Making sense of the July employment numbers

Both Canada and the US released employment data for July this morning. In both countries the headline numbers looked strong, but employment remains far below pre-pandemic levels and the details of the reports provide some cause for concern.

Let's start with Canada, where the economy added 419,000 jobs in July and the unemployment rate fell by 1.4 percentage points, to stand at 10.9 percent.  Combined with the job gains in May and June, that means the economy has recovered about 1.7 million of the 3 million jobs lost in the two months after the pandemic struck.  Temporary layoffs and involuntary short-time working also fell in the month, providing further evidence of a recovery in the labour market. 

Less positively, it should be noted that 345,000 of the new jobs in the month were part time, with only 74,000 full time positions added in the month. This is logical enough, given that the job losses back in March and April were also concentrated in the part time segment. It does, however, complicate the task of determining just how quickly the overall jobs market is getting back on its feet. 

Turning to the United States, the Bureau of Labor Statistics reported that employment rose by 1.8 million in the month, lowering the unemployment rate to 10.2 percent. As something of an aside, it's hard to overlook the strenuous efforts of CNN to paint the picture as dark as possible. Note first that the gain in employment, one of the largest ever for any single month,  is described as a "sharp slowdown from June";  true, but is that really the takeaway here?  Second, the fall in the unemployment rate is rather sourly portrayed as "above the Great Recession high of 10 percent".  Just report the data, folks. 

As was the case in Canada, the bulk of the job gains represented part time positions. And as in Canada, this likely reflects the fact that the job losses in March and April were heavily concentrated in sectors such as retail and hospitality that rely heavily on such employment. It's hard to assess the validity of the comment made by an economist to CNN that "even if workers are coming back it's to jobs that pay less, and families will be worse off." That may be a small element of the overall picture, but it's likely not the dominant factor here. 

What do today's numbers tell us about the shape of the recovery? We are now reaching a point where the long-term damage to some sectors of the economy is becoming apparent.  That portion of the job losses that can be attributed to governments' intentional "suppression" may be recovered quickly, but sectors where the pandemic has triggered structural damage will see permanently lower employment. The jobs data for May, June and even July may look like the start of a V-shaped recovery, but that is unlikely to persist as we head towards the fall.

And in the meantime, the politicians seem to be doing their best to make a difficult situation even worse. The incompetent response to the pandemic in Washington is bad enough; the inability of Congress to agree on a new pandemic relief package makes things even worse. And Trump has chosen this moment to reimpose tariffs on Canadian aluminum exports, on entirely groundless "national security" grounds. Needless to say, Canada has promptly responded with a tariff threat of its own against a range of US exports. It's small potatoes compared to the US-China trade brawl, but it's just one more headwind that the economy really doesn't need right now.