TORONTO -- Canada’s labor market wowed forecasters again with the economy producing another whopping 43,300 new jobs in February, well above the consensus forecast for a marginal 3,000 job gain.
The unemployment rate held at the 33-year low of 5.8 percent. Wages for permanent employees rose 0.2 percent in February and were 4.7 percent higher than a year earlier.
The split between full-time and part-time employment was a replay of the January report with the gain concentrated in full-time jobs, which rose 49,500 in February, while part-time employment fell 6,200. Goods-producing industries cut 12,500 jobs, partially reversing January’s 44,100 gain. Construction employment rose by a healthy 20,800.
The service sector created 55,800 new positions. The largest job gains in the services sector were in transportation/warehousing (up 14,100), professional/scientific services (up 15,600), information and cultural industries (up 12,200) and public administration (up 15,800). Manufacturers shed 23,700 positions, more than offsetting the unexpected 17,500 increase in January.
The average hourly wage rate for permanent workers (the Bank of Canada's favored measure) rose 0.2 percent in January, while the year-over-year rate moderated slightly to 4.7 percent after holding at 4.9 percent in December and January, which was the fastest pace of increase on records back to 1997.
The strength in the labor market in the fourth quarter resulted in labor income rising at a 7.3 percent annualized pace, which supported the fastest rise in consumer spending in more than 22 years.
The pace of job gains picked up pace in January-February to 45,000 new positions per month from the 30,000 monthly pace in 2007 and will support labor income growth providing solid support for the consumer this year.
The main risk to the outlook for the consumer comes from the volatility in financial markets and rising credit spreads, which are boosting borrowing costs for Canadian households.
For the economy as a whole, the trade sector remains the biggest risk to the outlook as the weaker U.S. economy and high currency limit export growth, while the strong domestic economy keeps import demand growing. The heavy drag from trade on the pace of GDP growth and tightening in credit conditions will keep the Bank of Canada on an easing path. RBC Financial looks for two 25 basis point rate cuts to be delivered in the months ahead.
U.S. payroll employment crashes in February
The February employment report was disappointing, with jobs unexpectedly declining 63,000 in the month and building further onto a downwardly revised drop in January of 22,000 (originally reported as down 17,000). December’s gain was halved to 41,000 from the previously estimated 82,000.
Market expectations had been for the February report to retrace the January drop rising 23,000. The unemployment rate surprised as well, dropping to 4.8 percent from 4.9 percent in January, reflecting a sizeable exodus of workers out of the labor force.
The decline in jobs was relatively broadly based. Employment fell 89,000 in the goods-producing sector, reflecting weakness in manufacturing (down 52,000) and construction (down 39,000). Service-producing jobs rose 26,000, although this was largely the result of a 38,000 gain in government employment. Greater weakness was evident in retail trade (down 34,000) and the trade/transportation/utilities component (down 39,000).
The wage measure in the report, average hourly earnings, rose 0.3 percent, but year-over-year rate remained unchanged at 3.7 percent. Similarly, the workweek for both the overall economy and for manufacturing was unchanged relative to January at 33.7 hours and 41.1 hours, respectively.
The further slide in employment provides further confirmation of a marked slowing trend emerging in U.S. labor markets. The average monthly decline so far this year of 42,000 is down sharply from 91,000 average monthly gain in the fourth quarter of last year and the 127,000 average achieved over all of 2007.
U.S. consumer confidence slips again, according to RBC’s CASH Index
The RBC Cash Index showed another sharp deterioration in March as consumers downgraded their assessment of current and future economic conditions. The index slid 15.4 points to 33.1, the lowest level on record back to 2002. It was the biggest monthly drop since November’s 16.6 point dip.
All components of the index posted declines in March with the expectations component recording a massive 34.6 point drop. The index tracking sentiment about current economic conditions weakened by 8.9 points. These indicators are consistent with sharply slower consumer spending activity in early 2008.
Strains in financial markets and the persistent downturn in the housing market are weighing on consumer sentiment as shown by the sharp deterioration in RBC’s Cash Index as well as other confidence measures in recent months.
Bad news from financial companies are aggravating consumer worries given the declines in real estate values and mild deterioration in the labor market.
The Fed is working hard to shore up investor and consumer confidence having lowered policy rates by 125 basis points in January and likely to cut by another half point this month. Still, the widening in credit spreads is making it hard for the cuts to get any traction with consumers and RBC Financial expects that until financial markets have stabilized, consumer confidence and spending will remain weak.