Business·Analysis

U.S. beats Canada on job creation but it's still playing catchup amid Omicron

Friday's figures showed new hiring in the U.S. soared while in Canada job creation fell more than expected, but the reason for the difference may not be what you think. Economists who study our southern neighbours say even without lockdowns, U.S. employment is still playing catchup with Canada.

Lockdowns are not the crucial factor as the U.S. economy continues jobs recovery

Despite few COVID restrictions in most of the U.S., customers have been staying away from restaurants and many potential workers have been unwilling to join the labour force. (David Paul Morris/Bloomberg)

To Canadians critical of provincial Omicron lockdowns, it may seem obvious why Friday's jobs data showed a glaring contrast between job creation here and in the U.S. where there are fewer COVID restrictions.

The U.S. economy created 467,000 jobs in January, while Statistics Canada reported a worse than expected loss of 200,000, despite the fact that the U.S. has about 10 times more people.

But according to economists who study employment in both countries, the idea that provincial government schemes to slow the virus mean Canada is losing out on job creation is simply wrong.

Despite the fact that the States had few restrictions during the latest Omicron wave, the U.S. is still playing catchup with Canada on jobs.

Canada still ahead on jobs

"The U.S. labour market is basically catching up to where Canada is," said Bank of Montreal economist Sal Guatieri in a phone interview. "We've recovered all the lost jobs from the pandemic."

"Unfortunately we made a big dent in that net gain in January, but we're still up 33,000 from 2020 levels," he said. "In the U.S. they're still down almost three million jobs from pre-virus levels."

While U.S. employers continued to hire right through the January outbreak, the U.S. economy was still suffering. Despite the lack of mandated lockdowns, workers and business patrons have been staying away, Guatieri said, and businesses are so anxious to get and keep employees that they did not dare lay people off.

U.S. COVID-19 deaths are about three times Canada's per capita and BMO economist Sal Gautieri says that has made Americans reluctant to go back to work, contributing to labour shortages. (Callaghan O'Hare/Reuters)

"The problem is not lack of demand for their products," said Guatieri. "The problem is they can't find enough workers or enough staff to meet that demand."

Other data has shown that the U.S. economy is ahead of Canada overall but U.S. fatality rates per capita are about three times Canada's, said the BMO economist.

"We're just not seeing the uptake in labour force participation in the U.S. that we saw in Canada," he said. "And I think one of the reasons is that American workers ... were a little more reluctant because of the increased risk of catching COVID and dying from COVID."

More will to work

In that way, he says, Canadian lockdowns, mask mandates and high vaccination rates mean that Canadians have been more willing to go back to work. Also Canadians have much better access to daycare, a bigger problem in the U.S. when children were required to stay home from school, making caregivers reluctant to return to the workforce.

Of course, part of that Canadian worker confidence depends on the very lockdowns that lead to a temporary job loss of the kind we saw in Friday's data.

But according to TD economist Leslie Preston there is another significant reason for the contrast between jobs data north and south of the border: the two statistics are collected quite differently and mean different things.

Jobseekers line up outside a career centre in Louisville, Ky., last year. While Canadian employment has bounced back to prepandemic levels, U.S. workers remain in short supply forcing employers to retain staff and keep hiring. (Amira Karaoud/Reuters)

"The Canadian Labour Force Survey is a different type of survey to the Payroll Survey in the U.S.," she explained on the phone Friday. 

"The payrolls number in the U.S. are a really broad survey of employers that report on how many people are on their payroll," said Preston.

That contrasts with the Canadian way of collecting data, where Statistics Canada employees phone individual homes and ask a list of standardized questions including how many hours they have worked. In the equivalent U.S. survey, called the Household Survey, the unemployment rate did rise in January, said Preston.

WATCH | Which sectors have been hit hardest with Omicron-related job losses:

How many jobs did Omicron cost Canada?

10 months ago
Duration 2:02
While Canada lost 200,000 jobs in January because of Omicron, economists say the future should be looking brighter as soon as the pandemic relents, Alison Northcott reports.

March rate hike even more likely

However it was calculated and whatever the reason for the results, both Preston and Guatieri say such strong headline figures for U.S. jobs will almost certainly commit the U.S. central bank to raising interest rates.

"I think the die has been cast for a March rate hike by the Fed," said Preston. "If Omicron had a bigger impact on the numbers [U.S. Federal Reserve Chair Jerome Powell] still would have hiked rates."

Preston says the Federal Reserve had already signalled that it was going to "look through" the January jobs numbers but now that they have come in so high the case for rate hikes is even stronger.

Guatieri says the big job gains increase the possibility the U.S. will hike interest rates a half point, though the official Bank of Montreal forecast calls for just a single quarter point increase in March.

Despite the decline in Canadian jobs, both TD and BMO see a strong bounce-back in Canadian employment now that restrictions are being lifted, meaning that the low Canadian numbers do not really give the Bank of Canada an excuse to delay rate rises.

BMO now foresees a total increase in central bank interest rates of 1.25 per cent this year in both the U.S. and Canada. In 2023 it is forecasting Tiff Macklem at the Bank of Canada raising rates by half a percentage point while the U.S. Fed raises by a whole percent.

But Canadians should plan ahead. Guatieri says Canadian long-term borrowers won't be able to escape that faster U.S. pace of rate increases.

"The more the Fed raises rates, the greater the upward pressure on U.S. and to some extent Canadian longer-term interest rates."

Follow Don on Twitter @don_pittis

ABOUT THE AUTHOR

Don Pittis

Business columnist

Based in Toronto, Don Pittis is a business columnist and senior producer for CBC News. Previously, he was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London.

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