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Canada’s Employment Market Strong in April and March but Uncertainties Persist

On May 11th Environment Canada released its labour market survey report for April. It speaks of employment growth, and comes on the heels of an even stronger job market performance in March. But a simultaneous disappointing job market report from the United States and troubling economic news from the rest of the world mean that downside risks remain considerable. Risks at home remain significant as well: The strong performance comes in an environment of unsustainable, record-low interest rate and record high household debt levels among Canadians.

Statistics Canada reports that Canada’s economy added 58,000 jobs in April, after adding 82,000 jobs in March. There are 197,000 more jobs in Canada now compared to one year ago – representing a year-over-year growth of 1.1%. Since most of the growth was in full-time employment, the average number of hours   worked edged up as well – by 1.6% compared to this time last year.

All of the employment growth in April came from the private sector. This is good news: It indicates that Canadian businesses are hiring – and not the government. Private sector growth is more sustainable over the long term than public sector growth because it is not fueled by taxes. All of the employment growth was in the goods sectors (the manufacturing and resource industries). Employment in the service producing industries declined slightly.

It does seem a bit counter-intuitive that Canada’s unemployment rate actually increased in April – to 7.3% from 7.2% in March. But since the economy actually created jobs, the increase can be attributed to more Canadians joining (or re-joining) the workforce. Perhaps more Canadians than before believe that the current economic climate offers them acceptable employment opportunities.

The growth in April occurred in many of Canada’s provinces. British Columbia has seen its number of jobs grow by remarkable 2.1% over the past 12 months. So BC’s unemployment rate now stands significantly below Canada’s average, at 6.2%.

Ontario did not perform as well as BC. Employment levels did not change in April, but the number of people in the workforce (those willing and available to work) increased. As a result, Ontario’s unemployment rate went up from 0.4 percentage points to 7.8% in April (this is worse than Canada’s average of 7.2%). The number of jobs in Ontario is actually up slightly compared to this time one year ago, and almost all of the growth occurred in March of this year.

Workers aged 25 years and older benefited most from the increase in employment opportunities in Canada. Youth employment levels remained largely unchanged, at fairly high 13.9%.  

This Statistics Canada’s report contains one unusual component: it draws a comparison between long-term employment market trends in Canada and in the United States, by adjusting Canada’s unemployment rate using the same methodology used in the United States. It find that Canada’s employment rate (the share of those who have jobs out of all willing and available to work) has been higher in Canada than in the US since 2002, and was lower before then.

Over the short term, it is interesting, however, that the United States job market experienced strong employment growth between December and February, only to slow down to disappointing levels in the past couple of months. Some analysts believe that the growth in the US earlier this year was unsustainable in the current economic climate and the last couple of months simply reflect an adjustment to more sustainable levels (see recent article in The Economist magazine: )

Whether Canada’s employment growth from the past two months persists, however, remains to be seen. The economic headwinds remain strong.

The international economic climate remains cloudy. The economy in the US remains unstable (although it does seem to be improving), and hopes that the worst may be over in the European debt crisis have weakened in recent weeks. China’s economy continues to grow but its growth seems to have slowed down in recent months as well.

More worrisome, however, are the risk factors at home. The federal and most of the provincial governments continue to run fiscal deficits, making it more likely that taxes may have to eventually increase.   Interest rates remain at their historic lows as well, making it difficult for the bank of Canada to react should the economy turn south again. Low interest levels also seem to act as steroids for the economy, by encouraging households to borrow and spend. Household debt levels remain at historic record high levels. One materialization of the high indebtedness has become the red-hot Canadian real estate market. Driven by low interest rates, real estate prices in the Toronto and Vancouver areas have increased to unsustainable levels. If they collapse, Canada may experience an economic downturn similar to the one that occurred in many other developed countries in the past few years – including the United States, Japan, and some European countries.