US Payroll Employment Disappoints Yet Unemployment Rate Sank

The overall decline reflected goods-producing jobs dropping 60,000 in the month, which was partially offset by service-producing jobs rising 40,000. Within the former component, manufacturing employment managed to rise 11,000, but it was more than offset by a 75,000 drop in construction jobs. The gain in service producing jobs was led by gains in temporary help services (+52,000) and professional and business services (+44,000). Offsetting declines were led by a 19,000 drop in the transportation and warehousing component.

The workweek provided a more encouraging picture than payroll employment, with this measure unexpectedly rising to 33.3 hours from 33.2 Hours in December. The manufacturing workweek rose an even greater 0.2 percentage points to 40.8 hours while overtime hours rose to 3.5 from 3.4 in December. The index of aggregate weekly hours, which reflects the effect of both employment and hours worked, was up 0.3% following no change in December. The comparable measure for manufacturing was up an even greater 0.7%.

The index of average hourly earnings, the main wage measure in the report, was up 0.3% in the month and 2.5% compared to the past year. In December, this wage measure was up 2.4% on an annual basis.

Today’s report included benchmark revisions to earlier months. As had been expected, these revisions implied even greater job losses during the recession. Payroll employment is now estimated to have dropped by 8.4 million between December 2007 and January 2010. It was previously estimated that 7.2 million jobs had been lost between December 2007 and December 2009.

The decline in January payroll employment is disappointing, yet a much stronger read on employment from the household survey resulted in the unemployment rate unexpectedly sinking to 9.7% from 10.0% in December. As well, today’s report suggested broad-based increases in hours worked; however, the unemployment rate still remains at a high level still implying considerable unused capacity in the economy. The persistence of slack in labour markets will act to keep both inflation pressures quiescent and the Fed on the sidelines during the near term, which will encourage more sustained improvements in labour markets. We do not expect Fed funds to rise from its current range of 0% to 0.25% until the fourth quarter of 2010.

43,000 new jobs created in Canada during January

Canada's economy created 43,000 new jobs in January, a much larger gain than forecasts of a modest 15,000 job increase. This rise more than reversed the 28,300 job losses reported in December. The December decline was revised by Statistics Canada last week from the initially reported 2,600. The unemployment rate slipped to 8.3% from a revised 8.4% during December as the strong employment gain outstripped the 18,900 rise in the labour force in the month.  This was contrary to market expectations for the rate to rise to 8.5%. Gains in Ontario, BC and Manitoba led the January increase.

The details of the report showed January's gain in employment reflected a 41,500 jump in part-time employment, the third increase in a row. Full-time jobs increased by a marginal 1,400, and a total of 12,600 full-time jobs were lost over the past three months. Over the past six months, however, gains in employment have been concentrated in full-time positions (+149,000).  Gains were concentrated in the services-producing industries, where employment rose 66,100. Retail and wholesale trade employment rose supplemented by gains in business, building and other support services and finance, insurance and real estate, and food and accommodation services.  Public administration posted an 11,000 job increase in the month. Thegoods-producing industries cut back in January with 23,100 jobs lost. Manufacturers trimmed another 15,700 from their payrolls while employment in construction was flat. Private companies accounted for the bulk of the hiring, with the public sector increasing payrolls as well, while the number of self-employed fell in January.

The annual gain in the average hourly wage rate for permanent workers held at 2.2% in January 2010, which was well down from the 4.7% pace recorded in January 2009.

Statistics Canada, last week, released revised labour data, which showed that in 2008 there were fewer jobs created than previously estimated (63,500 compared to 79,800), and in 2009 fewer jobs were lost (-189,000 compared to -240,000). On balance over the two year period, Canada's economy lost 125,500 jobs, less than the previously estimated 160,100.  As a result, there were minor changes to the unemployment rate which still peaked at 8.7% in August 2009 but was lower than previously estimated at 8.4% in the three-months ending December. These revisions and January's report showing that the unemployment rate slipped to 8.3% led us to revise down our unemployment rate forecast over 2010 and 2011. We now expect the rate to peak at 8.6% in the months ahead and end 2010 at 8.1% (from 8.2%). In 2011, the strengthening economy and narrowing output gap is forecasted to result in the unemployment rate falling to 7.4%.

The revised labour data showed that 65,700 jobs were created in the final-three quarters of 2009, a sharp improvement after a gob-smacking loss of 378,700 jobs from October 2008 to March 2009. The increases were in line with the generally improving tone in the economy, and January's job gain augurs well for the pace of expansion to remain firm in the first quarter of 2010. At the same time, considerable slack was generated during the recession; and until this output gap narrows, the unemployment rate will remain elevated.  Our forecast, that the growth in the first half of 2010 will see the recovery's momentum build, sets up the unemployment rate to peak soon and then gradually drift lower. As this occurs, the Bank will look to remove monetary stimulus although conditions are not likely to warrant rates to start moving higher until the third quarter of the year.