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For the second month this year, the Canadian economy added an above-trend level of jobs. Net employment increased by 40.7k in February, above the 3-and-12-month trend of 29k.
Unlike January, where job growth was isolated to part-time positions, February saw overall employment increase exclusively in full-time positions (+70.6k), with part-time employment shedding two fifths of January’s increase (-29.9k). Employment was also spread across the services sector. Job growth in accommodation and food services grew by a statistically significant 26.2k, almost reversing January’s -30k decline, while statistically significant job growth was also recorded in other services (+10.8k).
Nevertheless, we don’t think February’s jobs data is universally strong enough for the Bank of Canada to categorically rule out a cut at April’s meeting, stating this week that it is still “too early to ease”, and continue to view Bank’s guidance as unnecessarily restrictive.
Once again, the details of the Canadian jobs data contained areas of weakness. Despite the strong employment gains, the unemployment rate ticked up by 0.1pp to 5.8%, reversing January’s decline, while the survey measure of wage growth fell from 5.3% to 5.0%, undershooting consensus expectations by 0.1pp. Furthermore, the employment rate, which isn’t subject to changes in the participation rate, fell a further 0.1pp to 61.5%. This marks the longest consecutive decline in the index since April 2009 at five months. While this can largely be explained by higher levels of student immigration, it still alludes to a labour market that has more hidden slack than headline unemployment measure suggests. On this point, the participation rate for young women has fallen 3.8pp YoY to 62.9% and 1.8pp YoY to 63.6% for young men, which StatsCan attributes to higher attendance in full-time education. We focused on something similar in response to January’s data, namely because if Canada’s economy was hot, with the labour market producing real wage gains at a time when core inflation was stubbornly high, one would expect an uptick in the youth participation rate and overall part-time employment. With this not visible, one has to question how hot the underlying inflation and labour market conditions are.
In addition to the above, strength in services employment also deserves an asterisk.
Wholesale and retail trade, the largest employer within the services sector and arguably the most exposed to casual labour and consumer demand conditions, shed 16.8k jobs. This more than halved the increases seen in January and extends the industry’s six-month downtrend in employment. But this shouldn’t come as a surprise considering Canada’s economy is in a per-capita recession, especially on a consumption basis.
Wholesale and retail trade employment continues to contract, suggesting the consumer remains on a weak footing
All told, today’s jobs report doesn’t change our view on the Canadian economy.
We continue to believe that cyclical conditions are weak and that the BoC is focusing too heavily on a housing problem as opposed to a real inflation issue. By delaying its decision to cut rates, the central bank puts the economy at risk of a more elongated period of stagnation, and even a recession. This risk should keep bullish sentiment around CAD fairly contained, leading to continued underperformance as has been the case against other procyclical G10 currencies during the risk-on rally following Powell’s Congressional testimony on Wednesday.
CAD struggles to keep pace with the G10 risk rally
Author:
Simon Harvey, Head of FX Analysis