Major economists react to strong labour market stats
The Canadian economy added more than 90,000 jobs in April, prompting TD’s chief economist to exclaim “this is bananas!”
The figures from Statistics Canada were around four times higher than the consensus expectation and has sparked renewed skepticism about whether the Bank of Canada will go ahead with a widely tipped interest rate cut next month, despite its concerns about the impact of higher rates on renters and CMHC reporting on its impact on homebuyers.
There were employment gains for 41,000 core aged men and 27,000 core aged women (age 25-54) and male youth employment (age 15-24) gained by 39,000. There was little change for men aged 55+ but women in this cohort saw employment decline by 16,000.
The overall employment rate held steady at 61.4% having declined for six months and the unemployment rate was unchanged at 6.1%. However, a calculation of Canadian unemployment by U.S. metrics shows that a higher share of people were unemployed in Canada (5.1%) than in the U.S. (3.9%) in April. It also rose faster in Canada (1%) than the U.S. (0.5%) year-over-year.
Part time roles were the driver of the gains (50,000) and leading sectors overall were scientific and technical services, accommodation and food services, health care and social assistance, and natural resources. It fell in utilities.
Total hours worked gained 0.8% and average wages were up 4.7% (not seasonally adjusted) adding an extra $1.57 to $34.95.
Rate cut expectations?
A stronger labour market and wages still ticking higher could suggest upward pressures on inflation and potentially adding caution to the BoC’s rate decision at the start of June, but what do major bank economists make of the data?
Beyond the “bananas” exclamation of his colleague, TD senior economist James Orlando is erring towards growing market expectation that the rate cut may not happen until July given the largest jobs surge in 15 months and signals that GDP stats will remain strong for the second quarter.
“The central bank has been looking for evidence that inflation will continue moving towards the 2% target. With the labour market showing renewed strength, there is potential for consumer spending to rise in the coming months, forcing inflation higher. This will be a concern for the BoC, which has seen this narrative play out in the U.S. over 2024,” he said.
RBC’s assistant chief economist, Nathan Janzen, says the jobs stats are less impressive when considered in context of population growth. He also highlights the rise in unemployment compared to other advanced economies, and he believes the labour market has softened enough to ease inflation pressures.
“Our own base case assumption is that the BoC will be in a position to cut the overnight rate in June. But with labour market data for April surprising on the upside, that is also contingent on the next round of inflation numbers continuing to flag easing in price pressures,” he said.
Andrew Grantham at CIBC Capital Markets also cites jobs growth vs. population growth as evidence of a softening labour market, holding the door open for a rate cut next month depending on CPI stats.
“With the unemployment rate remaining higher than it was at the start of the year and wage pressures easing slightly, the data is still consistent with a gradual loosening of labour market conditions. We continue to forecast a first interest rate cut at the next meeting in June.”
Canada’s Consumer Price Index update is due May 21 and the BoC’s rates decision is due June 5.
