Thursday, February 4, 2010

Jobs Market Recovery Now Underway?

Tavia Grant of the Globe and Mail asks When will employers start hiring?:

It's a key question for the economy this year as the recovery enfolds: When will employers start hiring again?

Though job losses have eased, so far there are few sign employers are confident enough to wade into the hiring pool again.

Insights into the jobs market will come Friday, when Statistics Canada releases its labour force survey for January. Economists polled by Bloomberg News expect employers added a modest 15,000 positions last month. It's a far cry from the same month last year, when employment in Canada plunged by 130,000 – the most on record.

The jobless rate is seen at 8.5 per cent from a revised 8.4 per cent in December.

“The recovery in the labour market itself has not been smooth, as it has seesawed between job growth and job losses on a fairly regular basis,” said Millan Mulraine, economics strategist at Toronto-Dominion Bank, who expects the labour market will stabilize in the coming months.

Canada's labour market slumped at the end of last year, with revised data showing the country lost 28,300 jobs in the month, rather than the 2,600 Statscan originally reported. The jobless rate currently stands at 8.4 per cent, a notch lower than the 8.5 per cent the agency first reported.

Statscan adjusts its labour numbers every January to account for seasonal hiccups in the data. This year's revisions were more extensive, going back several decades, because the agency adopted a new model to make its seasonal adjustments.

Despite the revisions, the overall picture remains the same, said Geoff Bowlby, Statscan's director of labour statistics.

“The big picture hasn't changed – the big story of employment falling dramatically from its peak of October of 2008 to some time just before the summer, and then being more stable after that. That trend hasn't changed,” he said in an interview.

Statscan's labour force survey is based on responses from 57,000 households, making it one of the most extensive in the world, he said. It's about the same sample size as that of the United States, though Canada's population is about a tenth of its neighbour's.

Canada's jobs survey is well regarded in terms of both accuracy and comprehensiveness, said Doug Hyatt, economics professor at Rotman School of Managment.

He outlines several reasons why the jobless rate is likely to remain stubbornly high this year.

“One of the challenges as you're coming out of a recession is that the unemployment rate stays high, or gets higher even if we're creating jobs, because all of those people who gave up looking for work start to come back again,” he said. As well, “typically, employers say, ‘I could hire right now -- but I'm just not confident enough about my order book. So I'm going to work my existing staff overtime.'”

The recession has killed about 323,000 jobs so far.

Recent surveys on hiring suggest companies are still cautious. Nearly three-quarters, or 71 per cent, of smaller businesses don't see a change in their full-time employment levels in the coming months. Fourteen per cent plan to increase their head count while 15 per cent intend to decrease staffing, according to the Canadian Federation of Independent Business survey released this week.

A separate Towers Watson survey conducted last month showed four in 10 employers are still planning job cuts, while 87 per cent plan to hire – meaning some plan to both hire and fire this year.

Statscan will release its survey at 7 a.m. (ET) on Friday. The U.S. Bureau of Labour Statistics also releases its non-farm payrolls numbers Friday, at 8:30 a.m. (ET). Economists expect 15,000 positions were added last month, with the jobless rate staying near a three-decade high of 10 per cent. The agency will also make its annual revision to its payroll data.

There is no doubt that employers are hesitant to hire, especially coming out of a severe financial recession. But let there be no doubt that North American (and even UK) labor markets will experience significant job growth in Q1 & Q2 2010.

While everyone was scared to death following the stock market selloff on Thursday (hope you were buying that dip), hardly anyone paid attention to Cisco reporting dramatic sales growth and plans to hire in coming year.

And it isn't just Cisco that plans to hire more workers. Business investment is picking up and hiring is happening across all sectors so don't be surprised to see some upside surprises on Friday morning. Stéfane Marion, Chief Economist and Strategist at the National Bank of Canada asks, U.S.: Upside surprise for payroll numbers?:

As we look ahead to this Friday’s all-important payroll jobs report, the latest data are encouraging. The employment component of the just-released ISM report on manufacturing rose to its highest level in four years in January. Also, we note that the Conference Board’s Help-Wanted Online data series surged by 382,000 in January.

This was the largest increase since the inception of the measure in 2005 and brings the cumulative increase in online vacancies to 750,000 in the last three months.

As today’s Hot Chart shows (click on image above), online vacancies rose above the 4 million mark for the first time since November 2008. In light of these developments, we remain comfortable with our estimate of 100,000 net new payroll jobs in January.

Consensus is expecting US payrolls to rise by 15,000 in January. I wouldn't be surprised if the actual print comes in at ten times that amount. Of course, this isn't a V-shaped recovery, but it is encouraging nonetheless, and I expect a strong reaction from the bond, stock, commodity and currency markets.

So while everyone was worried about Thursday's market selloff, I expect Friday will be a different day. The bears were growling on Thursday but the bulls will come charging back on Friday. Going forward, markets will become a lot more interesting - and a lot more dangerous.

***UPDATE (Friday morning)***

Stats Canada:

Latest release from the Labour Force Survey

Highlights:

Employment increased by 43,000 in January, all in part time, pushing the unemployment rate down 0.1 percentage points to 8.3%. January marks the fourth employment gain in six months.

And the BLS latest release:

Employment Situation Summary

So unemployment fell to 9.7%, but payrolls were unchanged, falling by 20,000 in January. We'll see how markets react to the news but employment is getting better.

Some bright spots:

In January, temporary help services added 52,000 jobs. Since reaching a low point in September 2009, temporary help services employment has risen by 247,000.

Retail trade employment rose by 42,000 in January, after showing little change in the prior 2 months. Job gains occurred in January among food stores (14,000), clothing stores (13,000), and general merchandise retailers (10,000).

Health care employment continued to trend up in January. Ambulatory health care services added 15,000 jobs over the month.

In January, the federal government added 33,000 jobs, including 9,000 temporary positions for Census 2010. Employment in state and local governments, excluding education, continued to trend down.

My call for job growth in Q1 & Q2 still stands. There were so many revisions to this employment report that I don't know how they will revise it going forward. But you can't have all the leading indicators soaring for months and employment, which always lags, be in the doldrums forever. From the Council on Foreign Relations:

The unemployment figure of 9.7% released this morning shows that the labor market continues to lag behind the rest of the economy. A new chart book on the economic cycle from CFR's Center for Geoeconomic Studies (www.cfr.org/cgs/) demonstrates that the increase in unemployment since the start of this recession is worse than any
unemployment spike in the post-war period. It also shows that:
- A recovery is under way, but because of the depth of the recession many metrics remain worse than in other post-war cycles.
- The "Cash for Clunkers" program helped clear auto dealers' inventory. However, in a sign of what could happen as other forms of stimulus run out, sales fell quickly when the program expired.
- The fast policy response and sharp economic downturn led to an expansion in the federal budget deficit far sharper than anything experienced previously, either pre-war or post-war. The deficit has stabilized, but at a very high level.
- The collapse in real estate values has been even more severe than in the Great Depression, and shows only modest signs of recovery.
Meanwhile, to combat rising unemployment, President Obama has set a target of doubling exports over five years. CFR's Geo-Graphics (blogs.cfr.org/geographics/) blog argues that this goal is over-ambitious: blogs.cfr.org/geographics/2010/02/03/exports/

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