Study Notes:
“How many people are working” is one of the most significant questions in economics and answered in the monthly labor force survey report. Employment represents the number of people actively working while the year-over-year and month-over-month percentage changes represent employment growth, also provided in the report. Additionally, the report breaks down employment by age bracket, gender, public or private sector, self-employed, industries, provinces, and metropolitan areas. Employment is calculated by Statistics Canada after field interviewers administer surveys with approximately 54,000 households. The data release is seasonally adjusted and generally published on the first Friday of each month at 8:30am Eastern time. Statistics Canada measures employment to support informed decision making made by individuals, businesses, non-profits and governments.
The report reveals the expansion of employment, or the speed at which employers are hiring staff, which acts as a key indicator of the economy’s productivity. An economy with high employment growth rates means businesses are adding to supply to meet consumer demand by hiring additional workers. The rate of employment growth is low or negative when there is a weakening economy, as businesses slow hiring or lay off employees due to weak demand from consumers. In response to weakening consumer demand during the 2008 financial crisis and the COVID-19 recession, companies laid off workers to cut expenses. Weakness in the Canadian labor market has an impact on the global economy because of its interconnected nature while over half of global economic activity is driven by Canada’s major trading partners.
The labor force survey report also contains other useful data points. Considering the unemployment rate is useful when analyzing the tightness or laxity of the labor market, or, in other words, is it generally troublesome or easy to find work? A good leading indicator of what may happen in the near future can be found in the hours worked data point because businesses may cut hours before laying people off. Average hourly wages help when analyzing trends on consumer earnings, corporate expenses, inflationary pressures and more. Based on the employment to population ratio, we can determine the percentage of the working-age population that is currently employed. It is wonderful news when the employment to population ratio is high as it means many people are working, encouraging firms to grow and boosting the economy. Together with the other indicators in the report, employment provides crucial information on the state of the Canadian labor market. A Canadian labor market characterized by increasing productivity and incomes is essential for the foundation of financial markets.
To forecast employment, we can look at leading economic indicators such as hours worked, building permits and consumer and business sentiment since they tend to deteriorate prior to employment falling, the unemployment rate rising and the economy slowing. The new orders and employment parts of the Purchasing Managers’ Index for manufacturing to find signals of how demand and employment are holding up in the capital intensive and interest rate sensitive manufacturing sector. Additionally, watching retail trade for trends in revenue and demand is useful for determining if layoffs might follow weakening data. Listening in on company earnings calls for hiring plans, layoffs, hiring freezes, etc., may provide useful information since these tend to occur prior to the overall economic situation deteriorating.
The release of employment information may move markets in a major way. On balance, if the employment number is worse than anticipated, the market will decline more, and if the number is better than anticipated, the market would rise more. The creation of more jobs leads to increased economic activity, higher productivity, and a more enthusiastic environment for financial assets and global economic development.
Canada’s employment growth plays a crucial role in determining the health of its economy and its financial markets.
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