Poor jobs results point to sluggish economic momentum: HSBC

TORONTO—The latest unemployment report from Statistics Canada highlights a challenging labour market and suggests a slower underlying momentum to the economy than the GDP growth would indicate, according to HSBC’s Chief Economist David Watt.

Watt says the report indicates Canada’s economy continues to struggle to create jobs and income, and that the decline in the employment rate highlights that there is still a great deal of slack in the labour market.

“Such a modest level of job creation is rather rare. The only non-recessionary episodes of such sluggish employment growth were observed in 1995/96 and in late 2001,” say Watt in a release. “The 1995/96 period was fraught with economic challenges from federal credit rating downgrades and political uncertainty over the status of Quebec in Canada. The late 2001 episode followed the burst of economic uncertainty following the 9/11 attacks in the United States.”

Watt says there are three other key signs confirming the lacklustre job market in Canada:

• The employment rate (employment to population ratio) has fallen to 61.3 per cent from 61.4 per cent. While the decline in August was small, it was symbolically important. The employment rate is now back to the low point reached in the wake of the global financial crisis and recession. Job creation is not keeping up with population growth.

• Full-time employment, which accounts for 81 per cent of total employment is up just 0.1 per cent from a year ago. The loss of momentum in full time employment has been most acute since March 2014. Over the past five months, full-time employment has declined by 46,900. This suggests that the Q2 GDP growth rate of 3.1 per cent represented a bounce from weak Q1 GDP growth rather than an indication that economic growth is accelerating.

• Hours worked are flat from a year ago. Labour has thus made little to no contribution to GDP growth, which nonetheless rose to 2.5 per cent year-over-year in June.

As a result, Watt says domestic demand growth will likely decline to 1.6 per cent in Q3, down from 3.0 per cent in Q2, and for the consumer contribution to quarterly GDP growth to decline from 2.0 percentage points in Q2 to just 1.0 percentage point.

“To us, employment statistics suggest that there is still a substantial amount of slack in the labour market. In our view, labour market metrics justify the Bank of Canada’s ongoing neutral stance. We do not expect the Bank of Canada to change its policy stance until 2015 Q4.”