Today’s employment data confirms that businesses in the US and Canada are reluctant to add headcount. Both reports came in below expectations, making the case for the BoC and Fed to cut this month.
The Numbers.
Canada.
- Net Change: -65.5k (+5k expected)
- Full-time positions: -6k
- Part-time positions: – 60k
- Unemployment rate: 7.1% (7% expected)
- YoY hourly wages: 3.6% (3.4% expected)
The US.
- 22k jobs created (75k expected)
- 38k private jobs created (75k expected)
- The two-month numbers were revised lower by 21k, effectively bringing job creation to zero.
- Unemployment rate: 4.3% (4.3% expected)
- YoY earnings growth: 3.7% (3.8%)
Implications.
The slowdown in job creation will raise concerns at the BoC and Fed that growth is slowing at an unwelcome pace.
- The US market is pricing in a full cut in September and is flirting with the idea of a 50 bps move. To year-end, the expectation is shifting towards 75 bps of easing. In response, US yields are 10-11 bps lower this morning.
- Canadian markets are now pricing a ~80% probability that the BoC will cut this month and are 50/50 on another cut coming later this year. After today’s jobs report, Canadian rates are 8-10 bps lower. In our opinion, the market is underpricing the odds of two or more cuts to cushion the economy against the drag of US trade policy.
