OTTAWA — The surprisingly sharp turnaround in Canada’s labour market this summer is raising eyebrows among analysts who worry that the most timely and critical barometer of economic strength may be sending false signals.
A consensus of economists surveyed predicts that Friday’s new labour force employment numbers will find that 10,000 net new jobs were created in October, the third straight month of gains.
The likely result from such a finding is that the Canadian dollar and stock prices will strengthen moderately in Friday trading, since job creation is the most important indicator.
The thinking is that more jobs means more goods being produced, higher company profits and more money in Canadians’ pockets.
But Scotiabank senior economist Derek Holt, among others, is leery of the Statistics Canada labour force survey that showed 58,000 new jobs created in August and September when, according to the same government agency, Canada’s economy was flat in July and contracted by 0.1 per cent in August.
“Why would employers be adding so much to their payroll when the economy, on balance, still stinks?” Holt asks.
“Don’t tell exporters that the economy is wonderful. And the natural resources sector, they’re not going to get to sustained hiring on modest increase in commodity prices. Intuition would suggest there is cause for deeply discounting what the labour force survey is saying.”
The recent employment gains are also at odds with the general belief that as the economy recovers, jobs are one of the last indicators to rise since firms first attempt to get more productivity out of employees they have before adding workers.
Finance Minister Jim Flaherty repeated Thursday his belief that job numbers will continue to be weak for some time.
”Overall I expect to see some weakness in the job area. We need to have a clear, entrenched economic recovery and then the job numbers will have to catch up to that as businesses start to reinvest,“ he said, adding that he had not had an advanced peek at the new labour report.
There is more than intuition casting doubt on the rosy data of the past two months.
Although it gets little attention, Statistics Canada puts out a second barometer of employment called the Survey of Employment, Payrolls and Hours, which counts jobs from the industry perspective, rather than the better known survey of households.
The industry survey suffers from the disadvantage of coming out a month later than the household poll, hence is regarded as stale news. It also does not measure the variable self-employment category.
But that may be what makes it a better indicator of the economy during the current volatile and uncertain period of halting recovery, says Holt.
Significantly, the industry survey has been wildly at odds with the widely-reported labour force numbers this summer, and especially in August.
In the month when Canadians were told 27,000 new jobs had been added, the first reversal of job losses in almost a year, the industry survey was showing that employment had fallen by a staggering 110,200 jobs.
Statistics Canada explained that half of the losses stemmed from a drop in employment in educational services, which saw an unusual rise the previous month. But economists point out that even after accounting for the anomaly, as well as self-employment, the industry survey still shows a loss of more than 50,000 jobs, not a 27,000 gain.
“Whenever you get turning points in the economy, it is quite conceivable you get these pretty hefty discrepancies, but still they are showing a completely different situation,” notes Michael Gregory, a senior economist with BMO Capital Markets.
“It is a bit of a mystery and I’ve been warning my (colleagues) there is a downside risk here. GDP has surprised on the weak side and it is quite conceivable the job picture is weaker also.”
A survey of manufacturers released Thursday also suggests things may not be all that rosy on the factory floor, given continuing weak demand for Canadian goods in the United States and a stubbornly high Canadian dollar that prices their products out of foreign markets.
The sector has lost about 200,000 jobs in the past year, and about one quarter of the over 700 companies surveyed in early November said they planned to cut more jobs over the next three months.
So which survey is right? An official with Statistics Canada says that while the two reports use different methodologies, which produces the occasion gap, over time ”they track similarly.“
Except that the August discrepancy is the biggest since 2002, says economist Holt. And July also saw a big gap.
As well, this is not the first time the household survey has raised concerns. Statistics Canada’s reliability came under scrutiny last fall, when in the middle of the federal election, it reported that 107,000 new jobs had been created in September just as the economy was tumbling into a deep recession.
That shocking number stuck out because it was preceded by mostly flat results the previous two months and by large job losses afterwards.
CIBC economist Benjamin Tal refuses to take sides, saying Canadians should be wary of monthly numbers from both surveys and look primarily at trends in the data.
He points out the error factor in the household survey is plus or minus about 30,000 jobs, a large number when most months gains or losses are measured in the low tens of thousands.
That doesn’t mean markets won’t react to Friday’s data, however.
“Markets have to trade on something,” he says, even if investors are aware the hard numbers hide built-in uncertainties.
One of the most notoriously unreliable reports is the initial reading the U.S. sends out on its gross domestic product, followed a month later with a more reliable tabulation that is often vastly different.
“The markets trade on the early number and they trade on the revised number,” said Tal.