There were smiles north of the 49^th parallel this morning, in contrast to the frowns that were showing up in the states. In the month of September, Canada added a net 157K new jobs after a 90K gain in August.  This brings total seasonally adjusted employment to 19.131 million and, as much as the headline increase grabbed everyone’s attention, the real milestone is that Canada has now recovered all the lost jobs since the beginning of the pandemic.

 

 

While we are just about a thousand people above that February 2020 level, this is beyond what most economists had predicted back in the dark days of the shutdown, let alone the subsequent COVID-19 waves.  It is reminiscent of the recovery after the financial crisis of 2008-09, when Canada recovered all the lost jobs in the space of about 1-1/2 years after the trough in June 2009. This was well ahead of the trajectory that US non-farm payrolls took, where we had to wait four years for levels to get back to the highs before the crisis.

 

I don’t think that the US will have to wait that long this time around, but after this morning’s report it doesn’t look like Canada had to turn its head as it crossed the finish line. US non-farm payrolls rose by just 194K, well below street estimates for a 500K increase.  Keep in mind that August was also a meagre month for payrolls, but at least we saw an upward revision to the previous two months to the tune of about 130K.  At the current level of close to 148 million, payrolls are still 3% below the pre-pandemic peak.

 

 

Details of the Canadian report were unambiguously positive. All of the gains in employment came from the full-time ranks (a gain of over 193K), where we typically would expect earnings to be higher. The participation rate in Canada also posted a decent improvement of 4-tenths of a percent to 65.5%, while the unemployment rate slipped down below 7%. The same cannot be said for the US and this is where the market is going to have to do some heavy thinking this weekend. Yes, the unemployment rate dropped by almost half a percent to 4.8%, which is now less than a percent from where the Federal Reserve believes full-employment is. However, this decline was the result of people not entering the labour force, as seen in the slight dip in the participation rate to 61.6%.

 

Employment earnings growth remained buoyant, as average hourly wages rose 0.6% and folks worked longer, as seen in the uptick in average weekly hours. The problem, as with many other things we are dealing with, is that there is a labour supply constraint. Economists believed that the removal of employment insurance top-ups would send people back into the labour force looking for work. Specifically, it was expected that leisure and hospitality jobs would get filled, but that wasn’t the case. Also, education jobs were supposed to show a healthy gain with kids returning to school, yet. In fact, education and healthy jobs fell in the month, though some are putting this down to seasonal adjustment factors. The other negative aspect of the report is that women left the labour force in September, which contributed to the drop in the overall participation rate.

 

 

 

After staging a strong comeback on Thursday, stocks were undecided in the aftermath of the payrolls data. It’s not to say that the report altered expectations about Fed policy and some argued that even a zero headline for payrolls would have kept the Fed on track to begin tapering bond purchases in November. The weakness displayed in the data, however, does support the forecast of any rate hikes being delayed to well out in 2022 or even 2023.

 

The bigger issue in my opinion is whether there is a greater structural element at play in terms of jobs. With mandatory vaccination rules being implemented across industries, we may see a segment of the population simply not returning to work. In an environment of continued government support, this may not affect the near-term growth prospects for the economy, but those days are behind us. Normally I would say that a declining unemployment rate going into the fall would support consumer confidence and hence the outlook for holiday shopping sales. Today, that is unclear and the combination of tight supply lines and weaker job growth could cause estimates for sales to be pared back.