September Labor Market Reports in U.S. and Canada had their Strong Points

10/05/2012 by Alex Carrick

The headline number from the latest U.S. labor market report was the decline in the unemployment rate from 8.1% in August to 7.8% in September.

One has to look back nearly four years, to January 2009, to find a jobless rate as low.

The unemployment figure bounced around between 8.1% and 8.3% in every other month of this year.

The jobless rate comes from the Bureau of Labor Statistics’ household survey. I mention this because there are two surveys each month – the household survey and the establishment survey - with different strengths and weaknesses.

The household survey is smaller but it’s more inclusive. Besides wage earners, it also covers the self-employed, those in agriculture and unpaid family workers.

The unemployment rate comes from the household survey.

The establishment survey is based on what firms are saying about their payrolls. It is much more extensive and is the usual source of the month-to-month employment change number.

There’s a reason I’m going into so much detail. It’s because the large drop in the unemployment rate would suggest a big surge in the number of jobs. That’s exactly what did happen, according to the household survey.

After three months of little change, September’s increase in employment skyrocketed by nearly 873,000. That’s outstanding and U.S. commentators should be dancing, right?

Unfortunately, the more official number on U.S. employment – obtained from the establishment/payroll survey – wasn’t nearly so bullish. It recorded a month-to-month job gain of 114,000.

A figure over 100,000 isn’t to be sneezed at. But the increase in jobs really needs to be over 150,000 on a monthly basis to provide employment above and beyond the normal increase in the size of the labor force.

The year-over-year change in U.S. payroll employment was +1.4%, about what it’s been for the last 14 months. Historically, when the U.S. economy has been operating close to capacity, the year-over-year change in employment has ranged between +2.0% and +2.5%.  

The bulk of U.S. jobs are in the service sector. It’s interesting to note that the increase in services employment in September exactly matched the gain in overall employment, +114,000.

While total employment has climbed back only about halfway to its pre-recession peak, the number of services jobs is almost even with its best former level.

(By the way, there’s a number that’s often quoted for U.S. services jobs that’s misleading. Private sector services employment is 70% of the total jobs number. But that doesn’t include government jobs. Add in the public sector and the proportion is a much higher 86%.)

The shortfall in employment is obviously in the 30% of jobs outside services. Where’s the biggest discrepancy? Unfortunately for our industry, it’s in construction. More than anything, it’s been the depressed housing sector that has held back the overall recovery in U.S. jobs.

That picture is starting to change. Home starts have been trending upward. The unemployment rate in construction, which at one time was near 20%, has now dropped to 11.9%. In the latest month, employment in the industry rose by 5,000.

Before leaving the U.S. statistics, let’s also note that manufacturing employment in September fell by 16,000. For the sector year to date, however, the number of jobs is up by a respectable 134,000. The year-over-year change in U.S. manufacturing employment is +1.5%.

In Canada, September’s labor market report was a barn-burner. After an increase of 35,000 jobs in August, 52,000 more positions were created in September, according to Statistics Canada. That’s +87,000 jobs in just two months. It’s not quite as good as it sounds, since July saw a decrease of 31,000.

Due to the strength in Canada’s labor market, more people are now looking for work. This has raised the unemployment rate to 7.4% in the latest month from 7.3% in August. The falling U.S. and rising Canadian jobless rates are converging.

Especially good news for Canada is the fact the latest jobs gain was heavily weighted towards full-time work (+44,000). Full-time tenure is usually higher paying and more secure, permitting a bigger contribution to the overall economy through more confident consumer spending.

It also facilitates planning for big-ticket durables purchases and for home-buying.

 Construction employment rebounded nicely in September, recording an increase of 29,000 positions. In August, jobs in the on-site sector fell by 44,000.

Canadian manufacturing employment in the latest month declined by 6,000

On the services side of the jobs market in Canada – which accounts for nearly 80% of all work north of the border – the leading sectors on a year-over-year percentage basis were “educational services” (+5.3%), “business, building and other support services” (+3.9%) and “finance, insurance and real estate” (+3.2%).

Employment in public administration, consistent with the austerity measures roundly endorsed by most governments, fell by 2.8%.