Both the United States and Canada reported their employment data for April this morning. In both cases the numbers were worse than expected, but it's the US report that's raising the most eyebrows, even though the economy added more than 260,000 jobs in the month. Let's take a look, starting with the US.
There's an oft-repeated saying in financial markets" "buy the rumour, sell the fact". For major economic indicators like the monthly non-farm payrolls reports, this means that traders position their books based on what the numbers (referred to in the trade as "the print") are expected to be. If "the print" is way off expectations, all hell breaks loose within minutes of the announcement.
Today's non-farms data were a very long way off expectations. The expert consensus, basing itself on both anecdotal evidence and previously-released data, such as the continuing fall in weekly jobless claims, was confidently calling for the addition of about a million new jobs in April. The actual figure was 266,000, which meant that the unemployment rate ticked up to 6.1 percent rather than edging lower as everyone had expected.
Post mortems and recriminations have been coming thick and fast ever since the data dropped. Perhaps the most succinct comment came from none other than Paul Krugman on Twitter: "Everyone agrees about the meaning of the unexpectedly weak jobs report: it says that what they were saying before, whatever it was, has been completely vindicated". Indeed so. If you are in the Biden camp, the numbers prove the need for continuing fiscal policy support for the economy, and President Biden has already taken to the media to say just that. For the Republican side, the details of the data suggest that the generous income support now being provided to households is encouraging people to stay home rather than return to work.
The best exegesis of the full report might be this article from Jordan Weissmann at Slate. In summary, he argues that the jobs reports are erratic and frequently subject to major revision, so this report may just be a fluke. He also notes that in the details of the data you can find support both for the view that generous benefits are keeping people on their couches (the Republican view) and that workers are still coming back into the workforce in droves (the number of people looking for jobs exceeded the number of new jobs created, which is why the unemployment rate ticked higher). His conclusion: "there’d also be no serious harm if policymakers just waited another month to see if hiring bounces back in May before making any rash decisions about curtailing unemployment benefits". Given that 266,000 new jobs would be considered more than acceptable in more normal times, that looks like good advice.
Turning to Canada, we find that the economy lost 207,000 jobs in April, a worse outcome than the analysts' consensus for a loss of 175,000. The unemployment rate rose to 8.1 percent from 7.5 percent in March. This report is much less surprising than that for the US. Two of the most populous Provinces, Ontario and British Columbia, imposed strict lockdown measures early in the month and it was those two Provinces that recorded the sharpest job losses, at 153,000 and 43,000 respectively. As has been the case since the start of the pandemic, the worst job losses were felt in industries most affected by public health restrictions, especially accommodation and food services and retail trade.
The April data mark a significant setback in the gradual improvement in Canada's job market since the first wave of the pandemic, and leave the overall employment situation still below its pre-pandemic levels. Total hours worked in the economy fell by 2.7 percent in April and remain 3.9 percent below the peak set in February 2020. Labour force underutilization, the number of discouraged workers and the number of people working from home all also rose in April, indicating a general deterioration in labour market conditions in the month.
An early return to an improving jobs market is not likely. COVID restrictions in Ontario are currently set to be lifted around May 20, which means they will still be in place when Statistics Canada carries out this month's survey. In any case, there are warnings from health professionals that the restrictions may have to stay in place for a few more weeks to ensure that the third wave is firmly quashed. Lifting of restrictions may come in the early part of June, but today's data make it clear that the current quarter will see a decline in both overall employment and GDP for the first time since mid-2020.
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