Canada's Labour Market Disappointed in January 2012

• Canada's economy generated a meagre 2,300 jobs in January 2012, which was much less than expectations for a 22,000 rise.
• The unemployment rate rose to 7.6%.

Data have been running hot and cold, with today's employment report showing little change in employment after declines in two of the previous three months. On net, the labour market generated 20,000 new jobs since September 2011. Canada's labour market is showing signs of fatigue after very strong growth in 2010 and early 2011 although we expect hiring to ramp up again in the months ahead. The Bank of Canada is monitoring both domestic and external developments, and today's report supports the case for accommodative policy to be maintained.

Employment increased by a meagre 2,300 in January 2012 thereby marking the second monthly rise and working to offset declines in November and October 2011 of 5,500 and 52,700, respectively; however, January's increase was much smaller than the 22,000 rise expected by forecasters. The unemployment rate inched up to 7.6% from 7.5% in December 2011 as the labour force increased by 23,700. Statistics Canada, in January, made benchmark revisions to the labour data, resulting in a net increase in employment in 2011 of 190,000, which was slightly less than the 199,000 increase in the preliminary estimate for the year. The unemployment rate's recent low in September 2011 was revised to 7.2% from 7.1% although the end of year rate was unchanged at 7.5%.

The details of the report showed that both public and private-sector jobs were created in January although these gains were almost offset by a slump in self-employment. In January, jobs were created in the goods-producing sector of the economy while the services sector cut 7,000 positions. Gains in manufacturing and primary industries were supplemented by hiring in retail and wholesale trade, education, information, culture, and other services. These gains, however, were largely offset by declines in construction, finance, insurance and real estate, food and accommodation services, and professional services. In total, there were 9,300 goods-sector positions added. Manufacturers added another 10,100 to their workforce, marking the second consecutive month of gains for a total of 36,100.

It was full-time positions that were cut in January with a loss of 3,600 reported while part-time jobs increased by 5,900. In 2011, employers added 205,000 full-time workers to their payrolls with 15,000 part-time jobs lost. The public sector added 19,600 workers in January while private-sector employment rose by an equal amount. The number of self-employed individuals fell by 37,000 in January, which may explain some of the sharp declines in finance, insurance, and real estate (-23,200) and professional services (-44,800).

Quebec's unemployment rate dipped by 0.3 percentage points to 8.4% as 9,500 jobs were created in January, thereby tempering the decline during the past 12 months to 45,000. Saskatchewan's unemployment rate posted a 0.2 percentage points decline to 5.0%. Ontario lost 7,500 jobs in January, and the unemployment rate rose 0.4 percentage points to 8.1%.

Average hourly wages for permanent workers in January were up 2.2% relative to a year earlier.

The small increase in employment in January was disappointing and runs contrary to recent years when there were big gains at the start of the year. The gyrations in the labour market mirror the slowing in activity evident in the final quarter of 2011 with recent data reports consistent with growth at a 1.5% annualized rate and a significant slowing from the third quarter's 3.5% gain. We expect that the economy will post stronger gains in the first quarter of 2012 as temporary factors that reduced activity in the fourth quarter of last year are reversed. Our assumption is that the economy will pick-up pace over the course of the year aided by stimulative monetary policy, stronger US growth, and, in our view, that disruptions from Europe will diminish as the problems are contained within the region. In order to ensure that the economy does not stall, the Bank is likely to maintain a very stimulative policy stance throughout 2012.