Canadian employment: a solid bounce in June

Statistical agencies have been reporting all kinds of data records this year, most of them bad, but the rebound in Canadian employment in June marked an impressive surprise to the upside.  StatsCan reported today that total employment in the economy jumped by 953,000 in the month, dropping the national unemployment rate to 12.3 percent from the record 13.7 percent posted in May. Job gains were more or less equally divided between full-time and part time jobs.

The increase in employment was well above the analysts' consensus for a rise of about 700,000. Adding in the 290,000 job gain reported for May, this still leaves total employment 1.8 million below its pre-pandemic (i.e. February) level. At the same time, a decline of 823,000 in the number of people working less than half their normal hours is further evidence that the labour market is improving.

What happens next?  StatsCan notes in today's report that the data relate to a survey taken in the period June 14-20. While much of the country had substantially relaxed its COVID lockdowns by then, parts of Ontario, including Canada's biggest city, Toronto, had not. Toronto and surrounding areas have now further relaxed restrictions, which should lead to further strong job gains for the July report, for which data collection will begin next week.

Beyond that immediate prospect, the outlook will depend on two factors. The first is the extent to which the surge in unemployment was the result of government "suppression" measures, which may quickly bounce back, and to what extent it is the result of structural changes that may be unwound only slowly, if ever.  (Hat-tip for this useful distinction, and particularly for the term "suppression", to the US economist Justin Wolfers, who is well worth following on Twitter).  Even if the most vulnerable sectors can be identified -- restaurants, airlines, bricks-and-mortar retail -- it is impossible to know the balance between these types of unemployment, and hence difficult to predict just how quickly employment may regain its pre-pandemic level.

The second factor, and the true wildcard in Canada's case, is the outlook for the US economy.  Signs that the pandemic has spiraled out of control are everywhere and are starting to show up in economic activity.  To give just one example, both United Airlines and Delta reported a strong rebound in bookings in June, but that is now falling away again as travelers re-assess their appetite for risk.

It's a truism that when the US sneezes, Canada catches a cold, and there is no real prospect of a sustained Canadian economic rebound as long as the US economy remains crippled by the virus. We see this very clearly in my own border region of Niagara. With the border effectively closed for leisure travel, attractions from Niagara Falls itself, to the local wineries, to the Shaw Festival are all experiencing difficulties. Indeed, even as the national unemployment rate fell in June, the rate in Niagara region actually increased slightly. With little appetite on this side of the border for letting our southern neighbours back in, the whole year already looks like a write-off.