Canadian Employment Rises 40K In December

– In December, employment rose 40K according to the Labour Force survey. This was miles above consensus expectations for a 5K increase. The job gains, coupled with a flat participation rate, contributed to lower the unemployment rate one tick to 7.1%. Private sector employment soared 59.4K with gains in the services sector (most industries up with the exception of professional services) and a rebound in the goods-producing sector (thanks to advances in both manufacturing and construction).

Full-time employment rose 41K after increasing substantially the month before. Unsurprisingly, hours worked rose 0.1% in December or 1.6% year on year. For 2012 as a whole, Canada created 312K jobs or 26K/month on average, all full-time. This constitutes the labour market's best performance since 2007.

The private sector created 242K jobs, its best tally since 2010. Canada is booming according to the Labour Force Survey. Even the more reliable 3-month average points to a healthy labour market with average gains of 34K/month, mostly in the private sector. Though the report is good, we remain cautious about results and their implications. Despite the gains, hours worked were roughly flat in Q4, a sharp deceleration from the 2% increase recorded in Q3.

Output might suffer as a result unless, of course, productivity picks up unexpectedly. The stagnancy in hours worked also suggests that a repeat of Q3’s strong gain in household disposable income is unlikely. This probably put a cap on consumption spending in the final quarter of 2012.

United States – In December, the U.S. economy saw nonfarm payrolls increase 155K following a revised gain of 161K in November. Goods-producing employment rose 59K while the private services sector added 109K jobs and governments cut 13K. The average work week for all employees edged up 0.1 hour to 34.5 hours and average hourly earnings on private nonfarm payrolls progressed 7 cents to $23.73.

The unemployment rate remained unchanged at 7.8% and the civilian labour force participation rate held at 63.6% from the previous month. Job creation was widespread with 63.2% of companies reporting adding to headcounts in December.

On the whole, this was a good report that showed companies were not spooked by the "fiscal cliff," preferring to focus on their business plans and to prepare for an upshift in economic activity. The fact that job creation is not strong enough to lower the unemployment rate in a material way should ease fears that the Fed will end its bond-purchase program prematurely.

Though the U.S. economy is poised to expand in Q1, growth will remain below trend in our opinion because of the dent in disposable income from increased taxation. Not only were the top tax rates on wages and salaries raised, but the Social Security taxation rate returned to 6.2% from 4.2% for all wage earners.

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