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The Canadian economy added 35,000 jobs in March, which is up from last month’s 21.8k gain and more than quadruples the estimates for a slowdown to 7.5k.
The data also marks the seventh consecutive positive reading. Labour force participation fell by one tenth to 65.6%, while the unemployment rate held steady once again at 5.0%, close to the all-time low. Relative to the abnormally large job gains that we’ve seen in the post-Covid era, this isn’t a particularly large employment increase, but it’s still a strong release relative to the 2000-2019 average of 19.1k. On a year-over-year basis, wage growth edged down to 5.2% from 5.4%, missing expectations for a small gain. The dip in wage growth is helpful in reducing services-driven inflation, but it is still well above the recent low of 4.5% attained in January.
The clashing signals from job and wage growth roughly net each other out.
The labour market is still tight, but further job gains aren’t necessarily generating further wage pressures–a key consideration for inflation. For the Bank of Canada, the data unlikely moves the needle and we continue to expect them to hold rates at their next meeting. Instead of prioritising the macroeconomic data, financial stability considerations are more likely than not to determine the next course of action once the Bank departs from its current stance of holding rates. Given the still tentative backdrop in financial markets, especially given the emergence of recession risk south of the border, we think the BoC will temper its hawkish bias at its next meeting on Wednesday. The risk of remaining hawkish is simply too great.
Job market stays tight, higher employment and lower wages roughly cancel each other out
Looking to the composition of gains, 7 of 16 industries added jobs in March, although StatCan noted that only three had large enough gains to be statistically distinguishable from noise.
Those three were transportation and warehousing (+40.6k), business support services (+30.5k), and the financial industry (+18.5k). At the opposite end of the spectrum, the largest losses were sustained in construction (-18.8k), health care (-12.8k), and other services (-11.1k). Gains and losses were spread across interest rate sensitive industries, goods, and services, and as such, there isn’t a strong signal to take away. Gains in full-time and part-time work were roughly even, so it isn’t a case of mostly high or low quality jobs dominating growth either.
The knee-jerk market reaction saw USDCAD fall, but sceptical traders quickly pushed back, reversing the immediate loonie strength.
The rationale is fairly straightforward: unexpectedly strong job growth normally means a stronger economy, higher inflation, and potentially a hawkish monetary policy response. The immediate algo-driven reaction was simply what would make sense in normal times. But given the unlikeliness of the Bank of Canada hiking with a possible crisis brewing, the move’s reversal is also perfectly logical. In interest rate markets, the yield on GGBs rose by a few basis points, although they are close to unchanged on the day. Futures for the TSX equity index haven’t moved much since the data release.
Author:
Jay Zhao-Murray, FX Market Analyst