Canadians knew they were in for a whopper of an employment report, but most didn’t expect these numbers. The Statistics Canada (Stat Can) Labour Force Survey shows a historic drop of employment in March. Job losses for the country came in at roughly double what analysts were expecting. Digging deeper into the data, we also see the drop in participation will inflict long-term damage to the economy.
Participation and Unemployment Rates
Today we’re looking at employment, but specifically participation and unemployment rates. The participation rate is the number of people actively participating in the labour force. Retirees, full-time students, stay at home parents, and people that just stop looking for work, do not “participate” in the labour force. Those that are participating, make up the labour force. A higher participation rate implies more labour potential, and fewer dependents. That is, a greater percentage of people are ready and willing to be a part of the labour force. The lower the rate, the smaller the percentage of people to drive the economy forward. The most obvious issue is tax burden.
The unemployment rate is straightforward – the percent of people not working, right? Nope. It’s the percentage of the participating labour force, actively job seeking, that can’t find a job. Those retirees, students, or people that give up on finding a job – are not unemployed. They are no longer a part of the labour force.
The unemployment rate only tells a part of the story without participation. A high participation rate, and low unemployment rate is a sign of a robust job market. A low unemployment rate might sound good, but isn’t if the participation rate is making up a lot of the decline. A low participation rate and a higher rate of unemployment is the worst possible scenario.
One last point about today’s data – we’re going to be using the unadjusted numbers. I know, you heard on the news that removing seasonal variations is a good thing. The thing is, some very smart folks, like Harvard Business School prof Daniel Quinn Mills, argue seasonal adjustments are obsolete, and “a significant distortion of reality.” That’s because economies aren’t as seasonally dependent as they used to be. It’s a relic of the past, that just makes charts easier to read for economists.
“If you seasonally adjust me, I’m George Clooney.”
— Mark Vitner, Senior Economist @ Wells Fargo pic.twitter.com/9FOHtZZsOr— Stephen Punwasi (@StephenPunwasi) March 7, 2019
Seasonal adjustments are particularly problematic around recessions. Rapid economic shifts are often softened as unusual seasonal patterns. This typically gets corrected as time moves on, but requires manual intervention. That can’t be done until the analysts intervening know exactly what they’re dealing with – in hindsight. In other words, seasonal adjusted numbers aren’t particularly useful while the event is happening.
Canada Lost Over A Million Jobs In Just 4 Weeks
This morning’s employment numbers were rough. Stat Can reported 17.85 million people were employed in March, down 1.06 million jobs from a month before. Compared to last year, this number is 808.1 thousand jobs lower. That works out to 5.6% of jobs lost for the month, and 4.32% from the same month last year. Canada hasn’t had this few people employed since April 2016. This is even more problematic when you consider how fast the country’s population grew during this period.
Canadian Employment Drops To 4 Year Low
The unadjusted number of Canadians employed in either full or part-time work.
Source: Statistics Canada, Better Dwelling.
The rate of unemployment predictably came in much higher. The rate reached 8.4% unadjusted in March, up 42.37% from a month before. Compared to the same month last year, this number is 35.48% higher. This is the highest print for the rate since August 2010, coming out of the Great Recession.
Canadian Rate of Unemployment
The unadjusted monthly rate of Canadian unemployment.
Source: Statistics Canada, Better Dwelling.
Unemployment Softened By Rapid Exit From The Workforce
Despite the big jump in the unemployment rate, it was softened by a drop in participation. The participation rate fell to 62.8% in March, down 3.08% or 200 bps from the month before. Canada’s labour force participation is now at the lowest level since January 1983. That only lasted for a month though. We have to go all the way back to 1980 to find more than one consecutive month at or below that level. This is going to have a bigger and longer term impact to the economy than many people realize.
Canadian Labour Force Participation Rate
The unadjusted labour force participation rate.
Source: Statistics Canada, Better Dwelling.
Last month saw a very big rise in unemployment, but the rate was softened by people exiting the workforce. While this means the unemployment rate will recover faster. It also means the economic impact of lost employment will persist much longer than most currently think.
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Better Dwelling Unemployment Forecast: 10.3%
Stats Can: 8.4% unemployment, +200 bps of participation lost. 10.4% .
You’re a witch.
Where can I see the forecast?
Paywalled, but they used the same chart in this article with the forecast.
https://betterdwelling.com/canadian-jobless-claims-smash-previous-records-unemployment-rate-likely-in-double-digits/
Most Canadian economists only forecasted job losses of 500,000 for March, which tells us how much of the positivity is rooted in reality.
V sHaPeD rEcOvErY!
LOL!
The LFS is too small of a survey to get any real insights on participation, but anyone that doesn’t understand statistics aren’t facts will think you’re a conspiracy theorist if you say that out loud.
It’s beginning to topple fast. first oil, then job’s those are the first 2 legs gone. Everyone is holding their breath on RE but we all know where that’s heading. Most however will try and hold on, they will have no choice it’s the ones who can’t and have to sell that will cripple the 3rd leg and knock it out from under us. a surge of sellers will force the prices down. The fourth leg are gov’t jobs. They will be drastically reduced and or forced to take roll back’s like the rest of us.. Hope you were fiscally responsible and have some saving’s. Some peace of mind goes a long way when you want to sleep at night. Good luck everyone.
