Canadian employment falls -36K post-election

Canadian employment was down in November, declining by 36K net positions. This pullback follows on the heels of October's election-fueled increase of 44K net positions. The labour force was relatively unchanged on the month, resulting in an uptick in the unemployment rate to 7.1% (from 7.0% in October)

The fall in employment was due entirely to part-time time employment, which was down 72K positions on the month. A 37K gain in full-time employment helped partially offset the drop in part-time jobs.

Overall job losses were generally widespread across sectors, with particular weakness in public administration (-33K), following strong, but temporary, election-related gains in October.

Breaking from the weak trend were the manufacturing and professional services sectors, both adding around 17K jobs in November. The construction sector also recovered on the month, adding roughly 15K net jobs.

Looking across the provinces, the largest declines were seen in Alberta (-15K), which saw employment decline for a second straight month, resulting in a provincial unemployment rate of 7.0%, up from 6.6% in October, and beginning to approach its 2008/2009 peak of 7.3%. Employment was also down in Manitoba and New Brunswick (-5K and -3K respectively).

Wage growth continued apace in November, rising 3.4% year-on-year. Wage growth has outpaced inflation throughout 2015, despite a softening of labour market conditions and the recession that marked the first half of the year.

The measured labour productivity of Canadian businesses was up slightly in the third quarter, rising 0.1%. This follows back-to-back quarterly contractions in the first half of the year. Business output (+0.7%) outpaced hours worked (+0.6%), resulting in the modest observed gain.

A recovery in productivity in the goods-producing sector (+1.4%) led the way, following a drop in the second quarter (-2.5%). This recovery was linked to production shutdowns in the oil and gas sector in the third quarter, with mining and oil and gas extraction leading the output recovery. In contrast, service sector productivity was down in the third quarter (-0.7%) on widespread weakness across subsectors as hours worked expanded faster than output.

A pullback in employment was to be expected in November given that October's strong gains were helped along by temporary hiring for the federal election. Looking through the election-related noise, the Canadian labour market has remained stronger than might have been expected in 2015. Although one month hardly makes a trend, this strength appears to have dissipated somewhat in November, and only modest employment growth is expected in the coming months. Indeed, with oil prices hovering around $40/barrel, employment in the oil and gas sector is likely to continue trending lower, offsetting potential gains in other areas. 

Looking beyond the slight recovery in labour productivity in the third quarter, on a trend basis measured Canadian productivity growth remains fairly unimpressive. Somewhat perversely however, the commodity sector is likely to boost reported productivity in the coming quarters, as production continues to expand despite contracting employment.

Although Canada emerged from recession in the third quarter, an economic adjustment process is still underway as growth rotates away from the commodities sector and towards exports. This rotation implies only modest employment growth in aggregate. Combined with an expected tightening in financial conditions emanating from south of the border, economic growth is expected to remain modest over the medium term.

"We continue to expect the Bank of Canada to keep its policy rate at its current accommodative level of 0.5% into 2017"says TD Economics.