Canada Net Change in Employment June Preview: June is looking better and better

• Job gains expected to more than double in June.
• Unemployment rate to drop to 12% from 13.7 in May.
• Ivey PMI was twice its forecast in June, highest since Nov 2019.
• USD/CAD would benefit from better June job figures.

Canada’s labor market may have recovered almost one-third of its pandemic jobs losses if the forecasts for June are accurate. If May’s success is the guide the country could be on its way to reconstituting half of its unemployment.

The net change in employment in June from Statistics Canada is forecast to add 700,000 positions following the May addition of 289,000. The forecast for the May number when it was released on June 5 was for loss of 500,000 jobs.  Unemployment is expected to drop to 12% in June from 13.7% in May.

Canada net employment change

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PMI

June statistics for the Canadian economy are in short supply. One of the few released is the purchasing managers’ index from the Richard Ivey School of Business in London, Ontario. The performance of this seasonally adjusted gauge was little short of spectacular. Following the low in in April’s 22.8 and May’s 39.1 recovery the consensus forecast was for another plunge to 25.1 last month.  

In reality the number soared to 58.2 which is the highest reading since 60 last November and an unheard of forecast beat of 33.1. The 19.1 point increase over May was the largest single month gain on record.

Ivey PMI

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US and Canadian Job numbers

Economists have had a particularly hard time locating the turn in the labor market and estimating the surge of employment as the lockdowns ended.

In the US the May forecast for non-farm payrolls was for a loss of 8 million to follow the April drop of 20 million. Instead employment reversed and added 2.5 million jobs. The pessimism was repeated in June. The consensus forecast was for 3 million new positions, 4.8 million were produced.  The expectation for the two months was for a loss of 5 million workers. The reality was a gain of 7.5 million.  

A similar misapprehension took place in Canada. In May the forecast was for a further loss of 500,000 jobs after the destruction of 2 million in April.  The actual result was an addition of 289,600. 

Canadian jobs losses in March and April were just over 3 million. With 289,000 returned in May and 700,000 expected in June. That would mean about one-third of the losses have been made good in two months. 

If however, the May Canadian number performs at the 60% improvement over forecast of the US June non-farm payrolls that would add 420,000 to the net employment change and bring the total for May and June to 1.4 million or nearly half the 3 million pandemic jobs losses.

Now there is no particular reason for the Canadian economy to produce the same forecast ratios as in the United States, but the record of the predictions around the pandemic give have  been to consistently to underestimate the resilience of the two countries’  labor markets.  

Of the three labor market figures so far, two NFP numbers in the US (May and June) and one in Canada (May employment change) all have severely underestimated in economic forecasts.  There is good reason to suspect that will hold for the June Canadian report.

USD/CAD

The US dollar has been pulled in two directions in the major pairs over the past three weeks.  

On one side the improving economic data in the US and to a lesser degree elsewhere has removed the pandemic risk-premium.  At the same time the rising tide of coronavirus cases, even if not accompanied by increasing fatalities, has stoked fears of the long-bruited second wave of the pandemic.

With the contest between the scenarios equal the ranges have been tight. In the USD/JPY and EUR/USD 150 points, in the AUD/USD 200 points and in the USD/CAD also 150 points.

A better than expected figure form the Canadian job market may be enough to push the Canadian dollar higher, back through the panic jump off  point of 1.3430.