Notes from the Desk: Today’s Employment Data – Searching for a One-Handed Economist
Anyone hoping today’s job numbers would offer clarity on rate hikes would require Harry Truman’s imaginary one-handed economist. On the one hand, job creation was weaker than expected, but on the other hand, wage growth was stronger.
- Loss of 6.4k jobs vs expectations for 21.1k created.
- Unemployment came in as expected at 5.5% (note cycle low was 5%).
- YoY wage growth jumps from 3.9% to 5%.
- 187k jobs created vs 200k expected (last two months of jobs created revised lower by 49k).
- Unemployment rate of 3.5% vs expectations of 3.6%.
- YoY wage growth of 4.4% vs 4.2% expected.
Canadian employment data tends to be volatile, but there does appear to be some evidence that labour demand is cooling.
- Digging deeper into the numbers, the pool of eligible workers grew by 13k last month, so 6,400 jobs lost means that an additional 20,000 people are looking for work. The Bank of Canada (Boc) will see this as evidence that the job market is cooling.
- But as the two-handed economist will point out, strong wage growth will give the BoC cause for concern.
Given wage growth is a lagging indicator, we think today’s data slightly decreases the odds of a September hike, with the attention shifting to the CPI and GPD numbers due later this month. Overall, today’s news should provide the bond market with a reason to move yields lower.
South of the border, Chairman Powell will be pleased to see that the demand for labour continues to edge lower, but wage growth and a low unemployment rate remain thorny issues. We, therefore, see the two hands balancing each other, as today’s data should not change anyone’s opinion on whether the Fed should or should not hike in September.
But given the significant rise in yields over the past week, the neutral nature of today’s data should allow for a relief rally.