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This episode, Chief Economist Eric Lascelles reviews the latest jobs reports out of the U.S. and Canada. Eric discusses what’s behind the lower-than-expected job numbers, and the expectations for employment relative to the broader economic recovery. [10 minutes, 10 seconds] (Recorded May 7, 2021)


Hello and welcome to The Download. I'm your host, Dave Richardson, and we are joined for Employment Report Friday. The U.S., and most of the time Canada, give their monthly employment report on the first Friday of the month. And we're joined by Chief Economist at RBC Global Asset Management, the hardest working economist in Canada, Eric Lascelles. Eric, welcome.

Thanks so much.

The reports are out around 8:30 in the morning. We're taping this at around 10. So, this is a snap reaction to a couple of reports that were disappointing on the surface. There was an expectation the U.S. was going to add a million or so jobs. A lot of the expectations of economists were almost to the upside. That number came in at 266,000. You'll talk about the Canadian report as well. Of course, you were at 266,000 with your prediction. You were one of the few economists who got it bang on. But what do we make out of these numbers? The biggest surprise since 1988 in the U.S.! What do you take away?

Right. By the way, on the subject of numbers coming in at 8:30, I remember— and you probably remember as well— when the Canadian numbers used to come out at 7am, which was not a happy thing for us economists that required being there significantly in advance at 7am. I think it was inflation and employment. There were two days a month when you had to get really early beyond the norm. The argument, by the way, was that Newfoundland needed the number for its drive and radio shows. I have some sympathy towards the earlier time zone in Atlantic Canada, but it always seemed a little bit contrived to have this one number come up at a different time. Anyways, they all come out at 8:30. They've all come out now. As you noted, they've all been somewhat disappointing. I didn't even know that stat you just mentioned, the biggest miss in the U.S. in some long period of time. When you get 266,000 new jobs and you're expecting a million, well, that is a pretty enormous miss. However, let's recognize we're dealing with just large numbers in general these days. So, a million is not something that we've seen very much before. We got in that vicinity the month before. And we've seen a little bit of that last year as well. But in general, a decent job gain is one hundred thousand. A good, good job gain is two hundred thousand. A spectacular one is running into the twos, which this is. Of course, the twist then being expectations were higher, and here we are in a pandemic-type recovery. So I'm a little disappointed as well. I didn't actually expect precisely 266,000 jobs. Full disclosure. The unemployment rate did tick one percentage point higher and so on. But I would just say, don't obsess over a single number too much. It's still quite clear to me that we are seeing an economy that's in rapid recovery mode. The month of April for the U.S. is a little bit tricky in a different way than we'll get in Canada. But it's a little bit tricky, just in the sense you had these big honking checks go out in March in the U.S., these US$1400 checks, and a lot of that money got spent, and we can see a little bit of a hangover here. And so maybe a bit of the hangover is just less enthusiastic hiring than otherwise. It looks like maybe retail sales in April in the U.S. might be a little softer as well. So, do budget for that. But the main story is one in which the vaccines are surging forward and the US is getting rid of restrictions as opposed to introducing new ones. And our team just updated— this is an internal only thing—, but I do recall some of this out through the MacroMemo. We updated our real time indicator deck and most things are still pretty consistent with the U.S. economy that's blazing forward. We're very comfortable being above consensus in our U.S. growth forecast. I should say, I'm not sure I'm going to be able to hang on to that above-consensus forecast for long because the consensus is rising so quickly. It's kind of hot on my heels here. So we may not ultimately be above consensus for long, but we certainly are optimistic and this doesn't really change my interpretation too much. We certainly hear from businesses in some cases having trouble finding workers at this point in time, which maybe has its own set of ominous concerns, but nevertheless a sign of success for the labor market. Then for Canada, well, the Canadian numbers were down and so let the record show that was expected. Unlike the U.S., Canada locked down in late March and into April and when the April economic numbers come along, they're not going to look great. Canada officially lost 207,000 jobs in April. Of course, the unemployment rate then went up. It went up to 8.1%. So it's weak numbers all around. Some of the weakness was expected. The sources of the weakness were entirely logical, I would say. Ontario, for instance, getting the biggest hit. B.C. getting a big hit as well. Those were some of the provinces that did the most significant lockdowns in terms of where hours worked and employment shrink in, disproportionately, things like accommodation and food services, the very sectors that got shut down. So, I think this is temporary. I can't claim that all those jobs come surging back in May necessarily just because here we are now in May without a lot of easing of restrictions. But I do think over the next few months, we'll get those back and we'll go further. So again, I can't deny that the Canadian economy is suffering a real, if limited hit at this juncture. But nevertheless, it's likely to be a temporary one. And I still think 2021 is going to be a pretty good year for Canada as well.

