Employment is one of four key statistics the Bank of Canada must consider
Bank of Canada (BoC) Governor Stephen Poloz has been dropping hints of a rate hike, expressing a belief that ultralow interest rates have done their job. Recent numbers have been mildly supportive of that view — and Statistics Canada’s monthly report on employment may add to the optimism.
“In May, the economy generated a net 54,500 job gains, as full-time jobs rose by 77,000, offsetting declining part-time positions,” said David Berman, a columnist for the Globe and Mail. “The result was far better than the 11,000 job gains that economists had been expecting.”
That brought May’s national unemployment rate up slightly to 6.6% — still not far from its lowest level since 2008.
Berman noted that the economy seems unfazed by the most recent oil-price retreat. Canada’s GDP has been rising at its best pace since 2010, growing by 3.7% year-on-year in the first quarter.
Following an interview the BoC governor had with CNBC on Wednesday, market odds of a July 12 rate hike went up from 5% earlier in June to 68%. The foreign-exchange market was similarly upbeat, with the Canadian dollar reaching a four-month high of 77 cents to the greenback.
Berman also cited optimistic statements from Bank of Montreal economists. “The 50 bps in cuts from 2015 facilitated the adjustment to the oil shock, which is now over,” Benjamin Reitzes, the bank’s Canadian rates and macro strategist, said in a note. “It’s time to take that stimulus back.”
A hike from the BoC would follow moves by the US Federal Reserve. It has raised its key rate twice this year, and seems poised to raise it again later this year as US jobs figures support a hawkish case. Still, according to Berman, the BoC has to consider at least four things before pushing through.
First, the move will have to be reconciled with persistently low inflation. “The annual inflation rate actually fell in May, to 1.3% from 1.6% in April … well below the Bank of Canada’s 2% target,” Berman said.
Second, a continuation in crude’s descent would likely put a crimp in the central bank’s plan. “Oil has rebounded since [its plunge to $26 a barrel between 2014 and 2016], but the recovery is now sputtering,” he said, noting the current price of $46 a barrel — a $10 descent since February.
Third is the fact that home sales are declining to a point that may start to impact economic activity. “Sales have fallen 15% over the past three months,” Berman said. Economists at Capital Economics, describing Canada as “on the verge of a slowdown as the housing boom turns to bust,” forecast a deceleration in economic growth from an anticipated 2.4% in 2017 to just 1.2% in 2018.
And fourth is Canadian employment: recent figures have been supportive, but the upcoming report for June will provide added guidance.
“We’re still leaning toward an October move given the recent weakness in the inflation figures,” CIBC World Markets economist Nick Exarhos said in a note, though he added that the employment report might change their outlook.
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“In May, the economy generated a net 54,500 job gains, as full-time jobs rose by 77,000, offsetting declining part-time positions,” said David Berman, a columnist for the Globe and Mail. “The result was far better than the 11,000 job gains that economists had been expecting.”
That brought May’s national unemployment rate up slightly to 6.6% — still not far from its lowest level since 2008.
Berman noted that the economy seems unfazed by the most recent oil-price retreat. Canada’s GDP has been rising at its best pace since 2010, growing by 3.7% year-on-year in the first quarter.
Following an interview the BoC governor had with CNBC on Wednesday, market odds of a July 12 rate hike went up from 5% earlier in June to 68%. The foreign-exchange market was similarly upbeat, with the Canadian dollar reaching a four-month high of 77 cents to the greenback.
Berman also cited optimistic statements from Bank of Montreal economists. “The 50 bps in cuts from 2015 facilitated the adjustment to the oil shock, which is now over,” Benjamin Reitzes, the bank’s Canadian rates and macro strategist, said in a note. “It’s time to take that stimulus back.”
A hike from the BoC would follow moves by the US Federal Reserve. It has raised its key rate twice this year, and seems poised to raise it again later this year as US jobs figures support a hawkish case. Still, according to Berman, the BoC has to consider at least four things before pushing through.
First, the move will have to be reconciled with persistently low inflation. “The annual inflation rate actually fell in May, to 1.3% from 1.6% in April … well below the Bank of Canada’s 2% target,” Berman said.
Second, a continuation in crude’s descent would likely put a crimp in the central bank’s plan. “Oil has rebounded since [its plunge to $26 a barrel between 2014 and 2016], but the recovery is now sputtering,” he said, noting the current price of $46 a barrel — a $10 descent since February.
Third is the fact that home sales are declining to a point that may start to impact economic activity. “Sales have fallen 15% over the past three months,” Berman said. Economists at Capital Economics, describing Canada as “on the verge of a slowdown as the housing boom turns to bust,” forecast a deceleration in economic growth from an anticipated 2.4% in 2017 to just 1.2% in 2018.
And fourth is Canadian employment: recent figures have been supportive, but the upcoming report for June will provide added guidance.
“We’re still leaning toward an October move given the recent weakness in the inflation figures,” CIBC World Markets economist Nick Exarhos said in a note, though he added that the employment report might change their outlook.
For more of Wealth Professional's latest industry news, click here.
