January 21, 2014

In December, U.S. gained too few jobs, Canada lost jobs and relative jobless rates flipped over

One can agonize over the poor results from the labour force surveys in both the U.S. and Canada for December 2013, but there were some fascinating wrinkles nonetheless.

After net gains averaging nearly 200,000 during the first 11 months of the year, the December U.S. figure was only +78,000 jobs.

Just the same, that far outstripped Canada, where the total employment count fell by 46,000 jobs.

The relatively low U.S. number was a bit of a shock, particularly given that the earlier private sector estimate for December from ADP Research Institute was +238,000.

Included in ADP’s number was a large jump in construction employment (+48,000).

This seemed reasonable given that housing starts in America in the latest reported month (November) soared to 1.1 million units seasonally adjusted and annualized (SAAR), the highest in the recovery phase since the recession.

Another leading indicator — the initial jobless claims series — has been indicating that the “official” government number on employment might not be so bullish.

The number of first-time unemployment insurance seekers dropped as low as 300,000 in early September of 2013. They had been as high as 670,000 when the recession was most severe.

Unfortunately, the partial government shutdown in early October de-railed the improvement. Initial jobless claims soared back up to 370,000. After settling down somewhat in November, they spiked again in mid-December (380,000).

Even for the latest week, ending Jan. 4 2014, they stayed stubbornly high at 330,000.

The initial jobless claims release is proving to be an excellent predictor of the month-to-month employment gain that will be reported by the Bureau of Labor Statistics (BLS).

That doesn’t necessarily means it’s always the more accurate number. December has more holidays than any other month of the year. This can play havoc with seasonally adjusted data.

According to the BLS, employment in construction in December declined by 16,000. The unemployment rate in the sector was in double digits at 11.4%, versus 13.5% a year ago.

Retail trade was the only sub-sector to shine in the latest month, according to the BLS, with an employment gain of 55,000.

Payrolls in manufacturing rose by 9,000. In information services, they declined by 12,000. Government staff cuts came to 13,000, predominantly at the local level (-9,000).

All of the foregoing distracts from one U.S. number that was deeply satisfyingly.

America’s unemployment rate dropped from 7.0% the month before to 6.7%.

In Canada, the jobless rate moved to the same degree (0.3 percentage points), but in the opposite direction.

For the first time since mid-2008, five-and-a-half years ago, the American unemployment rate has fallen below the Canadian figure.

Manufacturing employment in Canada in December rose by almost the same number as in the U.S., +8,000, but the number of jobs in construction north of the border declined by 14,000.

There seems little doubt the U.S. is on a firm self-sustaining recovery/expansion path.

The Federal Reserve believes that such is the case. That’s why it’ll be gradually scaling down or “tapering” (i.e., “tapering”) bond purchases (from $85 billion per month) throughout 2014.

Canada is struggling to regain solid footing in some key economic areas — especially export sales.

Canada’s gross domestic product (GDP) outlook is falling behind what is expected in the U.S.

One consequence has been a marked retreat in the value of the Canadian dollar versus the greenback.

With respect to the lower-valued Canadian dollar, there are certainly some negatives. For example, the cost of travel to the U.S. is going up. And items purchased as imports from the U.S. are becoming more expensive.

This is just one aspect of a broader problem. While there was near-parity between the U.S. and Canadian currencies, a welcome shift to equality of pricing was underway. That advance will now likely be put on the shelf.

On the upside, the lower-valued “loonie” will promote Canadian export sales and it will mean higher returns for resource and other producers who sell their products at U.S.-dollar-denominated prices.

This includes most companies engaged in selling commodities. These firms form a large block on the Toronto Stock Exchange (TSX). If their profits are boosted, that will have spillover positive effects on the pension and mutual fund holdings of average Canadians, making them feel more prosperous.

For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog.

Canada vs. U.S. monthly unemployment rate
(per cent) – seasonally adjusted data

Data sources (seasonally adjusted): Statistics Canada and U.S. Bureau of
Labor Statistics (Department of Labor)/Chart: CanaData – Reed Construction Data.

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