Yes. And hard for Canada not to be doing well with the U.S. economy progressing in terms of growth at a very rapid rate. And you're seeing a surge in demand and pricing on the commodity front. So, Canada ought to be fine as we move forward.

For sure, in the end. We are very likely, in fact we have begun in some cases, to see restrictions eased, particularly over the second half of this month and certainly into June. As you say, U.S. fast growth absolutely bleeds across to Canada. U.S. fiscal stimulus bleeds across to Canada. Canadian fiscal stimulus is not trivial, by the way. A lot of programs are still outstanding. Then that most recent federal budget was a pretty darn generous one with over one hundred billion of new spending over the next three years and more than that over the next five years. So, there's still quite a bit of money sloshing around and we're still seeing optimism on the part of businesses in terms of the outlook and that kind of thing as well. So, I still feel fine about it as much as these job numbers aren't going to cheer anybody up, particularly.

Yes, and we've covered this before in our discussions. But I think it bears repeating that this is a snapshot in time and it's really a snapshot in the rearview mirror when we're talking about employment. And really what you're looking at in terms of your overall view, you're taking a step back and looking at the trends in employment much more broadly than one report, is that right?

That's exactly right. The danger and the tricky thing in interpreting this kind of information is, what’s signal and what's noise? What is actually adding to our knowledge and what may be confusing us a little bit? Particularly with job numbers, actually, and particularly for Canadian ones, which are notoriously volatile, you really can't extract all that much from a single month. I mean, the fact that it's negative probably is a real signal here, but nevertheless, you can't necessarily extract all that much with clarity. And so, you're best advised to look at these things on a trend basis or to look for other confirming or disagreeing pieces of information. So we're very holistic in doing that. It’s rare that one indicator makes me think, oh, my goodness, I've got it all horribly wrong and we need to change course here. I want to see a few things. Sometimes that means that you're a little late. That sometimes is the case. But most of the time— 90% of the time—, it's a bit of noise that has gotten into the data here and the underlying drivers prevail. At this point in time, it makes sense we see a bit of a pullback, but the underlying trend is one of pretty rapid recovery, we think, in 2021.

Yes. I think the same thing when you look at markets. We look there was a snap reaction as the number came out because the number was such a big surprise. You saw yields on the 10-year treasury in the U.S. just spiked down. You saw some of the areas of the market that are more growth oriented, that depend on very low interest rates, they spike up. But then, we already moved just a couple of hours and things have sort of settled down. So, there's a lot to digest, and again, it's more about the bigger picture and the longer-term trends than a snap reaction to a number on one morning.

Yes, absolutely. And you know, up is down and down is up sometimes in markets as well. Sometimes we get into these funny modes in which the market celebrates cautious economic data because it means that maybe we're not overheating, and the Fed or the central bank that's relevant doesn't have to tighten, and so on. It often gets blurry. In the end, I generally think it makes sense to celebrate pretty good growth. I’m a little disappointed in this, but nevertheless, I'm sure a silver lining is people are less fretful about inflation. When you look at some of the wage numbers being a bit softer and the unemployment rate being a bit higher. One concern people have is, this recovery is so fast, are we going to be end of business cycle six months from now? I don't think so. I mean, this is a quick one and all else equal, I would guess that this business cycle could be shorter than the ten-year average we've seen over recent decades, but shorter on the order of five years, not shorter on the order of one year. I think this may be the key message here.

If you want to read about Eric's reaction once he's had a time to churn through the numbers, he'll be up pretty much all weekend working on this to release his MacroMemo on Monday, where he'll be able to do a little bit more analytics than, as we say, the snap reaction that we're giving you here. Kind of like being on the morning radio in Newfoundland, this particular reporting here. I've been up for that before and it was hard for me. But you're up at 3 o'clock every morning, probably.

2 to 3!

So again, look for Eric's MacroMemo every Monday. This Monday in particular will be interesting with these reports and all kinds of stuff going on around the pandemic, the economic recovery and markets. Eric, as always, thank you for your time today.

Thanks everybody. Stay safe. Bye.


Recorded: May 7, 2021

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