April 12, 2024


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Central banks likely ‘perspiring’ after strong jobs gains: expert

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Central banks likely ‘perspiring’ after strong jobs gains: expert

The Canadian economy blew past economists’ expectations with a strong monthly jobs gain that could put pressure on the Bank of Canada as it considers its next interest rate move, market watchers said on Friday.


The economy added 64,000 jobs in September, well above the 20,000 expected from economists tracked by Bloomberg, while the unemployment rate held firm at 5.5 per cent, according to Statistics Canada data released on Friday. Hourly wages climbed 5.3 per cent year-over-year, outpacing year-over-year inflation, which came in at four per cent in the most recent StatCan data.


South of the border, U.S. job gains also blew past expectations, adding 336,000 positions in September, the most since January and about double the median estimate in a Bloomberg survey.


The data reflects persistent strength in North American labour markets which could be a concern for central banks as they fight to slow inflation, Ryan Lewenza, senior vice president and portfolio manager at Turner Investments, Raymond James, told BNN Bloomberg on Friday. 


“Central bankers in Canada and the U.S. are probably perspiring a bit more right now as we speak, as far as what they’re going to do at their next meeting,” he said in a television interview. 


The Bank of Canada has set its benchmark interest rate at five per cent in its ongoing battle with inflation. It is scheduled to make its next rate decision on Oct. 25.


Friday’s labour market data is likely pushing markets to price in a higher probability of a hike, Lewenza said. 


“These are big beats, much bigger than anticipated, (and) the increase of the wage growth … all of this puts more pressure on the U.S. Federal Reserve and we’ll see what the Bank of Canada does going forward,” he said. 


Dawn Desjardins, chief economist at Deloitte Canada, said she “absolutely” agrees that the jobs report will complicate the Bank of Canada’s next rate decision. 


“If we’re seeing the economy really heed to these higher interest rates it might just see the bank decide to step back and keep these higher interest rates,” she said. 




Some economists and Bank of Canada officials have raised concerns about wage growth putting upward pressure on inflation.


But Desjardins made the case that the acceleration of wage growth means that Canadian households are better equipped to handle the rising cost of living.


“We have seen now real wage growth for five consecutive quarters and that is a mitigating factor for the household sector,” she said. 


Interest rates are biting mortgage holders while rents rise significantly and wage gains are offsetting some of that pressure, Desjardins explained. 


“What I think it argues for is just a pretty slow growth scenario, not necessarily that we see a deep dark recession on the landscape,” she said. “That could of course change if we start to see a turn in labour market but I think at this stage it keeps us in balance.”

Higher wages is a continued area of concern for central bankers who are trying to bring inflation expectations under control, according to Tiffany Wilding, managing director and North American economist at PIMCO.


“Wages are looking incredibly sticky,” she told BNN Bloomberg in a television interview. 


Wage growth in Canada along with the unexpected job gains will complicate matters for the Bank of Canada, Wilding said, even with signs that the economy is slowing.


“Although the Bank of Canada is close to being done, it’s certainly possible for them to get in one more rate hike in October,” she said. 




While the surprisingly hot jobs figures point to strength on the surface, Nathan Janzen, assistant chief economist at RBC, said the full picture is more mixed than headlines suggest. 


“There are still signs that hiring demand continues to soften under the surface relative to surging labour supply, with broader unemployment measures pointing to more softening than the official unemployment rate itself implies,” Janzen wrote in a Friday note. 


Still, he said it will be difficult for the Bank of Canada to ignore the data indicating growth in employment and wages. 


RBC is not assuming further interest rate hikes from the Bank of Canada this year, and its economists pointed to another monthly inflation report and the central bank’s Business Outlook Survey that are still due to be released before next rate decision.


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