CA: Labour Force Survey

Fri Mar 09 07:30:00 CST 2018

Consensus Actual Previous
Employment 20,000 15,400 -88,000
Unemployment 5.9% 5.8% 5.9%

As expected, February was a much better month for the labour market. However, following an unrevised 88,000 drop at the start of the year, employment rose a surprisingly small 15,400 although with the participation rate unchanged at 65.5 percent, this was still enough to see the jobless rate unexpectedly tick lower to 5.8 percent.

Having been the hardest hit in January, it was part-time workers that accounted for the entire increase in overall employment. This category advanced fully 54,700 and contrasted sharply with a 39,300 decline in full-time positions. Disappointingly, the private sector added only a net 8,400 to its headcount leaving the majority share to the public sector which increased some 50,300. The number of self-employed dropped 43,300.

At a sector level, the overall rise in jobs was wholly attributable to a modest, and patchy, recovery in services which gained 25,900. Education (12,200), health care and social assistance (24,500), transportation and warehousing (12,600) and other services (16,600) were the main winners. However, there were sizeable falls in trade (22,000), professional, scientific and technical services (11,900) and finance, insurance, real estate and leasing (11,600).

Meantime, goods producing employment contracted 10,400, largely reflecting a 16,500 fall in manufacturing. Construction was unchanged and natural resources climbed 7,600.

Employment has been especially volatile in recent months making the identification of underlying trends even more complicated than usual. Still, for what it is worth, the average change over the last three months was minus 2,600, a marked deterioration versus the fourth quarter's stellar 57,900 advance and the 35,600 mean gain for calendar year 2017. The bottom line is that while the Canadian economy seems to be doing reasonably well, there is little immediate pressure on the BoC to tighten again, particularly amidst current trade war concerns.

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.