Manufacturing Job Declines Offset by Job Growth in Service Sectors in February

On Friday, March 8th, Statistics Canada reported that Canada’s unemployment rate remained unchanged in February at 7%. The economy created 51,000 jobs, but the increase was offset by a corresponding increase in the number of people looking for work. February was supposedly a good month for those looking for work in the hospitality industry and in the professional services industry, but a bad one for manufacturing industry workers.

I commented last month that January saw stronger hiring demand by historic standard compared to the previous 2 months (hiring demand had remained quite weak in November and December). This seems to have encouraged some potential job seekers to re-join the labour force and start looking for work again. Although StatCan’s accompanying press release pointed to gains in the number of employees (and not the self-employed), a closer look at the data shows that self-employment actually grew by 0.4% in February, while employment increased by 0.3%.

The growth was mostly in the service sectors, while the goods producing sectors actually shed 8,600 jobs (The goods producing sectors include companies that produce things you can touch: Manufacturers, resource producers, utility companies, etc). The situation was particularly bad for manufacturing jobs. 25,600 manufacturing jobs disappeared in February,
reversing employment gains posted in the previous 11 months. As a result, there were 14,700 less manufacturing jobs in February 2013 compared to February 2012.

On the opposite end, the professional, scientific, and technical services industry created impressive 26,200 jobs in February, reversing losses from the previous 11 months. So now there are now almost 22,000 more jobs in the professional, scientific, and technical services industries than there were a year ago.

Restaurants and hotels (the accommodation and food services industry) also created 21,100 new jobs, and the construction industry added another 15,800. Both industries are driven primarily by consumer demand (rather than business investments), and the gains in both came on the heels of gains in the past 11 months.

The provinces that contributed most to the employment gains were Ontario and BC. Ontario’s economy created 35,000 net new jobs, but the number of job seekers grew as well, so unemployment remained at 7.7%. BC’s economy created 20,000 jobs, essentially reversing job losses in previous months. Unemployment in BC now sits at 6.3% – unchanged from last month.

I had commented in the previous months on a trend of slowing hiring demand that we recorded in parts of Ontario. It remains difficult to reconcile the lower hiring demand with the increase in employment:

If less jobs are advertised than before, then where is the growth coming from?

Part of the answer may be related to the fact that so many of the jobs that are being created are in the hospitality and construction industries. Restaurants and construction companies are overall less likely to advertise the jobs they have than, say, consulting and manufacturing companies.

But a lower hiring demand combined with increasing employment would suggest that employers may be laying off less people compared to previous months. This should translate in a decreasing number of EI recipients. Statistics Canada reports the number of EI recipients with 2 months delay, so we only have EI recipient numbers until the end of December.

But a comparison between EI recipient numbers and employment numbers since 2008 makes (as illustrated by the graph below) raises more questions than it answers:

If jobs are being created then the number of EI recipients should be declining. This has been the trend over the past few years at least. But since April 2012, the number of EI recipients has remained largely unchanged, while according to the monthly labour market surveys the economy has been creating jobs.

To be sure, the connection between employment growth and EI recipients is not necessarily straight-forward: Not all EI recipients are part of the labour force (for example, parents on parental leave aren’t), and many job seekers do not qualify for EI benefits. But overall, if jobs are being created, this should bring down the number of EI recipients. Since April 2012, it hasn’t.

So what’s next?

After a somewhat more upbeat month in January, we recorded a decline in hiring demand in February. It is still significantly lower than it was one year ago. Growth in the hospitality industry depends on the financial health of Canada’s consumers – so it cannot be maintained if the remaining industries (which employ most Canadian) are not doing well. As far as construction is concerned: It is unlikely to continue hiring many people untill the real estate market starts taking off (most economists agree that this is not likely to happen the near future). So the job market is likely to be weak in the coming months.