Clear as mud

StatsCan reported this morning that employment rose 15,000 in February, nudging the national unemployment rate down to 5.8 percent.  Coming after the surprising 88,000 decline in employment in January, the small rebound is at least somewhat reassuring.  However, any hope that the February numbers would clarify whether January's data were the start of a new trend or merely an anomaly has largely been dashed.

The overall rise in employment resulted from a 55,000 rise in part-time work (after a decline of 144,000 in January) offset by a 39,000 decline in full-time employment (after a gain of almost 50,000 in January).  The perennially volatile self employment component of the survey showed a decline of 43,000 positions in February.

On the surface, the February data seem to represent a departure from one of the key positive trends in Canadian employment over the past year, namely, growth in full time employment at the expense of part-time positions.  StatsCan notes that employment in February stood 283,000 higher than in the same month of 2017, with all of the gains coming from full-time employment.  However, given that full-time employment continued to rise in January even as overall employment plummetted, it is too soon to draw any real conclusions from this.

One interpretation of the January data that can probably now be discounted is the notion that the Ontario minimum wage hike was the primary culprit for the job losses. This viewpoint, it should be said, was voiced loudest by politicians and newspaper columnists rather than economists. It was never very credible, given that part-time employment fell right across the country in January, not just in Ontario.  In any case, the sold rebound in part-time employment in February surely means that we have to look elsewhere for an explanation of the January numbers.

Incidentally, data for my own region of Niagara help give the lie to the notion that the minimum wage hike had an early negative impact. The region used to be the heart of Canada's metal-bashing industries, but those have been decimated in the past two decades, mainly as a result of free trade.  Those jobs have been largely replaced by jobs in tourism and call centres, in both cases heavily skewed towards minimum wage and part-time employment.  And yet, remarkably, the unemployment rate in the region has fallen in each of the past two months, and now stands well below the national and Provincial rates, at 5.2 percent.

Where does all this leave us, and more important, where does it leave the policy-makers at the Bank of Canada?  It is still reasonable to believe that the economy is operating close to full capacity, which means further monetary tightening is still in prospect.  However, a slight fall in year-over-year wage gains (to 3.1 percent in February from 3.3 percent in January) may give the Bank a little more room for maneuver.  Then again, fiscal policy at the Federal level is still very stimulative, and now Ontario has announced that its budget, to be tabled at the end of the month, will also feature a return to deficit spending.  Governor Stephen Poloz never tires of repeating that the Bank's policy course will be data-dependent, but he must surely wish that the data were a lot clearer than today's turned out to be.