administration (14,000). Health care and social assistance (8,000) also climbed significantly but trade (1,300) was little changed and transportation and warehousing (minus 5,500) struggled. Professional, scientific and technical services (minus 9,600) similarly had a poor month as did information, culture and recreation (minus 8,600).

August's 12,000 increase in employment compares favourably with an average rise of nearly 11,000 in the second quarter when real GDP dipped 0.1 percent versus the previous period. June's surprisingly robust 0.5 percent monthly rise in total output and a second successive rise in export volumes in July had already dented hopes for another BoC ease before year-end and today's report makes a move next week all the less likely. That said, the labour market is hardly robust and a string of decent gains in headcount will be required if the central bank is to give the all clear on the Canadian economic recovery.

To this end, end speculation about a further cut in interest rates is likely to linger at least until the third quarter picture becomes much clearer.

The Labour Force Survey is a key economic indicator giving an overall picture of employment and unemployment. Employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The unemployment rate measures the number of unemployed as a percentage of the labor force.

As in the U.S., this report is used as an indicator of the health of the domestic economy. Employment trends and break-downs by industry groups highlight the strength in job creation and the implications for future sectoral activity. The unemployment rate is used as an indicator of tightness in labor markets and can foreshadow a future increase in wages. Labor force data provide investors with the earliest signs of industry performance. While other data are produced with a month or two delay, these data are available only a week to 10 days after the end of the latest month. Reactions can be dramatic - especially when the result is unanticipated.

The information in the report is invaluable for investors. By looking at employment trends in the various sectors, investors can take more strategic control of their portfolio. If employment in certain industries is growing, there could be investment opportunities in the firms within that industry.

The bond market will rally (fall) when the employment situation shows weakness (strength). The equity market often rallies with the bond market on weak data because low interest rates are good for stocks. But sometimes the two markets move in opposite directions. After all, a healthy labor market should be favorable for the stock market because it supports economic growth and corporate profits. At the same time, bond traders are more concerned about the potential for inflationary pressures.

The unemployment rate rises during cyclical downturns and falls during periods of rapid economic growth. A rising unemployment rate is associated with a weak or contracting economy and declining interest rates. Conversely, a decreasing unemployment rate is associated with an expanding economy and potentially rising interest rates. The fear is that wages will accelerate if the unemployment rate becomes too low and workers are hard to find.