November 5, 2005

Outlier or Employment Growth?

BC's Minister of Finance Carole Taylor was quick to boast about the results of the October Labour Force Survey released by Statistics Canada on November 4th. That's understandable since the provincial unemployment rate of 5.1% hasn't been that low in decades; however, it would be a mistake to compare the rate for one month with annual averages for previous years. The annual average BC unemployment rate was a mere 2.8% in 1956. No economist expects to see a rate that low again. In 1966 the average annual rate in BC was 5.1%. It would be very good news if the October 2005 seasonally adjusted rate could persist long enough to tie that record, but that is unlikely.

Taylor's news release said: "October's job growth centred on service industries, led by retail and wholesale trades." That is true, but not the full truth. In October employment in retail and wholesale trade increased by 20,300 which is 5,900 more than the total provincial increase in employment. Total employment in the goods producing sector (agriculture, forestry, fishing, mining, oil and gas, utilities, construction, and manufacturing) decreased by 2,000. The service sector, excluding trade, decreased by 4,000. The biggest drop was in educational services, minus 11,000, probably due to the teachers' job action. Taylor's news release should have said: "October's job growth is entirely due to an unusual jump in the trade sector that masks job loses elsewhere."

The most recent figures from Statistics Canada on retail trade spending are for August; the September figures won't be available until November 21st, yet we are to believe that BC's economy surged forward entirely because of job growth in wholesale and retail trade in October. Between March 2004 and February 2005, growth in retail trade spending, calculated as same month year over year, usually exceeded 7% and reached 8.6% in October 2004; however the growth rate slowed, falling to 4.5% in June 2005 before bouncing back to 8.3% in August. On the employment side for trade, the estimate of 362,400 for trade in October is significantly higher than any record previously achieved for that industrial sector, suggesting that there might be an error. On an annual basis the previous high was 329,500 in 2003; to get a monthly total anywhere near as high would require looking at seasonally unadjusted data for the Christmas rush. No one wants to cast doubts on the credibility of Statistics Canada, but a prudent person would say that the employment figures for the trade sector in October 2005 appear to be an "outlier", an abnormality.

Before Taylor gets too excited over job growth in the trade sector, she ought to look at the drop of 3,200 in employment in manufacturing in October, and reflect on why manufacturing employment, averaged over January through October, is down by 5.2% compared to 2004. Those who look at the data on BC's employment between May and September 2005 know that growth stalled with BC's employment growth rate slowing to half of the Canadian average - far from leading the country. It is only the abnormal figures for trade in October that deviate from that four month slowdown. We'll have to wait until the Labour Force Survey for November is released on December 2nd to see the next chapter in Statistics Canada's estimates, but, in the meantime, remember the old saying that if an answer to a calculation defies common sense, look for an error.