The jobs keep coming, for now

The abysmal performance of financial markets in recent weeks has the media in full-on panic mode. Sample headlines today: "A recession may be around the corner" (CNN); "More warnings that stagflation is coming to North America" (CBC). That negative print for US Q1 GDP didn't help, with very few commentators taking the time to notice that the decline was mainly the result of an inventory adjustment rather than any weakness in final demand.

In any case, if the US and Canadian economies are about to slide into recession, nobody has told the jobs market. Both countries added jobs in April, with the Canadian report also showing the lowest unemployment rate on record, at 5.2 percent. There may be trouble ahead, but for now the real concern is that the central banks started tightening way too late, not that they will have to reverse course sometime soon. 

Starting with the US, data released this morning by the Bureau of Labor Statistics show that the US economy added 428,000 jobs in April, leaving the national unemployment rate unchanged at 3.6 percent. The gains were broad-based, with leisure and hospitality, manufacturing and transportation leading the way; no sector tracked by the BLS showed significantly lower employment in the month. Even with these latest gains, total non-farm employment remains about 1.2 million below its pre-pandemic peak. While employment tends to be a lagging indicator of economic activity, it seems clear that the Q1 GDP decline was a statistical anomaly rather than the first step towards recession.  

As for Canada, the jobs gain of 15,000 was weaker than analysts had expected, but this pause came after gains totalling more than 400,000 in the preceding two months (and almost a full million in the past year).  The weakness in the overall number is largely explained by a loss of 27,000 jobs in Quebec, which has been worse affected by the latest wave of the pandemic than most other Provinces. All of the employment gains in the month represented part-time positions, but Statistics Canada continues to identify signs of a tightening labour market, including a falling rate of involuntary part-time employment and a falling rate of labour force underutilization. 

In both countries, wage gains remain well below the running rate of inflation. In the US, hourly wages are 5.5 percent higher than a year ago, while in Canada the corresponding figure is 3.3 percent. It is hard to have a wage/price spiral as long as wages remain under control. Still, the central banks are even by their own admission behind the curve here; for now, there is nothing in the employment data to deter then from pursuing the tightening course they have clearly set out.