A Soft Patch for Canadian Job Market? Not Really

Headline Employment Growth Slows in 2018

Last year was a stand-out for the Canadian economy, and that was particularly evident in the labor market. In 2017, Canadian employers expanded payrolls by the most in 15 years. More than 400,000 net new jobs were added at an average pace of about 35,000 jobs per month. In the fourth quarter, hiring picked up to an average monthly gain of 57,900 jobs.

Since the start of 2018, the job market has been more hit-and-miss. There were net layoffs in January of 88,000 jobs, though the drop was entirely a function of a decline in part-time work. February and March were better, but only marginally so, with a net pick up of fewer than 50,000 jobs. Despite expectations for a modest increase, the jobs report for April showed a small 1,100-job decline (Figure 1).

“We’d Like to Make You Full-Time”

We are not convinced that the apparent downshift in job growth necessarily signals tougher times for the Canadian economy. While it is true that job growth has slowed and the unemployment rate has stalled at 5.8 percent for the past three months, the recent weakness has been more evident in part-time work than full-time (Figure 2). Full-time jobs actually increased 28,800 in April. In fact, the average increase in full-time jobs in the first four months of 2018 is 26,700, roughly in-line with the 32,600-job pace of 2017. The yearto-date decline of 41,400 jobs in Canada is entirely attributable to a 148,200 decline in part-time jobs at a time when employers have simultaneously added more than 100,000 full-time jobs. Canadian businesses are increasingly hiring full-time workers and cutting part-time staff.

Source: IHS Markit, Bloomberg LP and Windergate Capital

Strength in full-time employment holds true across most Canadian regions; all but three provinces (Prince Edward Island, New Brunswick and Manitoba) saw net gains in full time jobs so far this year. Ontario and Quebec legislated minimum wage hikes in 2018, which raised uncertainty about the employment picture given that these provinces comprise 60 percent of Canadian employment. However, since Ontario raised their minimum wage to C$14.00 from C$11.60 on January 1st, gains in full-time jobs and losses in part-time jobs have been in-line with the province’s share of national employment. Furthermore, Ontario’s job losses have not been concentrated in low-paying positions. Accommodation and food services, for example, the industry with the lowest average hourly earnings, added 12,000 jobs in Ontario in the first four months of 2018. Quebec just raised the minimum wage to C$12.00 from C$11.25 in May, but the subdued reaction in Ontario so far suggests little cause for concern, at least from an employment perspective. 

Wage Growth Moves Higher

Another sign of strength in the Canadian jobs market is that workers are getting paid more. Average hourly earnings ticked up in seven of 10 provinces and 12 of 16 industries from March to April. Nationally, year-over-year earnings growth reached 3.6 percent in April—the largest percentage gain in six years (Figure 3). Average wage growth is exceptionally strong in Ontario (likely helped by the minimum wage hike), but British Columbia has seen the highest year-over-year gains of all provinces for the past three months, suggesting that healthy wage increases have to do with fundamental economic strength and not just legislation. This is hardly the sort of wage dynamic that might be expected in a stalling job market.

Source: IHS Markit and Windergate Capital

How Will the Bank of Canada Look at This?

There is no shortage of hand-wringing in financial markets about the jobs news; the Canadian dollar was off about four cents versus the U.S. dollar in the immediate wake of the employment report. On that basis, it appears that not everyone shares our admittedly sanguine assessment of the job market. The real question is what the Bank of Canada thinks about the labor market and the extent to which the recent acceleration in earnings growth will translate into higher inflation.

While we have concerns about elevated consumer debt levels and overheated home prices, Canada’s full year GDP growth was 3.0 percent in 2017 and economic conditions remain supportive for modestly higher inflation. Core measures of the CPI have edged higher but remain in the middle of the BoC’s target range (Figure 4). That ought to be supportive of another rate hike in the second half of the year, in our view.