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In this episode, Chief Economist Eric Lascelles investigates how North American economies have fared as governments responded to COVID-19. In Canada, job loss in May was larger than market expectations – though the outlook for June is optimistic as the economy reopens. Eric observes a slightly different story in the United States, where lockdown restrictions have been avoided and wages have slightly increased amidst inflationary pressures. [12 minutes, 28 seconds] (Recorded June 4, 2021)


Hello and welcome to the Download. I'm your host, Dave Richardson, and we are joined by the hardest working economist in Canada, Eric Lascelles, Chief Economist at RBC Global Asset Management. Eric, welcome back.

Thanks for having me. Pleasure to be here.

And we've set this up now as a regular monthly podcast. We're going to do our best. No firm commitment because lots of responsibilities that both Eric and I have beyond this podcast. But we're going to try and set it up each month so that as the job numbers are released in the U.S. and Canada, we're able to get Eric's thoughts on it right away and really what the implications are for the global economy and investors. Eric, I don't know if you watch a lot of sports television or politics, they have all these shows with lots of hot takes. So this is going to be Eric's hot takes on the jobs report. Does that sound OK or are we making it sound a little too exciting?

That sounds fine. I must confess, my hot takes may already have occurred on BNN at 8:30 this morning. This is actually the refined version. That was the rust buster; this is the real scoop.

You're not supposed to tell anyone that. This is an exclusive. But that's OK. So, Eric, what have you already told everyone, those thousands of people watching on TV this morning? Let's start with the U.S. numbers, because that sort of leads into what's happening in Canada and in other parts of the world.

Well, I got it wrong for them, so I'm going to get it right this time. This is the place you need to turn to for the real scoop. So, there's two ways of interpreting these job numbers that came out. They ultimately did miss expectations. And so that is the way the market tends to interpret these things. The expectation was 675,000 new jobs and the reality was 559,000 new jobs. So that undershot expectations. I will say, though, in an absolute sense, this is still very much proof that for the month of May, the U.S. economy was in rapid recovery mode. Let the record show, more than half a million new jobs in a single month is not normal. Normal might have been one hundred thousand. So this is very much still outpacing demographics and zipping along and represents quite an important recovery for the economy. It was interesting to observe the U.S. economy really didn't get that locked down in the third wave. They've been recovering and growing for quite some time. And so this is further to that, I suppose. It's not a record. We’ve had months, one month at least last spring, when there were literally five million new jobs in a month. So, we're not going to break that record any time soon. But this is still a good report, notwithstanding that it was a little bit below expectations. Interestingly, the U.S. unemployment rate is now below 6%. It's 5.8%, which, once upon a time, might have been called quasi normal. And these days we're spoiled and we look for numbers to get to 4% and below. So there's still some work to occur. But it's not a bad looking number given all the challenges of the pandemic. And then the other thing that catches my eye in the U.S. job numbers is that there was some wage pressure. This is probably a no brainer to everyone listening or saying, of course, we've all seen reports of McDonald's offering bonuses and all of these retailers and fast food restaurants and things really scrambling to get workers. And so, of course, that translates into more wage growth. But it wasn't quite as obvious as you might have thought because we haven't really seen all that many reports from non-low-skilled employers of that kind of pressure. So we weren't sure if it was going to show up in the aggregate number, and it did. So we saw pretty quick wage growth last month. We knew that had happened. Another point, 5% increase in wages this month. That's pretty fast. That's just over a single month. And so we are seeing some wage pressures here. And I mentioned that, of course, in the context of the broader inflation discussion, which is one in which we are seeing a lot of inflation pressure right now. We think it'll become less hot— though not cool— over the next few years and then eventually abate. But this is another example of how there are some very real inflation pressures in the short run. I think in many cases, very much for the same reason as we're seeing pressures on the product pricing side, which is to say that the demand preferences have changed and people are surging back. And it's hard for employers just to scramble to find the necessary workers at the right moment. And it's a bit of a matching issue right now. And I don't doubt in the end there will be people working at all of these restaurants and so on. But some of them have gone off and done other things, and some of them need a bit of convincing to come back. And we see that in the wage data.

Yes, well, it's fantastic news if you've got two teenage daughters looking for summer jobs; it's a boon for them. They might be making more than your friendly podcast host through July and August. But I guess the big question in the U.S., before we move to Canada, is this whole idea that some of the government programs that give enhanced benefits for people who are out of work are keeping people out of the labor force. You're still seeing low levels of labour participation. I guess there's a bunch of states in the U.S. that are going to be dropping these programs through June. Do you think there's any merit to that argument that some of this is creating a dislocation in the job market and why we're seeing some of these disappointing numbers relative to what you would expect given the economic activity we're seeing?

Right. There's something to that. I don't think it's the main consideration when we talk about why companies are scrambling to get workers. The reality is, it’s just hard to mobilize and interview enough people. All these sorts of things are natural constraints. But at the margin, it's also true that in some cases people are doing better than they might have expected not working right now. And to be perfectly fair, it's not always purely a financial consideration. It might also be a fear of being infected. It might be that schools haven't fully reopened yet; so a child care situation. There a number of reasons why people maybe aren't fully back. But you're right in saying as some of those benefits go away, we should see a further level of enthusiasm to get back. And I do fully budget for further strong job growth in the U.S. And I'd still call this a strong job growth, as much as technically it didn't quite hit market expectations.

