The August jobs results in the U.S. and Canada lacked clarity

09/10/2012 by Alex Carrick

Canada added 34,000 net new jobs in August and the U.S. picked up 96,000. The latest employment figures are spelled out in separate reports from Statistics Canada and the Bureau of Labor Statistics.

Canada’s unemployment rate in the latest month stayed the same as in July, 7.3%, while the U.S. figure dropped from 8.3% to 8.1%. The number of people looking for work in the U.S. (i.e., the size of the labor force) fell.

It’s election season in the U.S. (which begs the question, “When isn’t it?”) and Republican candidates are fond of saying there are 23 million people still unemployed in the nation. That’s a broad-strokes number that deserves an explanation. It’s comprised of three elements.

(1) More than half of the total comes from 12.5 million unemployed individuals, 40% of whom have been jobless for 27 weeks or more (i.e., the “long-term unemployed”).

(2) Plus there are 8.0 million involuntary part-time workers, or those who are “employed part-time for economic reasons.” Their hours have been cut or they’re unable to find full-time jobs.

(3) Also included are 2.6 million who are “marginally attached” to the labor force. These are individuals who want to find a job, have tried sometime in the past year, but aren’t now counted in the labor force because they’ve made no effort to find work in the four weeks prior to the latest survey. 

Given that Canada’s population is roughly one-tenth the size of the U.S., the jobs improvement north of the border (+34,000) appears relatively stronger that of its neighbor to the south (+96,000). Such may not actually be the case, though. August needs to be put in perspective.

The increase in the number of jobs in Canada in August (+35,000) almost exactly matched the decline the month before (-31,000). Therefore, the employment change over the past two months has been only +4,000.

Furthermore, it was part-time work that accounted for most of the swing. Temporary employment dropped by 51,000 in July, then rose to nearly the same degree in August, +46,000.

The latest improvement was almost all in the services sector, where the net number of jobs jumped by 70,000 in August. 

In one rather shocking development, construction employment (-44,000) suffered its largest month-to-month decline since December 2008.

After repeated warnings that it may be overheating – especially in the Toronto and Vancouver condo markets – residential construction appears to be easing back.  

Also, some mega resource construction projects are no longer guaranteed, now that many commodity prices have retreated on account of weaker raw materials demand from China.

Canada is in a holding pattern, waiting for the rest of the world to find its economic bearings.

As for the U.S., one would like to see a consistent month-to-month gain in employment of about 150,000 to 200,000 net new jobs to be re-assured that the economy is on a solid growth path.

There was a five-month stretch from November 2011 through March 2012 when the net jobs figure was in that range or above it. Unfortunately, the number has since retreated. The net new jobs improvement since April has averaged an unspectacular +87,000.

Campaigning by both parties in the U.S. Presidential election highlights how diverse opinions are about the U.S. jobs market and the policies needed to restore it to full health.

The Democrats are convinced they’re on the right track and outside factors (i.e., the debt situation in Europe) are slowing the progress that would otherwise be occurring.  

The Republicans are stressing a need for more assertive jobs action. Much of this would be carried out through improving the regulatory and tax environments for the business community.

The Democrats decry the lack of government money to address the problem fiscally. The Republicans believe that less government will be a spur to business confidence.

The employment issue has become inextricably tangled up in the debate about the size of government.

The Democrats want more money from the rich to help reduce the deficit. In their view, the sheer size of government and the stability it provides in terms of incomes is a key foundation of modern economies during difficult economic times.

The Republicans would drop taxes and make government smaller. They believe the only way to achieve a better fiscal balance is through massive spending cuts. They’re less concerned that this will weaken the social safety net.

World concern has perhaps been best expressed by the International Monetary Fund (IMF). The IMF has become explicit in its warnings about the dangers of the so-called “fiscal cliff” the U.S. is approaching at the end of this year.

In the absence of counter measures, January 1 2013 is when automatic spending cuts and tax increases will remove $600 billion in federal government support for the economy. Such a large bite will threaten to derail the economic (and hence jobs) progress that has been made to date.

The Congressional Budget Office has warned that an unprotected crash into the fiscal cliff’s arbitrary measures will send the U.S. economy back into recession. The consensus is that the warring political parties must find a way out of this unappealing and unwanted Doomsday scenario.

There are some notable milestone’s being reached in the U.S. labor market. Employment in the services sector has increased to a level almost even with before the recession. In the “professional and business services” sub-sector (which includes part-time placement agencies), employment is on a par with the peak prior to the recession and in “leisure and hospitality,” it’s risen above the pre-recession benchmark high.   

As for U.S. total employment (of which services make up 70%), it’s recovered about half of its peak-to-trough decline. The major sub-sectors that are still in the most dire straits are construction and information services. 

In Canada, the story continues to focus on disparities. Employment growth in the three western-most provinces – Saskatchewan (+3.6%), B.C. (+2.3%) and Alberta (+2.1%) – is outpacing the nation as a whole (+1.0%).

Newfoundland and Labrador (+3.1%) has also joined this elite group, while the industrial powerhouses of Ontario (+0.4%) and Quebec (+0.6%) are trailing behind. 

All four provinces in western Canada also have lower unemployment rates than in any province east of the Ontario-Manitoba boundary. Saskatchewan and Alberta are tied with the lowest jobless rates (4.4%), followed by Manitoba (5.4%) and B.C. (6.7%).

In eastern Canada, Quebec (7.6%) has a slightly lower unemployment rate than Ontario (8.0%). Throughout the Atlantic Region, the out-of-work figure rises steadily to top out at 12.7% in Newfoundland and Labrador.

U.S.: month-to-month total job creation
U.S.: month-to-month total job creation
Over the past 20 years, the U.S. economy has generated, on average, 100,000 new jobs per month or 1.2 million new jobs per year.
Source: Payroll Survey, U.S. Bureau of Labor Statistics (Department of Labor)./Chart: Reed Construction Data - CanaData.
Canada: month-to-month total job creation
Canada: month-to-month total job creation
Over the past 20 years, the Canadian economy has generated, on average, 17,000 new jobs per month or 200,000 new jobs per year.
Data Source: Household Survey, Statistics Canada./Chart: Reed Construction Data - CanaData.
Canada vs. U.S. monthly unemployment rate (per cent)
seasonally adjusted data
Canada vs. U.S. monthly unemployment rate (per cent)
Data sources (seasonally adjusted): Statistics Canada and U.S. Bureau of Labor Statistics/Chart: Reed Construction Data - CanaData.
Change in total employment - Canada vs. U.S.
Change in total employment - Canada vs. U.S.
"Year over year" is the monthly figure versus the same month of the previous year.
Data sources (seasonally adjusted): Statistics Canada and U.S. Bureau of Labor Statistics/Chart: Reed Construction Data - CanaData.
Change in service sector employment - Canada vs. U.S.
Change in service sector employment - Canada vs. U.S.
"Year over year" is the monthly figure versus the same month of the previous year.
Data Source: Household Survey, Statistics Canada./Chart: Reed Construction Data - CanaData.
U.S. total employment - level
(based on seasonally adjusted data)
U.S. total employment - level
Data source: Payroll Survey, Bureau of Labor Statistics (U.S. Department of Labor). / Chart: Reed Construction Data - CanaData.
U.S. service-providing employment - level
(based on seasonally adjusted data)
U.S. total employment - level
Data source: Payroll Survey, Bureau of Labor Statistics (U.S. Department of Labor). / Chart: Reed Construction Data - CanaData.