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Jobs Report Reduces Odds Of Another Bank Of Canada Rate Hike In December

Published 2018-11-02, 11:11 a/m
Updated 2023-07-09, 06:32 a/m

Wage growth must remain strong enough to compensate for the increasing interest rates, providing Canadians the ability to service their debt. For the Bank of Canada, eagerly looking to increase its 1.75% policy rate further, the disappointing 1.9% y/y increase in the Labour Force Survey average hourly earnings (AHE) measure is not supportive of a December hike. This being said, the volatile LFS AHE measure represents a tiny share (around 3%) of the wage-common, the preferred wage measure used at the BoC (2.3% y/y in 2018Q2). Thus, the BoC will have to wait for the release of more reliable wage data contained in SEPH or national accounts reports in order to see if the greater intensity of labour shortages fuels wage growth toward the 3% mark.

If Canadian companies have not opened the flood gates regarding wage compensation, they have been certainly hiring more full-time staff and reducing part-time positions: full-time employment rose by a solid 34,000 in October and by a moderate 114,000 since the beginning of the year. Meanwhile, the number of Canadians working part time fell 23,000 relative to the previous month and by 54,000 so far this year, also reflecting a plunge in the labour force cohort age 15-24 (-64K in the last four months). Of course, fewer young Canadians available to work contributed to lower the unemployment rate to a four-decade low of 5.8%. Meanwhile, the reasonable 61.5% employment rate is bang on the average observed during the current business cycle.

On the regional front, let us begin with Alberta where job creation stalled in recent months after showing encouraging signs earlier this year. The recent plunge in WCS oil prices, a reliable tracker of Alberta’s unemployment rate (7.3% in October, back above 7% for the first time since late 2017), suggests further deterioration in the province’s labour market in the months ahead. British Columbia’s unemployment rate remains ultra-low at 4.1% as total employment rebounded firmly since June (+53K) after a disappointing run in late 2017 and early 2018. We have a difficult time to explain how Quebec’s LFS employment can be down by 30,000 so far in 2018 since the province is home of the most intense labour shortages in the country. The payroll-based SEPH data appears more reliable, with total employment up 35,000 since the beginning of 2018 in Quebec. Finally, Ontario’s positive momentum in job creation eased lately, but not enough to prevent the province’s unemployment rate from staying near the lowest level seen in the current business cycle (5.6% in October).

Bottom Line: This morning’s soft LFS report reduces the odds of an imminent hike in early December in our view but does not derail the BoC’s ideal path toward a neutral rate in the medium-term. Indeed, the Canadian economy is still on track to expand at a pace close to 2.0% q/q saar in 2018 Q3 following the 0.1% m/m gain in real GDP registered during the month of August. Thus, economic growth is on track to be a tad above the BoC’s MPR estimate of 1.8% q/q saar, supportive of a 25bps hike in early January 2019.

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