What Job Growth Says About Our Economy

Recently, Statistics Canada came out with job numbers for February, indicating that the Canadian economy is still defying recessionary pulls from our neighbor south of the border. More specifically, Canadian employers added 43,300 new bodies to their payrolls, which added up to just under 46,400 new jobs added in January, and much better than 31,000 reported in February of last year. At the same time, U.S. employers culled the amazing number of 63,000 jobs, which represents the highest monthly number since 2003. Job-wise, things are so-far-so-good in Canada. But for how long? This remains the question.

While these numbers are certainly encouraging, investors should bear in mind that employment data are a lagging indicator of what is really going on within an economy. To illustrate, in the U.S., the results of events that happened last year are showing only now in the labor market. It means that, in Canada, recessionary effects adversely impacting our largest trade partner are likely to start showing in the labor market late in the summer, or thereabout.

Currently, the unemployment rate in Canada has been holding at its 33-year low of 5.8%. By the same token, the employment rate is at its historical high of 63.9%. Wages have increased as well in February, showing a 4.9% annualized increase. This represents the seventh month in a row whereby wages have increased by more than four percent.

Furthermore “beautifying” the labor picture in Canada was the fact that, for the second consecutive month, employment gains were nearly entirely comprised of full-time jobs. Sector-wise, most new jobs came from Ontario’s construction sector, closely followed by public service and administrative jobs, as well as professional, scientific and technological jobs.

Perhaps the most surprised by Statistics Canada’s findings were the economists, who were calling for a significant slowdown in the jobs market for the month of February due to export declines and recessionary woes in the U.S. They were even more surprised by Ontario’s performance in this respect.

So, is Canada’s economy bouncing back or should the relative health demonstrated by the labor market be taken with a grain of salt, considering its lagging nature? According to Philip Cross of Statistics Canada, December GDP decline was a fluke and “did not
signal a major disruption in the economy, but was more an isolated air pocket related to a combination of cutbacks in the auto sector, mostly because of model changes and bad weather.”

On the other hand, Bay Street forecasters claim that hiring new employees during an economic slowdown simply defies economic logic, which is to say that January and February employment numbers should be perceived as a fluke, rather than the December GDP decline.

I’m more inclined to agree with the Street forecasters and say that we are merely enjoying the fact that the labor market lags behind the frontline economic events. I’m afraid that the recession in the U.S. is real and it is, and will continue, spilling into Canada. So, while I congratulate those who found new jobs last month, I also urge investors not to look into these numbers as a sign that the worst is over. Because it’s not!