An internal analysis by the Department of Finance concludes the volatility of monthly job numbers is “well above” the historical average, a finding that appears to contradict Statistics Canada’s assertions that growing volatility is a myth.
The finding by departmental officials is revealed in a briefing note to Finance Minister Jim Flaherty, which was obtained by the Globe and Mail under Access to Information legislation.
“The volatility of employment growth as measured by the [Labour Force Survey] has increased over the course of 2012 and 2013 and remains well above its 1977-to-date average,” the note concludes. The note also states that “no specific factor appears to explain the result.”
The briefing note obtained by the Globe is dated Aug. 8, 2013, and was sent to Mr. Flaherty by his deputy minister, Michael Horgan.
The monthly Statistics Canada jobs report is a key gauge for investors and policy makers, and unexpected swings in employment levels can trigger sudden market moves. The January jobs report set to be released on Friday will be closely watched for signs of a trend, following the agency’s report for December that showed a surprising drop of 46,000 jobs and sent the Canadian dollar sinking.
Mr. Flaherty will table his 2014 budget next Tuesday. The December jobs report has frequently been referenced by opposition parties, who are calling on the Conservative government to release a budget that is focused on creating employment.
However Mr. Flaherty has hinted for months that he will deliver a minimalist budget that will follow through on planned spending cuts in order to achieve a balanced budget by 2015-16, if not sooner.
Statistics Canada posted an online blog in November titled “The Labour Force Survey’s volatility – myth or reality,” which it said was a response to recent questions over whether the monthly fluctuations in employment data are “more dramatic and volatile” than usual. The answer from Statistics Canada was no, they’re not.
Statistics Canada’s manager of the Labour Force Survey, Christel Le Petit, said her team has reviewed the data and found there is no increased volatility. Ms. Le Petit suggested Finance Canada’s review may not have considered the fact that historical data has been revised, while the more recent data has not, making it appear more volatile.
“There’s no more volatility currently than there’s been in the past,” she said. “Each time we revise, in general the month-to-month changes diminish a little bit, so if you’re comparing historically, you’re comparing a bit of apples and oranges.”
Ms. Le Petit said the Labour Force Survey has not been affected by budget cuts at Statistics Canada. She also said a flat economy adds to the perception of volatility as employment swings from positive to negative.
“Finance does not believe there is any inconsistency with the Statistics Canada blog,” Finance Canada spokesperson Stephanie Rubec wrote in an e-mail. She noted that while Finance did find variations increased in 2012 and 2013, “the analysis also noted that such episodes of higher (or lower) volatility have been common over history and temporary.”
Francis Fong, a senior economist with TD Economics, said Statistics Canada is right in the sense that there have been periods of volatility in the past, but it should also acknowledge the current high volatility.
“That to me seems really weird,” he said, in reference to the Statistics Canada blog. “My concern is that they’re not acknowledging it … I don’t think saying it reflects poorly on Statscan. It’s not like we’re saying they’re not doing their job properly or that they’re not meeting their own standards or whatever. It’s really just, something’s going on with the job data.”
Camilla Sutton, Scotiabank’s chief currency specialist, said surprise monthly job numbers lead to “knee jerk” currency trading, especially when the data affects longer term trends.
“We have to remember to look at the trends, and it’s the trend that’s important, not one data set,” she said. “But central bankers globally have the market right now very focused on data.”
Economists have adopted a skeptical tone over the past year in responding to the monthly job reports. When the survey showed a massive gain of 95,000 jobs in May, BMO chief economist Doug Porter said he would place a “massive warning label” on the data given its volatility. The next month showed a loss of 400 jobs.