TD Economics

August 6, 2010

Data Release: CANADIAN EMPLOYMENT TOOK A BREATHER IN JULY

• The Canadian economy lost 9K jobs in July, failing to meet the consensus forecast for an expansion of
13K. This was slightly disappointing, albeit not entirely surprising, as this employment report came on
the heels of a blistering +76K monthly pace of job creation set over the prior 3 months.

• There was a lot of churn beneath the headline figure, however, and the composition of job
creation/destruction was both surprising and disappointing. Bucking recent trends, the surprise part
came in that the goods sector created 42K jobs, mostly in manufacturing (29K), while service industries
shed a net 30K jobs, led by an outsized 65K loss in education. The disappointing part was in the split
between full-time (-139K) and part-time (+130K) positions.

• The unemployment rate crept up by 0.1 percentage point to 8.0%, also disappointing expectations of a
steady 7.9% jobless rate. This marked the first uptick in what otherwise had been a fairly steady trend
decline of Canada’s jobless rate over the past year.

• On a regional basis, Quebec posted a significant job loss (-21K), Ontario (-15K) was also in the red
while Alberta (+9K) and B.C. (+16K) led on the job creation front.

Key Implications

• A full year after bottoming out in July 2009, Canadian employment was still nearly back to its pre-
recession level. During the recession, the Canadian economy had lost a total of 417K jobs over a span
of 9 months. The ensuing recovery has so far created 393K net new jobs in just 12 months.

• Considerable attention will be given to the large drop in full-time positions in July. After dropping by
482K in the recession, full-time employment has only managed to recoup 216K jobs as of July.
However, about half of the shortfall to full recovery came in July 2010 alone. Our assessment is that the
lagging performance of full-time employment will not persist.

• With an already visible deceleration in the pace of output (GDP) and modest net hiring intentions
exhibited in employer surveys, we expect only moderate job creation (around 15K per month) over the
next few quarters. That pace of job creation may not be enough to prevent the unemployment rate from
floating slightly upwards over the next few months, as seen in July with a slight loss of employment. The
jobless rate increase in July could in fact have been worse, having been tempered by a downtick in
participation. The cyclical peak of 8.7% (August 2009) in the unemployment rate is likely behind us, but
labour force entrants and job-to-job churn – often interrupted by briefs periods of unemployment – could
well outpace the amount of net new hires.

• Moreover, with hours per worker still below their pre-recession level and well under boom time levels,
employers still have room to ratchet up the intensive margin before hiring extra bodies to further boost
output. At this stage of the economic cycle, such a rise in unemployment is not particularly worrisome.
As the recovery matures, unemployment may stagnate or even rise a bit further, but we do not expect
this will be due to a persistent resumption in net layoffs.

Pascal Gauthier, Senior Economist

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