Notes From the Desk- North American Employment Data – Central Bank Conundrum
Today’s employment data does not make steering monetary policy any easier for the Federal Reserve (Fed) or Bank of Canada (BoC). The US economy continues to produce plenty of jobs without upward wage pressure, while Canada produced no jobs, but wages continue to rise.
By the Numbers:
US
- 303k jobs created (214k expected).
- As expected, the unemployment rate dropped a notch to 3.8%.
- YoY wage growth slowed from 4.3% to 4.1%, as anticipated.
Canada
- 2k jobs lost (vs. 25k increase expected). Losses were felt by both full-time (loss of 0.7k) and part-time (loss of 1.7k) workers.
- The unemployment rate jumps from 5.8% to 6.1% (vs.5.9% expected).
- YoY wage growth rises from 4.9% to 5% as expected.
Implications.
Federal Reserve.
The Fed should be happy to see job growth without upward wage pressure. That said, it is difficult to see how today’s data creates a sense of urgency to cut rates. US yields have risen 5 to 7 bps as traders shift their bets on the timing of the first rate cut out to September.
Bank of Canada
Canada’s job market appears to be cracking, as higher rates are restraining spending. Tepid hiring intentions coupled with solid population growth point to a further increase in unemployment in the months ahead.
The puzzle is that wage growth remains strong despite a growing pool of surplus workers. Traders are betting that wage growth is a lagging indicator, so the rising unemployment rate keeps the BoC on track to cut this summer. The domestic yield curve is wobbling around flat to slightly lower.
