The third quarter GDP reports an economy with stronger growth than expected. Out partners at National Bank Financial Economics offers a thorough analysis that reveals many aspects of our economy remain robust, including: domestic demand fired on all cylinders, consumer demands remains strong, household savings rates increase and inventories continue to be drawn down. Job growth has even outpaced economic growth to this point. These indicators paint a positive picture for 2020 with modest growth projected but recent November 2019 jobs numbers propose a ‘significant fly in the ointment’.
November 2019 Canadian Job Numbers Tumble
Just when it appeared we expected to enter 2020 on a modestly positive keel, the winds of change appear in the November jobs report. The chart below offers a longer term perspective on the recent increase in unemployment. Coupled with the Bank of Canada leaving overnight rates unchanged at 1.75%, the Bank of Canada focused on the resilience of the Canadian economy in their most recent statement.
Canada seems to be experiencing a “Santa Claus” rally in its most recent, very positive jobs report. Our partners at National Bank Financial offer a very merry review of the November jobs report. All expectations were meet or exceeded with job gains in the private sector (+79K), but also in government (+8K) and for self-employeds (+7K).
Does the solid November jobs report guarantee a January 2018 rate hike by the Bank of Canada?
Not necessarily. Our partners at NBF offer this outlook: “If recent history is any guide the oil price plunge will, with a lag, hit employment in Alberta, which so far this year has seen the fastest employment growth among large provinces (right chart). In other words, unless oil prices pick up significantly, one can expect a moderation in overall Canadian employment growth in 2019.”
Although the Canadian (and U.S.) job and employment numbers announced on Friday July 6th were positive, the trends in each country are contrasting. The Canadian job numbers have not done well in comparison to strong U.S. employment. These differences will create contrasts in our interest rate and economic policies. As our partners at National Bank Financial Economics (NBFE) team states, “Total employment registered its worst start of the year in the current expansion due to the 48K drop in private-sector jobs. Major cities were not immune to the slump. Vancouver is down 45K jobs this year and Toronto has seen a pullback of 24K.”
What to look for in this week’s Bank of Canada meeting?
In Canada, the highlight of the week will be the central bank’s report. “With its three core inflation measures close to two percent, it could be said that the Bank has a green light to proceed with further policy normalization. However, the deterioration of the international trade outlook since the central bank’s last meeting ought to give pause to the BoC.” What direction will interest rates take in Canada?
NBFE surmises that “with the U.S. threatening to instigate a trade war with China, and with NAFTA negotiations stalling, we don’t see conditions as supportive of further monetary policy normalization.”
For a detailed report on this week’s economic outlook here.
With the lowest unemployment rate announced on August 4, 2017 since 2008, the summer sunshine is warm in Canada. Canadian employment rose by 11,000 jobs in July according to the Labour Force Survey. That was a touch below consensus expectations. The unemployment rate dropped two from 6.5% to 6.3% (the lowest since October 2008). Self-employment was a majority force in the increase. This trend aligns with the increasing “Gig Economy” predictions that more folks will explore retirement and freelancing from a life-style, flexibility and longevity perspective.
Not only is the headline number impressive, the details of last week’s May jobs report are stunning. Private jobs recovered more than last month’s losses, registering its strongest gain in two years. Canadian employment increased 55,000 in May 2017 according to the Labour Force Survey, well above consensus which was looking for a rise of only 15,000. Among paid jobs, the private sector posted a massive 59,000 job gain while government showed a decent increase as well as a 9,000 job increase. Enjoy a thorough review of the improving economic data from our partners at National Bank Economics: Read more: https://www.nbc.ca/content/dam/bnc/en/rates-and-analysis/economic-analysis/weekly-economic-watch.pdf
What does this mean for interest rates?
While the Canadian economy is picking up, uncertainty about U.S. policies is weighing on investment plans of Canadian businesses. A rate hike is predicted in Canada and with even greater certainty expected in the later half of 2017 in the U.S. However, slack in the Canadian economy is still translating into “below-target inflation of 2%”, Senior Deputy Governor Wilkins said, and risks to the economic outlook remain. Slack in the economy remains and inflation is below target. The Bank of Canada expects the output gap to close in first half of 2018. Read More from Senior Deputy Governor Wilkins
On the restful moments of Canada’s official ‘Spring kickoff’, the Monday Monitor for the ‘May long-weekend’ receives more welcomed news! May 2017 delivers solid economic data for Inflation and Employment rates. Our Partners at National Bank Financial (NBF) Economics group report a 1.6% inflation rate for April despite some hot housing markets and improving oil prices. While we keep in mind that underlying inflation usually responds to the economic situation with a 3 to 5 quarter lag. For those reasons, we continue to expect higher inflation in the months ahead.