Two weeks ago Stats Canada released a new jobs report. The data within this report is playing a part in determining the future of fixed and variable interest rates in Canada. The Bank of Canada (BoC) Governor, Stephen Poloz, has said repeatedly the BoC will be making monetary policy decisions based on incoming data.
The headlines from the latest jobs report are quite sexy … “32,000 New Jobs” and a “Unemployment rate below 6%”.
Here’s the good and bad of what I think the Bank of Canada will also be considering from the latest Statscan jobs report:
- Full time job growth, month over month, of 32,000.
- Unemployment remained unchanged at 5.8%.
- Full time employment grew by 2.3%
- Employee growth of 1.3%
- Self-employed job growth of 3.5%.
- Public sector job growth of 3.3% compared with Private sector growth of 0.3%.
- Manufacturing jobs down -0.5% February to March.
- Construction job growth of 1.3%.
The Bank of Canada might be thinking that public sector job growth is OK but perhaps not as significant as if the same job growth came from the Private sector.
Self employed job growth is also OK but the BoC might consider that will less significance as laid off people tend to become contractors in search for employment.
I think our manufacturing jobs data is a indicator of uncertainty surrounded with our NAFTA negotiations. It’s possible business are not investing in Canada right now because they have a “wait and see” mindset. These same businesses are also being lured into the United States for their appealing corporate tax structures. Manufacturing is also facing head-winds from a lofty loonie.
There is very little construction job growth at 1.3%. With the backdrop of Real Estate headwinds in Vancouver and Toronto, no doubt contributing in a large way to the construction job market, future challenges might be ahead. I think the Real Estate market is still adjusting to the recent Mortgage rule change and previous rate hikes by the Bank of Canada.
I think it’s also worthy to note the Canadian bond market, with a reputation of rising first and asking questions later, did not positively react to the most recent job report. However, Bond yields rose late last week from around 2.00% to now 2.12%. This was enough for some of my Mortgage lenders to raise their interest rates.
The US economy is growing with GDP above 2% and the US Federal reserve talking about near term inflationary pressure. It’s possible that US inflation migrates across the border increasing Canadian inflation.
Recent inflation numbers indicate we are at the comfort zone of the Bank of Canada’s inflation target of 2%. It’s important to note, the BoC has a inflationary band of 1-3%. Knowing this band exists, helps me relax when I see inflation data above 2% :-). Stephen Poloz has also said he is willing to look past near term inflation pressure and focus more on long-term trends.
The Bank of Canada is making their interest rate announcement this Wednesday, April 18th. Along with their rate update, they are releasing the latest Monetary Policy Report. How will the GDP data from Q3 and Q4 change the language forecast moving forward? What will be the updated job growth and wage growth numbers? What projections are being revised for the remainder of 2018? How will NAFTA uncertainty be addressed?
Look for answers to these questions and more insight next week.
What are your thoughts?
Talk soon,
Chad Moore
