October 2011


Title: It’s all about jobs

Sub-title: The amount of economic data released is staggering. But if you want to focus on one number, make it jobs.


Last week’s Labour Force Survey, which showed that 60,900 new posts were created during September, was excellent news for those Canadians, who are now back at work. However the unemployed are far from the only ones who follow jobs data.  Employment statistics are also closely perused by a variety of stakeholders ranging from businesses, investors, policymakers and even housing sector watchers.


“It’s one of the most important economic numbers for several reasons,” says Benoit Durocher, an economist with Desjardins Group. “For one, jobs data are released almost immediately and thus give you a good picture of what it happening in real time. For example the September jobs numbers came out just one week after month’s end. That’s pretty fast.”


In addition: “Job numbers affect almost all other data,” says Durocher. “When people are working, good things generally happen. When they aren’t, the reverse is true ” In fact while there is a constant flow of other statistics released including gross national accounts, inflation, national debt and industrial production totals, almost all are tied to the number of people that are working at a given time.


It’s all about jobs

For example notes Durocher, growth in Canada’s gross domestic production, a key gage of national prosperity, is almost directly correlated with the size of the active labour force. While productivity statistics also play an important role, the general rule is that the more people who work, the more prosperous we are.


Employment data are also a clear driver of residential real estate prices. That’s because housing demand is primarily driven by household formation (though immigration also plays on important role), and that in turn is driven by job creation. Think about it: your kid starts working, then soon after he gets a place of his own.


In fact the correlation between job market strength and consumption as a whole is also strong. This means businesses play close attention to jobs data, which also influence government spending and thus government activities of all kinds.


For example as students get to working, they stop borrowing for student loans and instead start paying them down. This means that governments have money coming in instead of going out. Employment insurance, welfare and other government disbursements all tail off as people get back to work as well.


Finally, jobs data are also a key influencer of monetary policy and thus interest rates. That because while the Bank of Canada’s main mandate is to keep core inflation stable between one and three percent, to do that it needs to make sure that the job market is balanced, otherwise  the country could slip into inflation or deflation.


Careful when assessing jobs data

That said, as Durocher notes, employment data are extremely volatile and thus need to be looked at with caution. “You can have instances in which a huge amount of jobs are created one month and then there are huge losses the month after,” notes Durocher. “As a result, when we look at the numbers, we generally study the trends as much as we do any individual data point.”


In addition, to analyze them properly, the overall job creation numbers need to be broken down and their components studied individually. For example, as Jacques Marcil, an economist at TD Economics notes, those 60,900 new jobs created in September are not what they seem.


“Below the surface, results were somewhat mixed. Private sector jobs were down,” said Marcil. This is important, because it means that a major chunk of the new employment was in government positions, which are considered less productive because only private sector jobs provide net new revenues.


That said, while Canadian jobs numbers are important, those who want to really understand what is going on, also need keep an eye on what’s happening in the United States. That’s because Canada ships more than 30 percent of its annual output there, and if US job growth, hence consumer spending is strong, that means businesses and workers here will also likely do fine as well.



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