Some slowdown!

Bank of Canada executives have recently been expressing some concern about the slowdown in the Canadian economy, resulting from trade problems, low oil prices and weaker consumer spending.  The Bank seems convinced that the slowdown is temporary; even so, it must have been as surprised as everyone else by the January employment data that Statistics Canada released this morning. Defying analysts' expectations for a modest 8,000 gain in employment, the Canadian economy actually added 67,000 jobs in the month. 

The most remarkable component of the data was the increase in private sector employment, which rose almost 112,000, the largest monthly gain since the current series began in 1976.  This brought the year-on-year increase in private sector employment to 293,000, accounting for the bulk of the 327,000 annual increase in total employment.  That total is divided almost equally between full-time and part-time work.

Other elements of the report are rather less favourable, and as usual the volatility of the sub-components casts some doubt on the underlying trends.  To quote just one example, StatsCan reports that self-employment fell by 61,000 in the month. With fewer than 3 million self-employed persons in the economy, and a standard error for this component of almost 27,000, this figure cannot be taken too seriously.

Other notable numbers include:

• The labour force grew by over 100,000 in the month, so despite the surge in employment, the national unemployment rate actually ticked up to 5.8 percent.  To the extent that the labour force growth represents an "encouraged worker" effect, this can be seen as a positive development.

• The growth in employment was more than fully accounted for by the services sector, which saw a broad-based gain of 99,000 positions in the month.  However, the goods-producing sector shed 32,000 jobs, to stand effectively flat year-on-year. There are growing concerns over the impact of US tariffs on key segments of Canadian industry, and this weakness in goods-sector employment likely reflects that, at least in part.

• Employment in Alberta continues to fall in response to problems in the energy sector. Employment in the Province fell 16,000 in the month, pushing the unemployment rate up to 6.8 percent.

• The pace of wage gains ticked up slightly to 1.8 percent year-on-year, but remains well below the 3.7 percent pace seen as recently as mid-2018.  The Bank of Canada has expressed its bafflement at the sluggish pace of wage growth, given the apparent strength in the national labour market.

There is little here to alter the Bank of Canada's policy stance.  The surge in the labour force shows  there may be more slack in the jobs market than the headline data would suggest.  The subdued pace of wage growth means that slack is being taken up, at least so far, without triggering a worrying surge in labour costs.  For now, given the more dovish tone take recently by the US Federal Reserve, there is no reason to expect any further tightening moves until at least the second half of the year.