Parsing the Canadian jobs data

After several months of exceptionally strong job gains, market expectations were for some sort of correction in January.  StatsCan delivered in spades, reporting a decline of 88,000 in the number of people employed in the month, the sharpest decline in more than a decade.  The unemployment rate ticked up to 5.9 percent from January's multi-decade low of 5.8 percent.

Does this mean that the positive job market conditions seen throughout 2017 have vanished?  Examination of the details of the data suggest this may not be the case.  The key trends seen through last year were still evident in January, despite the attention-grabbing headline figure.  The economy added 49,000 full-time jobs in January, maintaining the positive momentum that has seen 414,000 full-time positions created over the past twelve months.  Part-time employment was shrinking slowly throughout 2017, and it was this component that created the drop in overall employment, as part-time positions shrank by 137,000 during January.

I've written here many times before about the volatility in the sub-components of StatsCan's jobs data -- full versus part-time, employed versus self-employed and so on -- and that may be a factor again here.  However, on this particular occasion there may be a significant new factor at work: the sharp jump in Ontario's minimum wage that took place at the start of the year. Unsurprisingly, the right-leaning National Post has been quick to identify that as the culprit.   

There is certainly circumstantial evidence within the data to support that conclusion.  Ontario led the way in job losses in January, shedding 51,000 positions, all of them part-time.  Still, that provides no explanation for the 86,000 part-time jobs lost in other Provinces that didn't hike their minimum wage.  Moreover, if the minimum wage hike is to blame, that requires us to believe that employers, apprised of the coming wage hike many months ahead of time, continued hiring at a rapid clip right up to the end of the year, only to go to the trouble and expense of firing tens of thousands of workers at the turn of the year.

That's not impossible, but it's not likely. It is quite possible that some quirk in the seasonal adjustment of the data -- this has been a cold and stormy winter across much of the country -- accounts for as much or more of the job losses as the minimum wage hike does.  Best to withhold judgement on that until we see one or two further months of data.

No doubt the Bank of Canada will also be watching the numbers for the next month or two for evidence of whether the employment situation really has taken a turn for the worse.  However, there is one data point in today's release that will certainly have caught the Bank's attention.  Wage gains jumped to 3.3 percent year-on-year in January from 2.7 percent in December.  It is much more likely that this increase can be attributed in large measure to the Ontario minimum wage hike.  If the labour market starts tightening again in the coming months, that evidence of wage cost pressures will certainly spur the Bank towards further rate increases.