Notes From the Desk: Employment Data – The Plot Thickens
Today’s employment data confirms that economic conditions between Canada and the US continue to diverge.
The numbers.
US
- 227k jobs created (220k expected).
- Unemployment rate: 4.2% (4.1% expected).
- YoY earnings growth: 4% (3.9% expected).
Canada
- 5k jobs created (25k expected).
- The headline beat estimates, but 45k of the jobs created are government-related.
- Unemployment rate rose to 6.8% (6.6% expected). The increase is due to the participation rate rising from 64.9% to 65.1%.
- YoY wage growth falls to 3.9% (4.7% expected).
The implications.
The US labour market appears balanced, with a low hiring/firing environment. Furthermore, wage growth continues to exceed inflation, giving consumers more purchasing power to support economic growth. As long as November CPI does not spike higher, the Federal Reserve remains on track to cut 25 bps this month. As a result, US yields are lower by 5-7 bps this morning.
The Bank of Canada will be disappointed with the lack of private-sector hiring, which is unlikely to accelerate until there is clarity on US tariff policy. The rising unemployment rate points to growing economic slack, which raises the risk of Canada slipping into a recession. The bond market has increased the odds of a 50 bps cut next week to over 75% and is pricing a terminal rate of 2.5 – 2.75%. Canadian yields are lower by 5-14 bps.
For what it is worth, we think the Bank will cut 50 bps next week.
