Canadian Job Growth Rebounds

Employment rose a stronger-than-expected 15,200 in August, compared to expectations of a 10,000 increase. Although this only partially reversed the 55,200 decline in July, the quick return to positive job gains provides some optimism that the extent of the weakness in July may have reflected more transitory than fundamental factors.

A second surprising element in the report was that the unemployment rate held steady at 6.1%. This rate had dropped to this level in July on the basis of a surprisingly large 0.4% drop in the labour force that was expected to be reversed in August.

Despite indications of greater-than-expected strength elsewhere in the report, annual growth in the key wage measure for permanent workers moderated sharply to 3.3% from 3.8% in July and 4.3% in June.

A gain in August employment was widely expected on the basis of some reversal of the 48,100 drop in part-time jobs that occurred in July, which represented the main source of weakness. However, the overall August gain occurred as a result of a 16,100 rise in full-time employment. Part-time employment continued to fall, albeit by a minimal 900 jobs. Strength in full-time compared to part-time employment has more favourable implications for income growth in the economy. Private-sector employment soared 40,900, although this only partially reversed the 95,300 drop that occurred in July.

The job gains were skewed towards goods-producing industries where employment rose 14,800, led by an 18,500 rise in construction and a 13,800 increase in manufacturing. Service-producing jobs on net only rose 400, although this masked some significant moves in some of the sub-components. For example, educational services rose 30,000 while accommodation and food services was up 15,900. The main offset was a 21,700 drop in the health care and social assistance component. The gains were concentrated in Ontario (14,000) and Saskatchewan (6,100). The gain in Saskatchewan reversed the surprising 4,200 drop that occurred in July.

Today's report provides support to the view that July's employment decline represented an overstatement of the current weakening in the Canadian economy. It also reinforces the Bank of Canada' contention, contained in its statement issued at the conclusion of Wednesday's policy meeting, that although the domestic economy has slowed it still remains strong. However, despite today's report, near-term downside risks to growth clearly persist as declining employment will need to be avoided on a sustained basis to offset an expected slowing in growth in the United States. This continuing downside risk to growth is expected to keep the Bank of Canada on the sidelines, maintaining the overnight rate at a still stimulative 3.00% through the end of this year. Indications of moderating wage growth in today's report provides further reason for the central bank to keep policy moderately accommodative near-term.

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.