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Today was a special day for Canadian economists. We were treated to, not just one, but two important employment reports which are arguably some of the most timely and accurate gauges of economic health in both Canada and the United States.
The Canadian economy delivered an enormous surprise with 289,600 jobs created last month, according to Statistics Canada’s Labour Force Survey, after shedding about three million in the prior two months. The number came in far better than expected by most analysts, with consensus before the report of a decline of 500 thousand.
The details were favourable for economic growth. Most of the jobs were full-time positions (+219.4k), but part-time jobs also rose (+70.3k). This manifested in total hours rising by a whopping 6.3 percent during the month – more than triple the pace of job additions (1.8 percent).
The goods sector jobs led the gains, rising 5.0 percent or 165k from the month prior in May. Services-producing industries also added jobs, but the 1.0 percent or 125k gain was smaller both in an absolute and relative sense. The hardest hit accommodation & food services industry registered the largest gain in jobs (+6.8 percent) during the month of May. Construction (+6.3 percent), manufacturing (+5.5 percent) and natural resource management (+4.9 percent) were the other big job gainers, while administrative & waste management services (-4.5 percent) and transport & warehousing (-2.8 percent) saw continued declines in employment last month.
The rate of unemployment rose 0.7 points to 13.7 percent in May, setting yet another monthly record high. The jobless rate is now more than eight points above the 5.6 percent registered prior to COVID-19. The headline rate does not count people who wanted to work but were not looking for a job (because they anticipate to return once lockdown ends). After adjusting for this, and to get a better sense of overall joblessness, the rate of unemployment remained unchanged in May, at 19.6 percent.
The survey conducted during the week of May 10th through the 16th, with most provinces already beginning to reopen parts of their economies. Alberta, Ontario, and Nova Scotia were the only provinces to remain under lock-down during the survey week. Ontario was the only province to lose jobs (-65k) with the jobless rate shooting up more than two points to 13.6 percent nearly on par with the national.
Wall Street analysts were just as surprised by the job numbers as were their Bay Street colleagues. Consensus was for a loss of 8 million jobs, which would have added to the dreadful April figures when more than 20 million jobs were lost. Instead, the US economy managed to add 2.5 million jobs in May. Even more encouraging was the fact that American businesses (re)hired 3.1 million workers, while government payrolls contracted by 585 thousand. The public sector losses were primarily at the local level, as schools in most states remained shut during the month. Besides government, only four (largely capital-intensive) industries cut jobs last month. These consisted of utilities (-2.3k), transportation & warehousing (-19k), information (-38k), and mining (-20k). While the outlook for mining remains uncertain, the other industries should show higher staff levels in upcoming reports.
The good news was not limited to the headlines. Aggregate hours worked, arguably a more accurate measure of economic output, rose even faster than the number of jobs, outpacing them by a full point to grow by 4.3 percent. And, despite falling by 29 cents in May (largely due to rapid compositional changes), average wages are 6.8 percent higher than a year ago, with the transitory shock potentially capable of delivering permanent wage gains for American workers by altering supply and demand for labour.
Even more encouraging was the fact that despite expectations for a 5-percentage point increase to nearly 20 percent, the headline (U3) jobless rate actually fell in May. After surging by more than 10 percentage points to 14.7 percent in April, the jobless rate declined by more than 1 point to 13.3 percent as more than 2 million Americans returned to work. The decline is all the more impressive when viewed in context of 1.7 million people returning to the labour force in May. The improvement in the headline rate was corroborated by the 1.6 point drop in the broader (U6) measure of unemployment, which includes those not looking for work on account of having one to return to, to a still elevated 21.2 percent.
Unsurprisingly, financial markets liked what they saw with risk-sentiment returning in droves. US equities gained about 2 percent on the news with the Dow rising over 800 points to surge above 27,000. Return of risk-on also buoyed oil prices, with the WTI benchmark up 5 percent to within earshot of the $40 level—a welcome development for Alberta and Newfoundland and Labrador.
Both of the employment reports are consistent with our expectation that economic growth resumed in May and will gain momentum in the coming months. However, with the gradual economic reopening and the continued health risks, we continue to expect a slow and gradual recovery. Nevertheless, the key message is that the tide has turned. Perhaps that is worth opening a bottle of bubbly.