Disturbing data divergence

Data from the Bureau of Labor Statistics show that US employment rose by 303,000 in March, far surpassing economists' expectations. (Details here).  This has triggered the usual debate among media pundits about why US voters still seem to have such a negative view of the economy. The answer this month, as it has been for the last year and more, is inflation. In a low unemployment economy, almost no-one is concerned about losing their job, but everyone sees that prices are much higher than they were before the "transitory" inflation spike began.  We can but live in hope that the media will figure this out eventually.

Meanwhile in Canada, the March data tell a very different story. According to Statistics Canada, the economy actually lost a little over 2000 jobs in March. This is well within the standard error of the estimate -- remember, this is a survey, not a complete count -- but it comes at a time when the labour force is still growing at an extraordinary pace. Canada's population grew by 90,000 in March, to stand more than 1,040,000 higher than a year earlier.  The labour force grew by 57,000 in March and is now 570,000 larger than a year ago.

Looking at these numbers in percentage terms, we find that even with the marginal decline in March, employment has grown by 1.6 percent in the past year, by no means a bad number.  However, this is far outpaced by the growth in population -- up 3.2 percent from a year ago -- and the labour force, up 2.7 percent in the same time period. It is thus no surprise to find that the employment rate has been going down -- it now stands at 61.4 percent, down 0.9  percentage points from a year ago -- and the unemployment rate has been steadily rising. That rate jumped 0.3 percentage points in March to hit 6.1 percent, a full percentage point higher than it was a year ago.

The Bank of Canada will not want to react too much to a single data point, especially given the notorious volatility of Canadian job statistics. However, today's data will certainly add to the growing calls for the Bank to make an early start on the much-anticipated rate cutting cycle. One problem there: wage growth actually ticked slightly higher in March, to 5.1 percent year-on-year, an uncomfortably high number given Canada's very poor productivity performance. The first rate cut is still not likely to materialize before June, but it looks likely that the Bank will have to cut more aggressively than the Fed, which will probably put pressure on the exchange rate.

The rising unemployment rate is not good news for Justin Trudeau, who has been whirling around Canada like a dervish, announcing major new spending ahead of the April 16 budget. This week he directly addressed the impact of high immigration levels, telling an audience in Nova Scotia that the growth in "temporary" immigration has been "far beyond what Canada has been able to absorb". Wow!  If only there was someone out there in a position to see that coming and do something about it -- you know, a Prime Minister or something such.