Labour data weak on hours, wages despite influx of jobs

A pickup in hiring last month was encouraging, but other labour market measures, such as the number of hours Canadians actually worked, suggest it's too soon to celebrate.

Headline numbers out Friday show the economy added 74,100 jobs in September, reversing a prior month's decline and sending the jobless rate down two notches to 6.8 per cent, the lowest since December, 2008.

But other labour market indicators, such as wages and hours worked, show still-soft conditions. Statistics Canada's measure of number of hours is up just 0.3 per cent in the past year, with particular weakness on the services side of the economy, where a majority of people work.

Last month's job growth was "welcome news," Bank of Canada Governor Stephen Poloz told reporters over the weekend. However, other signs – such as slow growth in hours worked – suggest there is still slack that is "going to take a substantial, cumulative series of good reports to begin to put a dent in."

Hours worked on the goods-producing side of the economy rose 1.7 per cent, month over month, while in the services sector – which accounts for about three-quarters of total hours worked – they fell 0.1 per cent.

A strengthening jobs market is usually characterized by rising labour force participation rates, firmer wage growth and gains in hours worked. Instead, participation rates stayed low, wage growth subsided and is barely keeping up with inflation and hours worked declined on the services side of the economy, said Robert Fairholm, partner and economist at the Centre for Spatial Economics.

"We're not seeing those typical patterns come through, so that raises questions about how strong the underlying numbers are," he said.

The drop in hours worked in services industries – despite last month's hiring bump – is "odd," he added, and may reflect that employers are trying to keep a lid on costs by "hiring more people but not giving them full-time work."

Hours worked along with wage trends offer a deeper reading into the health and momentum in the labour market and provide insights into how household balance sheets are faring. The recession saw a steep pullback in hours worked in both Canada and the United States. Since then, hours in Canada "have stabilized at a level somewhat below the prerecession value," the central bank noted in May.

Despite the solid gain in employment in September, "slack in the labour market remains," said HSBC Bank Canada chief economist David Watt, noting that compared with a year ago, employment growth is still below 1 per cent, "while hours worked and real wages are flat."

This "lack of labour input" is a headwind to stronger economic growth on a sustained basis, he said.

Among sectors, retail and wholesale trade along with education saw a drop in hours worked. Part of the reason for the drop in education may be the teachers' strike in British Columbia. "The B.C. strike is one possible contributor to the decline in education hours since the strike was still going on for part of the reference week," said Statscan analyst Andrew Fields.

Statscan's labour force survey is based on a sample size of 56,000 households. The standard error is 28,500, meaning there is a two-thirds likelihood last month's employment gains ranged between gains of 45,600 and 102,600.

A growing chorus of economists are questioning recent volatility in the series, prompting many to look at average trends, and to pay more attention to the separately-released survey of employment, payrolls and hours. The agency said in an e-mailed statement it "absolutely stands by the numbers" and emphasized that people should look at longer-term trends for a clearer picture of the labour market.