The Employment Indicator Points to Deep Cracks in the Canadian Labor Market

Article content

Canada’s labor market is less robust than the country’s most closely watched employment indicator suggests.

Data from the Wage and Salary Employment Survey – a count of all paid workers in Canada – shows the country added just 17,000 jobs in the six months through February. That’s a far cry from the 183,800 reported in the Labor Force Survey, which surveys households and releases results more quickly.

Article content

Article content

That difference of 166,800 jobs is more than 22 times the average gap between the two surveys since 2001 and has been increasing for months.

During the peak of the pandemic, six-month job growth in the household survey exceeded wage growth by more than 700,000. However, this gap is now approaching its highest point before 2020, namely 186,100 in 2012.

Payroll relies on administrative data reported by companies for tax purposes. It is a direct input to the calculation of Canada’s gross domestic product.

The Labor Force Survey, on the other hand, surveys around 56,000 households each month, providing an earlier indicator of labor market development and capturing geographical and socio-economic differences. Three weeks ago, new data for March was released showing that the country lost 2,200 jobs that month.

A key difference between the two is that the payroll does not include self-employed Canadians, who accounted for the 40,700 job gains recorded in February’s household survey.

Thursday’s payroll data points in the opposite direction, reporting a loss of 17,700 jobs this month.

Article content

Article content

In general, the two surveys barely agree, said Fred Demers, investment strategist at BMO Asset Management.

“What gets interesting is when there’s a little bit of a gap between the two, and that’s when the safest bet is to look to the payroll records for important information about what’s going on,” he said.

While the increase in unemployment in the household survey is due to a growing population rather than job losses, payroll data suggests those losses could soon show up in the household data, Demers said.

He added that self-sufficiency and inherent noise due to the small sample size of the household survey could be reasons for the growing gap.

Dominique Lapointe, director of macro strategy at Manulife Investment Management, agreed that the two surveys tend to match closely over the long term.

He also agreed that the household survey has converged toward payrolls in recent years, but warned that monthly volatility in the latter has been higher since the pandemic, making it harder to say whether it is any more reliable .

Lapointe noted that service sector job growth was faster in payrolls than in households.

Article content

“What may be happening since mid-2023 is that the service sectors in the labor force survey are catching up with what is reflected in the wage survey, particularly in sectors such as healthcare, education and public administration, where hiring continues to be rapid. he said in an email.

“What remains concerning is the lack of private net hiring since mid-2023 as the workforce continues to grow rapidly.”

The growing divergence between the strength of the public sector and the weakness of the private sector is at least one area where both surveys agree.

While the household survey has shown a gradual increase in the unemployment rate and even a small surprise decline in March, Thursday’s payroll data supports the notion that the Bank of Canada risks keeping its key interest rate too restrictive for too long, a concern that highlighted by some Bank of Canada officials’ recent summary of deliberations.

Both headline and core inflation are now within the Bank of Canada’s tolerance range of one to three percent, and retail sales are on track to post no growth in the first quarter. However, gross domestic product growth still appears to be strong, supported by exports and an increase in population.

The next key interest rates will be set on June 5th. The majority of economists in a Bloomberg survey expect the bank to cut interest rates by 25 basis points at this meeting.

Bloomberg.com

Article content