Now I feel like a one legged man at an ass kicking contest.
I appreciate your graphs, thank you for sharing. I hope you continue to keep us similarly informed as this situation ‘unravels’ so-to-speak.
I personally don’t trust seasonally adjusted numbers. It’s a filter and I need to see unfiltered data before I see filtered date. I prefer to think for myself.
I also appreciate that you defined employment versus participation. I have had my own business for 33 years. I have been part of the gig economy the entire time and as such I don’t think I have ever appeared in an employment chart. Neither have any of my 33-year-old team. We (individuals) have companies for tax purposes, we don’t employ anyone else, and pay ourselves via minimal management fees and top-up with dividends. I don’t think that we register on employment charts. Lots of people earn their livings this way.
We may also be the seemingly-invisible, falling through the CERB programs cracks. I fully expect they are fixing that, but this may cause the concept of employment to be reconsidered going forward.
Any-who. Thanks. Keep up the awesome work.
Gig economy is considered employed in stats for the past few years. Even Uber drivers are considered employed.
The gov has no idea when I am employed or not. I can promise you that.
I have an MS, couldnt find a proper job for 2 years. Now i work at a bank job way below my education level. Same thing for my friends with engineering degrees. Unemployment figures have been way higher.
Adjusting numbers (seasonally or inflation or regionally) or indexing them has long been the fuzzy logic to deny the truth..
I was pondering the state of different types of homes in GTA, or any other large Canadian city for that matter, whether or not “freehold” homes will do ok.
I live in a small town 45km north of Waterloo, and a friend bought a townhome principal residence recently in Richmond Hill in very nice area by Go-Train for $900k.. ish…. At first, I was really worried about his decision, but then I’ve been looking around on MLS the past week and noticed that detached homes are still around 1.5 million, although they’ve decreased in that area from 2-2.5 mil in 2017.
I notice Condos in TO, on subway are going for 700k give or take for a 2 bedroom! or 500k for 2 bedroom off subway. These are estimates of course as they have quite a large range that I can’t begin to understand. The “good condition” older 2 bed condo I’m comparing his place to has $800 condo fees of course on top of the mortgage.
My point = Even if these 500k condos half in value to 250k + unchanged condo fee may equal payment of $1800ish+++ per month…. After devaluing. The townhome or semi in Richmond Hill for 900k, probably will not half and take its place at a more reasonable value compared to condos.
Sorry, I know that was a lot. Hope my Bud didn’t get in over his head.
I have an idea where you live. The property increase towards the Bruce penninsula are just as bad as the GTA, but no one talks about it because it’s a smaller market. Saugeen Shores and surrounding area is in its own bubble for other reasons (bubble on a bubble). The tide has lifted mostly all Canadian boats.
Your logic makes sense without additional context of salary, employment, and consumer debt. When you factor in those numbers, there is a deep systemic issue.
This is a form of cultural stockholm syndrome (copyright me, right now). We are literally living through one of the worst crises in modern human history, and still finding rationale to support numbers that history has taught us to pay attention to several times over.
I do fear that many who have made some money, or money on paper from a very small window in human history have convinced themselves they have somehow “beat the system”. There is a certain arrogance that has replaced a cautious humility.
The truth is we don’t know what will happen, or when it will happen, but some are looking at a gaping wound and claiming health because we haven’t lost consciousness yet .
The data is there The writing is on the wall. It’s just still a little blurry right now. Some folks have turned their backs, others are trying to read it. Either way, it’s still there, and there’s more of it every day.
I find it funny when people try to compare a normal recession to a mandated systematic shutdown of the economy. Of those 1M jobs there is a very high probability that 750k+ are hired back on within a few months once the peak of this wave is over. Sure 250k is still bad, and there will likely be even more over the next few months, but this isn’t some average historical correction. Will things snap back to normal? No. Are the majority of unemployment claims temporary for businesses to cut expenses and survive a 3 month shutdown? Yes.
Unfortunately a lot of businesses have or are in the process of permanently shutting down. Latest headlines include AMC hiring a bankruptcy legal team, White House letting USPS fail completely, 43% of US businesses may be permanently closed without a serious cash injection soon, 460,000 Chinese businesses permanently closed, 1/3 Americans say stimulus won’t support them for longer than a month, etc.
I keep thinking about Canada and these $2000 cheques, wondering how little of someone’s mortgage that will cover. There are stories of folks now being hit with huge added interest payments despite the stimulus.
Debt fueled consumer activity kept these businesses afloat month to month, but both sides of the equation are now suffering tremendously. Canada has the highest consumer debt in the developed world.
Businesses will certainly rehire, but the question is who and for what. A black swan like this is a good reminder of risk tolerance. No one knows what will happen, but the numbers don’t add up, and no one has enough cash to guess anymore.