Canada employment data: jobs -- OK; wages -- not OK

While the US labour force survey for April showed a smart bounceback in job creation, the Canadian data were more mixed. Although the unemployment rate ticked down to a nine-year low of 6.5 percent, that improvement was entirely due to a fall in labour force participation, with younger people in particular seemingly giving up on the search for jobs.  The economy added only 3200 jobs in the month, well inside the survey's margin of error.

Still, as StatsCan noted in its commentary, the economy has added 276,000 jobs over the past year, a 1.5 percent increase.  Not bad at all, but.....first, the vast majority of the new jobs have been part-time in nature, so that total hours worked in the economy have only grown by 1.1 percent in the last twelve months.  Second, and potentially more significant, wage growth is lagging badly.  Hourly earnings rose less than 0.7 percent in the year to April, the lowest recorded increase in the series since at least 1998.

This is an extraordinarily low figure for this stage of the business cycle.  It may in part explain why the household debt/income ratio has been rising steadily -- the problem may be less with the numerator than with the denominator.  More importantly, with inflation (CPI) currently at 1.6 percent, real household incomes are under downward pressure, which militates strongly against steady growth in household consumption.

The employment data come in the wake of an earlier StatsCan report that real GDP was unchanged in February after three straight monthly gains.  The immediate analyst take on this was that the economy was due for a "breather", even though nobody had actually seen it coming.   International trade data for March were remarkably strong, with exports rising to an all-time record; this should underpin some recovery in the monthly GDP data for the month and ensure a positive result for the first quarter as a whole.

Even so, if wages and household incomes remain stagnant or worse, it is difficult to see how the overall economy can remain on a stable growth path.  Today's US employment data put a Fed rate hike in June firmly on the agenda; the Bank of Canada will not be following suit for many months yet.