My ears are still ringing from the peal of celebratory trumpets that blared in
response to the latest U.S. and Canadian employment reports released last
There’s nothing like a good headline number to kick-start the running of the
It’s just too bad about those devilish details. Not to be a party pooper,
because I’ll take a good headline number any day (especially these days!), but
let’s not count on escaping from economic purgatory and start worrying about
higher interest rates just yet.
The U.S. Non-Farm Payrolls
Hurricane Sandy dramatically lowered U.S. employment expectations for
November and the consensus opinion on Wall Street was that the U.S. economy
would only add about 85,000 new jobs in November.
By that measure, the 146,000 new U.S.
jobs that were actually gained would seem like a bonanza. But in the latest
jobs report, the U.S. Department of Labour basically said that the storm had
almost no impact on their data, so we have to factor out Wall Street’s
“Sandied-down” estimates and look at that 146,000 number in the context of a
normal month. To that end:
- The U.S. economy needs to generate about 150,000 new jobs just to keep up
with its population growth each month, and the experts I read think that it will
need to average about 200,000 new jobs per month for several years to reach the
U.S. Fed’s long-range unemployment target of 5.5%. The Fed’s pledge to keep its
Policy Rate at 0% is tied to the U.S. employment data and the, 146,000 new jobs
don’t threaten any existing timelines. (Canadian monetary policy is tightly
interlinked with U.S. monetary policy whether Bank of Canada Governor Carney
wants to admit it or not, so FYI, that’s why I watch the U.S. employment data so
- The U.S. employment data for the prior two months were also revised
downwards by 49,000. That means that the U.S. economy has averaged just 139,000
new jobs each month for the past six months. In other words, recent U.S.
employment growth hasn’t even been keeping up with U.S. population growth, let
alone contributing real net job gains.
- Many of the new U.S. jobs were in lower-paying sectors, with 53,000 new
hires in retail and 23,000 new hires in leisure/hospitality and administrative
roles. Meanwhile, manufacturing jobs, which form the bedrock for employment in
any healthy economy, once again fell by 22,000. The U.S. economy’s trend of
swapping higher-paying goods-producing jobs for lower-paying service jobs
remains an ongoing concern.
- Only about half of the eight million U.S. jobs that have been lost since the
start of the Great Recession have been recovered, despite rampant and
unsustainable levels of government stimulus. Fiscal cliff or not, the U.S.
government must continue to withdraw at least some of its stimulus programs and
will have no choice but to reduce the level of non-essential services it
provides. That means that the U.S. public sector will shrink, leaving the U.S.
private sector on the hook for a) making up the shortfall and b) adding new job
growth that is over and above what is lost in the public sector.
- While the U.S. unemployment rate dropped to 7.7% in November, that’s only
because a record number of unemployed Americans have, at least for now, given up
looking for work. These people aren’t sitting on their couches eating bon bons
and watching Oprah – most of them are back in school trying to upgrade their
skills. Today’s soaring levels of U.S. student debt are proof of this. But when
school is out, will there be jobs for these newly trained and now heavily
indebted Americans? That’s a critical and, as yet, unknown variable that should
temper any enthusiasm over short-term changes in the U.S. employment
The Canadian Employment
Just when our little-economy-that-could appeared to be pulling over into the
slow lane, along came our November employment data, showing that we created 59,000
new jobs last month. While this was a far cry from the 10,000 new jobs that
most analysts were expecting or the 12,000 new jobs we have averaged over the
last six months, any rampant enthusiasm should be tempered by the following
- Job creation is tightly linked to GDP growth over the longer term and our
GDP growth rate fell from a “bad-enough” 1.70% in the first half of this year to
a “hello-is-anybody-there?” rate of 0.60% in the third quarter. Bluntly put, our
November jobs report looks more like a blip than a trend because it doesn’t
correlate with our GDP data.
- We saw the biggest employment increases in lower-paying sectors of our
economy like retail (+25,000) and hospitality (+28,000), and we saw the biggest
decreases in construction jobs and manufacturing, both of which tend to be
higher paying. Just as in the U.S., we see a disturbing pattern of trading
higher-paying jobs for lower-paying ones.
- Despite the increase in jobs, we haven’t seen any real corresponding change
in overall hours worked, which have actually declined so far in the fourth
quarter. If established employees are working less at the same time as the new
hires are being brought online, there is no net benefit to our economy.
Hey … what happened to the trumpets?
Five-year Government of Canada bond yields were flat for the week, closing at
1.29% on Friday. Five-year fixed-rate mortgages are widely available at rates
below 3% and high-ratio borrowers (who are making down payments of less than
less than 20%) can now find rates as low as 2.84% if they know where to
Variable-rate mortgage discounts can still be found at rates as low as prime
minus 0.40% (2.60%). While fixed rates can be had for only a small premium, if
rates stay low for an extended period (as I feel they well might), the variable
version could still prove cheaper over time. Of course, there is a lot of
volatility in the market and the spread between fixed and variable rates is
thin, so borrowers who choose a variable-rate mortgage should keep a close eye
on mortgage rates or partner with a mortgage planner who will do this for
The bottom line: Despite their surprising headline numbers, the
latest U.S. and Canadian employment reports left a lot to be desired. As such,
I’ll hold my applause until the book looks as good as its cover.
David Larock is an independent mortgage planner and industry insider specializing in helping clients purchase, refinance or renew their mortgages. David's posts appear weekly on this blog (movesmartly.com) and on his own blog integratedmortgageplanners.com/blog). Email Dave