Canadian Unemployment: Step In Right Direction

Employment Gains Match Timing Of Reopening

The Canadian showed some early signs of a recovery in May. Employment increased by 290,000 m/m (+1.8%). At the same time, hours worked, a broader measure of the labour market pulse, increased 6.3%. Overall, these gains closely matched the timing of the reopening of various industries across the country. The largest employment gains came from retail trade and the food and accommodation services industries (+149K combined). These industries were reopened early in May in many provinces, such as BC, Saskatchewan, Manitoba, Quebec and the Atlantic Provinces.

Similarly, the reopening of educational centres across the country led to 22,000 re-hiring (+1.8%) in that sector. Noticeable increases were registered in the manufacturing (+79K) and the construction (+74K) sectors. These industries were allowed to reopen in Quebec at the beginning of May. In fact, Quebec accounted for nearly 80% of nationwide employment gains last month. The exact week in which the Labour Force Survey took place (May 10-16) also influenced the results. Ontario only started the first phase of its reopening plan on May 19and, therefore, potential employment gains in the later part of the month were not captured in the LFS. Consequently, Ontario was the only province to lose jobs in May according to the LFS, down 65K from April (-1.0%).

Large Fraction Of Labour Force Remains Underemployed

Despite a net increase in total employment, the Canadian unemployment rate increased from 13.0% in April to 13.7% in May, the highest rate since 1976, but shy of the 15.0% consensus forecast. There was a 201,000 (+8.3%) increase in unemployed people, driven by re-entrants to the labour force that had worked within the past year and are now searching for a job as COVID-19 restrictions are being eased. Including discouraged workers and involuntary part-timers in the unemployment pool, the so-called R8 unemployment rate, paints a darker picture, with 18% of the Canadian labour force underemployed by that measure (see chart). A broader measure of underemployment that also includes employed people who worked only half their usual hours suggested that as much as one third of the Canadian potential labour force remained underutilized in May.

Step In Right Direction But Long Way To Go

It is encouraging that employment started to climb back up in May. It confirms that the number of people who received a call back to work more than offsets those who, unfortunately, permanently lost their job. It also supports the fact that the economy has likely bottomed in April at the peak of the public health crisis. Employment is likely to continue to move higher in June as provinces continue their reopening process. A Bloomberg/Nanos poll taken at the end of May revealed that 30% of respondents who lost their jobs or faced reduced hours because of COVID-19 were now reemployed or working more hours. However, the road back to pre COVID-19 economic activity will be long. Employment level in the country is still 14% lower than before the crisis (see chart). Continued support from authorities to prevent permanent business closures will be needed as the supply shock from the pandemic translates into a demand shock from consumer anxiety and low business confidence.

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