U.S. and Canadian Labor Markets Lost Momentum Last Quarter

October 8, 2010

U.S. non-farm payroll jobs slumped 218K in the third quarter following a 570K advance in the second quarter.  Canada’s labor market, where employment had shot up 226.6K  in the second quarter, added only 19.9K positions in 3Q.  In September alone, both economies lost jobs, Canada for the second time in three months and the United States for a fourth consecutive month.  The U.S. unemployment rate was a tenth percentage point higher in September than in June at 9.6%, and Canadian joblessness stood at 8.0% in September versus 7.9% three months earlier.  Canadian jobs were 2.1% greater in September than a year earlier, while U.S. jobs managed to only increase 0.3% on the year.  The U.S. jobless rate was only 0.2 percentage points lower than in September 2009, half as much as the net decline of the Canadian jobless rate.  The broadest measure of U.S. labor underutilization — unemployment plus discouraged workers plus other marginally attached members of the labor market plus part-time rather than full-time workers so classified for economic reasons only —  increased by four-tenths of a percentage point to 17.1% from 16.7% in August and 16.5% in July, and it was even one-tenth above the 17.0% level of September 2009.

Very integrated financial and trade ties between the United States and Canada make it very difficult for the latter economy to disengage from what happens in the United States.  Having the Canadian as well as the U.S. labor market lose momentum at the same time suggests that the U.S. slowdown may be more entrenched that assumed.  Political forces prohibit a discretionary fiscal boost in the United States, putting the policy response on the Fed’s shoulders.  It is dubious, however, that more quantitative easing will alleviate a significant amount of the labor market’s weakness, some of which is structural. Will the Fed deliver as much quantitative easing as it did the first time?  That seems extremely unlikely.  U.S. unemployment of 8.6% in March 2009, when QE1 was unveiled, was a percentage point lower than now, and there were 1.869 million more jobs 18 months ago than now. 

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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