LFS Employment Preview – January: Labour Market to Take a Breather

1.
LFS Employment Preview – January: Labour Market to Take a Breather
The return of volatility in global markets is undeniably the event of the week. Still, investors will take a close look at
the LFS report to be released on Friday morning. We expect total employment to remain unchanged in January
relative to December (consensus: +10K month-over-month). We also forecast an unpainful 0.1pp increase in the
unemployment rate to 5.9% (consensus: 5.8%).
The 10K consensus hides a significant discrepancy in individual estimates, varying from a 12K decline in total
employment to a massive 50K net gain. This discrepancy is likely reflecting several positive and negative details
contained in the December LFS report. On the positive side, fewer temporary workers lost their jobs last December,
likely because the solution to growing labour shortage is retaining more employees. Thus, the current level of
employment appears more sustainable. Also, the combined 146K surge in LFS employment observed in November-
December 2017 reflects a catch-up of better Survey of Employment, Payrolls and Hours (SEPH) data released
earlier in 2017. Thus, the risk of a sudden month-over-month decline in LFS employment appears low.
This being said, a few factors prevent us from forecasting another massive job gain. First, the pace of hiring in the
Canadian manufacturing sector appears overly strong (+88K or +5.3% year-over-year) in comparison to the global
economic momentum. Second, the new stress test for the uninsured mortgage market, combined with higher interest,
could soon weigh down labour market conditions. Yesterday, the Toronto Real Estate Board reported a 22% year-
over-year decline in residential MLS transactions for January 2018. In other words, the housing sector oversized
contribution to Canada’s job creation has likely ended.
Our call of a small 0.1pp uptick in Canada’s unemployment rate is in part based on the expectation of an unpainful
increase in Quebec’s unemployment rate. The latter declined from 6.0% in October to 5.0% in December (see chart
below). While the robust economic expansion in Quebec is undeniable, a 1.0pp cumulative decline in the
unemployment rate usually occurs over 12-18 months when an economy performs very well. Furthermore, the recent
decline in Alberta’s unemployment rate to 7.0% appears slightly stretched relative to Western Canada Select, the
benchmark price obtained for several producers for oil.
Bottom Line: Even if our call of below consensus numbers turns out to be right, it would not automatically imply that
market participants will remove some of the BoC policy hikes currently expected this year. With more companies
citing labour shortages as a constraint on future production, the chances of seeing a steady and fast pace of growth
in wage inflation have increased. The average hourly earnings (AHE) of employees reported in the LFS rose by a
brisk 2.7% year-over-year in December already; and markets should pay attention to the January AHE number. Also,
the overlooked SEPH data shows a brisk 3.5% year-over-year increase in the AHE of salaried employees for the
month of November (see chart below), another positive wage inflation measure that could eventually facilitate further
removal of monetary stimulus by the BoC in 2018.
Sébastien Lavoie | Chief Economist | 514 350-2931 | lavoies@vmbl.ca

2. Economic Research and Strategy
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without in each case the prior express written consent of Laurentian Bank Securities.
Source: Statistics Canada/Haver Analytics
Unemployment Rates
Quebec
Ontario
BC
Alberta
9
8
7
6
5
4
9
8
7
6
5
4
14 15 16 17
Source: Statistics Canada/Haver Analytics
SEPH: Average Hourly Earnings of Salaried Employees
(yoy % change)
LFS: Average Hourly Earnings of All Employees
(yoy % change)
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
13 14 15 16 17