Canadian employment results were weak on the headline but better in the details

Week in review

Canada – Employment fell roughly 20K in April according to the Labour Force Survey, much weaker than consensus expectations which were at -5K. The job losses were offset, however, by a one-tick decrease in the participation rate to 65.8%, leaving the jobless rate unchanged at 6.8%. The decrease in April employment was due to government (-20K) and self-employment (-24K) which more than offset gains in the private sector (+24K). Part-timers saw their ranks decrease 67K, while full time employment rose 47K. Hours worked rose 0.3% as a result. The goods sector cut 16K jobs with declines in construction and resources offsetting gains in manufacturing, agriculture, utilities. Services sector employment was down 4K driven by trade, education, public admin. and info/culture.

All told, the Canadian employment results were weak on the headline but better in the details. The overall decline was entirely due to self-employment and government, the latter’s drop not really a surprise after hefty gains in prior months. More importantly, the private sector created jobs for the second straight month. Also positive is Alberta employment which remains resilient with another increase in April. Looking at the more reliable 12-month average, Canada has created 12K jobs/month with about half in the private sector. While not stellar, that’s not “atrocious” either.

Housing starts fell 4.1% to a consensus-matching 182K in April (from 189.5K in the prior month). The decrease in starts was due to declines in urban areas (-6.6%) which offset the 32% increase in rural areas. The decrease in urban starts was driven by multis (-14.2%) which more than offset increases for single family homes (+11.4%). On a regional basis in urban areas, there were declines in Ontario (-0.4%), the Prairies (- 25.8%), Quebec (-11.1%) which offset gains in BC (+14.2%) and Atlantic Canada (+35.6%).

Building permits jumped 11.6% in dollar terms in March. There was a 22.1% increase in the value of non-residential permits (driven by institutional buildings including educational institutions, medical facilities, nursing and retirement homes), and a 6.6% increase for the residential sector. In real terms, residential permits rose nearly 25% thanks to a 43.7% jump for multis (particularly in Ontario and BC), more than offsetting a 5% decrease for singles.

The merchandise trade deficit widened to C$3 bn in March, from a revised C$2.2 bn deficit in the prior month. That was the largest goods trade deficit on records. The deterioration in March was due to nominal imports (+2.2%) rising faster than nominal exports (+0.4%). The sharp increase in imports was due to energy, consumer goods, agricultural and forestry products, and basic industrial products. In contrast, exports were driven by autos/parts which more than offset declines in energy, and aerospace products. With falling exports and rising imports, the energy trade surplus sank to C$4.2 bn, the lowest since mid-2012. The non-energy trade deficit widened marginally to C$7.3 bn, the worst in over a year. In real terms, Canada’s exports rose 1.5%, while imports were up 1.8%.

United States – Non farm payrolls rose 223K in April a touch lower than consensus which was expecting a 228K increase. There were also downward revisions to the prior months to reflect more complete data, which took out 39K jobs. The private sector added 213K jobs in April. Employment in the goods sector was up 31K with gains in manufacturing (+1K), construction (+45K) offsetting the fourth straight decline in mining which continues to lose jobs in the aftermath of the oil price collapse. The private services sector created a net 182K jobs with decent gains in retailing, business services, health care and education. Government created 10K jobs. Average hourly earnings were up 0.1% The employment diffusion index in the private sector fell again to reach 57, the lowest since July 2013. Released at the same time, the household survey (similar in methodology to Canada's LFS) showed a gain of 192K jobs. That allowed the jobless rate to drop by one tick to 5.4% (the lowest in 7 years) despite a one-tick increase in the participation rate. Full-time employment fell 252K.

Overall, the US employment reports were a bit weaker than expected. The large loss of full time jobs is disappointing and the drop in the diffusion index to the lowest since the summer of 2013 isn’t positive either because that means jobs gains are not broad-based. On a positive note, however, cyclical sectors such as manufacturing and construction seem to be holding up and creating jobs. The reports are a mixed bag, enough to get the Fed to exercise utmost caution when comes the time to normalize monetary policy.

The ADP employment report, a gauge of the private sector component of the U.S. non-farm payrolls, showed a 169K increase in April, the lowest since January 2014. The prior month was revised down to 175K (from 189K), putting it a bit closer to the non-farm payrolls. The ADP’s job gains in April were mostly in small firms i.e. those employing less than 50 employees, which added 94K jobs. Medium-sized firms added 70K to payrolls, while large firms (500+ employees) increased payrolls by only 5K.

Weekly jobless claims data for the week of May 2nd showed initial claims rising slightly to 265K from an unrevised 262K. The more reliable 4-week moving average initial claims fell to 280K, the lowest since May 2000. Continuing claims for the prior week fell 28K to 2.23 million.

The non-manufacturing ISM index rose to a 5-month high of 57.8 in April. The business activity index surged to 61.6, the highest in five months. Both employment and new orders subindices rose further in the month and remain well in expansion territory, i.e. above 50.

The trade deficit widened to US$51.4 bn in February, the worst since October 2008. The deterioration in the trade balance was due to imports (+7%) rising faster than exports (0.9%) in nominal terms. In real terms, exports rose 1.1%, while real imports soared 10.3% helped by petroleum products.

The factory report showed a 2.1% increase in orders in March, after a 0.1% drop in the prior month (the latter was revised down from +0.2%). The gains in March were driven by transportation whose orders jumped 13.5%. Excluding transportation, new factory orders were flat as gains for durables offset declines for non-durables. Shipments rose 0.5% with gains for durables dwarfing declines for nondurables.

Business non-farm labor productivity fell 1.9% annualized in Q1, after a 2.1% drop in the prior quarter. The decrease in first quarter productivity was a result of higher hours worked (+1.7%) and declining output (-0.2%). Unit labour costs jumped 5% after a 4.2% increase in the prior quarter.

World – In the Eurozone, retail volumes fell 0.8% in March the first decline in six months. For Q1 as a whole, retail volumes grew 3% annualized, roughly the same pace as in the prior quarter. The zone’s industrial producer prices were up 0.2% in March but remain in deflation mode on a year-on-year basis at -2.3% (or -0.5% excluding energy). Markit released services PMI’s for April for a range of countries. In Japan, the services sector returned to growth with the business activity index rising above 50 for the first time this year. China’s services PMI showed an increase, further into expansion territory. The services sector grew for the first time in seven months in Russia, while it contracted at a faster pace than in the prior month in Brazil.