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In Canada's puzzling economic recovery, the private sector remains one frustrating nut to crack.

Friday's Labour Force Survey from Statistics Canada was a massive disappointment, even more so in the details than in the headline of a 11,000-job decline in August employment. That sort of dip is well within Statscan's standard error for the survey (28,500), and therefore pretty inconsequential, statistically speaking.

But private-sector employment plunged a shocking 111,800 in the month, the worst number in history. About the only thing saving the total employment number from disaster in the month was a massive 86,900-job spike in self-employment – but in terms of job quality, that's clearly not an attractive tradeoff.

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Yet Statscan also reported that Canada's labour productivity soared 1.8 per cent in the second quarter, its strongest quarter in 16 years. What that means, essentially, is that companies have been ramping up their output aggressively, but have done so with fewer hours worked. Economic data suggest output growth has remained strong in the third quarter – yet the August numbers suggest that employers not only aren't hiring, they're cutting staff.

On the other hand (how many hands is that, now?), wages are accelerating. Average hourly wages were up 2.5 per cent year over year in August, the fastest pace in six months. Wage pressures usually come with a tightening labour market, not a stagnant one.

Something doesn't add up.

One thing to consider is the possibility that the Labour Force Survey is a statistical anomaly. It does happen. No, not like the embarrassing outright error in calculating the number that Statscan made with the July data, but rather the statistical margin of error inherent in all surveys.

In the case of private-sector employment, the standard error reported by Statscan is 38,200. That means that when it says private-sector employment fell by 111,800 in August, it is really saying that there's a 68-per-cent chance that the actual decline was within 38,200 of that number (i.e. between 73,600 and 150,000). There's also a 32-per-cent chance that it's some other number outside that range.

Occasionally, surveys just miss; it's the nature of surveys. Given the huge drop in private-sector employment, and the big spike in self-employment, this might be one of those surveys. Or maybe July's survey, which showed a private-sector jump of 55,000 jobs, overstated reality.

Still, the longer-term trend has not been encouraging. Despite gross domestic product that grew by more than 3 per cent year over year in June, private-sector employment hasn't grown at all over the past 12 months.

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If business is growing (and the GDP and productivity figures tell us that it is), why aren't businesses hiring? Perhaps because they already did.

The private sector added more than 900,000 jobs from the end of the recession in mid-2009 to late 2013, as companies geared up for accelerating economic growth both at home and globally. But the growth was slow coming and still hasn't quite materialized the way many experts anticipated. Now, with economic growth looking as healthy as it has in a long time, businesses may be living off the labour capacity they added earlier in the recovery.

But eventually, something will have to give. Maybe output has expanded faster than can be justified by the underlying strength of demand and will have to slow down again – but that doesn't look like the case, given that businesses slowed their inventory accumulation dramatically in the second quarter. More likely, the rising productivity and wages are a precursor to a healthier employment market; as companies run out of room to increase output without expanding staff, they will have to start hiring, which has been the typical pattern historically.

Yet not much about this economic recovery has been typical, least of all businesses' willingness to spend money, either on labour or on machinery and equipment. Growth in demand and corporate profits has come, but the business investment that would propel further growth has remained elusive. Fears continue to grip the corporate pocketbook.

Inevitably, something will change this business mentality – an igniting of the "animal spirits," as Bank of Canada Governor Stephen Poloz recently called it, quoting a Depression-era John Maynard Keyes. But what will do it, and when, remains anyone's guess.

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