April Provides an Unexpected Upside Surprise for Canada's Labour Market

Employment in Canada rose by an unexpected 35,900 in April, contrary to forecasts for a 50,000 jobs lost. This increase interrupted five straight months of job cuts totaling 357,000. The unemployment rate held steady at 8%, below street forecasts for an 8.3% print.

The rise in April payrolls was in full-time employment which rose by 39,400 while part-time employment posted a loss of 3,600 positions. The gains were concentrated in the services-producing industries with goods producers holding their payrolls relatively steady. All of the increase was in self-employment with little change in the number employed by public or private companies.

On an industry basis, an increase in manufacturing jobs (+6,700) largely offset a decline in construction employment (-7,500). Natural resource companies and utilities posted small losses while agriculture jobs increased. On the services side, increases were reported in employment with information, culture and recreation, building and business services. Wholesale and retail trade posted another decline as did employment in public administration. April's increase in the services industries followed an outsized drop in February and no change in March.

Regionally Quebec and BC were the bigger winners in April posting job increases of 22,000 and 17,000 respectively. Despite the monthly gain, employment in BC was still down 2.2% since October with Quebec recording a smaller 0.8% dip. Employment in Ontario was steady in April and the unemployment rate remained at 8.7% - the highest in more than a decade.

The year-over-year growth in the key wage measure in the report, average hourly wages for permanent workers, picked up again in April to 4.3% from 4.1% in March.

The rise in employment in April followed five months of job cuts in Canada which put a serious dent in the labour market and the number of employed was 1.5% lower than a year earlier. The meteoric rise in the unemployment rate from 6.6% at the end of last year to 8.0% in March stalled out in April. Relative to its recent low, the unemployment rate is still up 2.5 percentage points, a much steeper climb than during the economic slowdown earlier this decade (from 6.7% to 8%) although less than the 4.8 to 5.8 percentage point increase recorded in the early 1980s and 1990s recessions. Given the sharp contraction in the economy in early 2009 (we now expect that real GDP contracted at a record-breaking 6.5% in the first quarter), layoffs in the troubled auto sector in May and reports of summer shutdowns in other industries, there is scope for April's rise to be a one-off affair and we look for the unemployment rate to continue to climb in the months ahead, topping 9% by year-end.

April's labour statistics took the edge off the rather bleak picture painted in the prior five months and despite our view that there is likely more weakness to come, the combination of low interest rates and upcoming fiscal stimulus do set the stage for a firming in economic activity mid-year especially given the nascent signs of stability in the US economy and more positive tone in many financial markets. Risks remain that another upset in financial markets takes the steam out of the fragile green shoots that have developed however our baseline view assumes that any setbacks prove temporary and that we have seen the steepest declines in economic performance on a quarterly basis for the Canadian and US economies.

RBC Financial Group
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The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.