Canadian Labour Force Survey Preview – May: Focus On Total Labour Compensation

Last week’s statement accompanying the Bank o Canada decision to keep the policy rate at 1.25% included this particular upbeat comment: “solid labour income growth supports the expectation that housing activity will pick up and consumption will continue to contribute importantly to growth in 2018.” We agree with this sentence. According to the Labour Force Survey, total labour compensation of Canadian workers is up 6% year-to-date (see chart). So far, this robust wage increase fully compensates for rising household debt payments: the debt-servicing ratio was stable at 14% in 2018 Q1.

We expect the LFS job report for the month of May to bring positive news relative to growth in total labour compensation, preventing a rise in financial stress among Canadian households and facilitating the removal of further monetary stimulus in the short-term by the BoC.

First, we expect a net creation of 22,000 jobs (consensus also at +22K). Our call is based on an expected strengthening in specific industries:

  • Employment in the wholesale and retail trade sector plunged by 50,000 during the last three months following very strong gains in 2017. Still, this 1.8% decline appears exaggerated even though consumer expenditures of goods stagnated in 2018 Q1. Accordingly, youth and part-time employment are poised to rebound in May.
  • Manufacturing employment fell by 26,000 during the February-April period, while manufacturing output rose modestly. Stronger productivity gains cannot fully explain this gap.
  • The improvement in commodity prices observed this spring, including , suggests a stronger pace of hiring in the natural resources sector.
  • The raw number of residential resale transactions in the GTA and Vancouver rose during the month of May, according to the Toronto and Vancouver real estate boards. Thus, the financial, real estate and construction industries won’t be a drag on total employment, contrasting with the cooling observed at the beginning of the year.

Second, we expect Canada’s unemployment rate to remain unchanged at 5.8% for a fourth consecutive month. Nevertheless, unused labour resources have been shrinking. For instance, the number of involuntary part-time workers, representing only 9% of all part-timers, continues to fall steadily. Also, the intensity of labour shortage experienced by companies is at its highest in the current business cycle, according to the BoC’s Business Outlook Survey (see chart). Altogether, we expect average hourly earnings of all employees to stay in the fast lane (+3.6% year-over-year in April), another positive support for total labour compensation.

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