Yes, and we do that partially to highlight that there's a lot of things. I mean, this is a very unusual time. The numbers are huge, as you say, relative to what we would have categorized as really good months historically. 559,000 jobs, it's really double anything you would have seen in normal times. So everything’s strange. And it sets up our next regular Eric’s Hot Take podcast for July with the June numbers. That June report is going to be the most exciting report in many years. So it sets up for next month. But before we start thinking about next month in the U.S., let's take a look at our favorite country, Canada, and what's happening here, because it's a different picture, isn't it Eric?

It is. And unfortunately, I'm guessing your daughters work in this country, so they may not have had quite the same wage opportunities, but nevertheless. So, the Canadian story is quite different for May. And it's quite different because Canada locked down in April and May. That's something the U.S. didn't do. And so really, it's the U.S. that's the outlier, here. We see most other countries in a more Canadian-type of situation right now. And so the debate beforehand for Canada was, OK, we know there were some pretty serious job losses last month; 207,000 jobs lost. That made sense. We know the economy shrank during that month. The debate was not whether we see job growth— we weren't expecting that— but whether we'd be flat versus down again. And so, in the end, it was also a slightly disappointing report. The market had expected 25,000 job loss. It was a 68,000 job loss in the end. I’d introduce a disclaimer about the volatility of Canadian employment numbers here. I don't know actually that those numbers are that different in the grand scheme, given how volatile these tend to be and some of the standard errors that exist around them, but in the end, a job loss, a significant job loss, and actually in, this may be splitting hairs, but if you add the job loss in May to the job loss in April— I’m now doing this unwisely on the fly—, but I think it's 275,000 job loss; that actually is a little bit more of a decline in employment than we saw during the second wave. One of the things we've been debating on the side, is third wave worse than second wave? Third wave, not as bad? In general, we've said the third wave is no worse and maybe even a bit milder. And I would say most economic indicators support that. But technically, the Canadian job numbers are saying that this third wave was a little more painful than the second wave. Still nothing like the first wave, obviously. But nevertheless, that's one little takeaway. And then unsurprisingly, whereas the U.S. unemployment rate went down, Canada's unemployment rate went up a little bit from 8.1% to 8.2%. If you're looking for silver linings in all of this, one would be that most of the job losses were part time in nature. We're not talking about high quality, high paying jobs that disappeared; it tends to be lower paying and lower houred jobs. So actually, if you look at hours worked for Canada, hours worked were flat from April to May. You had people who lost their jobs, who didn't work many hours. And obviously somewhere in the mix, though you never see it on the surface, people who gain jobs are conceivably working a significant number of hours. You're not seeing as much wage pressure as far as I can glean on the Canadian side at this juncture. I guess that makes sense given what we have here. And maybe the other comment, from a student perspective, is the month of May does tend to be the start of university jobs season. And so not a great one, obviously, from that perspective. However, keep in mind, these are seasonally adjusted numbers. And so almost certainly there were quite a number of summer jobs created. It’s just that normally, there would have been even more. So that's just the wonkiness of seasonal adjustments. And then a last thought, let's recognize that April and May are probably as bad as it gets. We are seeing jurisdictions in Canada now reopen. I do have my own pet concerns about fourth waves and Indian variants and things; I won't belabor any of that, but I do suspect there could be another mini wave later. But nevertheless, June should be better, we should have a Canadian economy that's back to growing and probably some pretty handsome looking job numbers as well.

The good news for my daughters is that my wife is probably paying them the equivalent of one hundred dollars an hour to empty the dishwasher. And we still don't get great service. But with respect to Canada and I think this is really interesting— we’ll maybe tee this up for or a future non-jobs-report discussion—, but just the whole different way that the U.S. and Canada move through the virus. And it's funny that the success that we had in Canada, controlling the virus, in terms of the number of cases and the spread, actually ends up coming back to hurt us at the tail end of it, because we don't have as many people with that immunity from the cases. It's interesting that normally the Canadian and U.S. economy are somewhat in sync because we still do the bulk of our trade with them, but unusually out of sync right now just because of that reason.

I think that's exactly it. And, you know, this is something that's hurt our brain and we've debated feverishly over the last year. We know that the pandemic and the economy aren't the same thing, the economic damage isn't because of people being sick, it's because of governments locking down. So the debate has always been, do you assume the economy is worse in the countries with the most cases, or is it exactly the opposite, because the countries with the most cases haven’t locked down that much? And I'm sad to say it's kind of that; there has been that trade off, you would imagine, between lives lost and economy running. And the U.S. has tolerated more infection and death, and as a result, has an economy that's fared better. And simultaneously, you've mentioned this other twist, if you built up some level of natural immunity earlier, you're then in a better position to recover later, which is actually a slightly different concept, but also true and also something the U.S. is benefiting from. We’ll be thinking about all this and analyzing it in retrospect for decades to come, I'm sure. But all sorts of weird and wild twists.

Again Eric, knowing you, this is years of late nights and early mornings digging and researching and producing reports. So I'm quite excited for you on this front because this tees up some very exciting work for you.


And we'll be following it all along the way. Eric, thank you very much for your time today. Always good to get your thoughts when these important economic reports come out. We really appreciate it.


Recorded: June 4, 2021

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