July’s employment data out of Canada saw the economy add 94,000 jobs, substantially undershooting expectations of an employment gain of 150,000.
While on the surface, the slip looks seismic, the nature of the job additions and the stage in which the Canadian labour market recovery is at means the underperformance of the net employment data isn’t as concerning as the headline suggests.
Firstly, Canada’s labour market is close to a full recovery when compared with the US. Today’s employment data see’s overall employment sit just 1.3% from February 2020 levels. This must be viewed in the context of a very hot labour market back in February too. Secondly, employment gains were largely concentrated in full-time work. This marks the first increase in full-time employment since March as employment gains were largely focused on part-time employment during the period of on-off provincial restrictions. Full-time employment is on the whole more constructive for the economic recovery, as it is less flexible to the underlying health backdrop and should provide the basis for a more resilient recovery. On top of that, the number of employed people who were working less than half their usual hours fell by 10% to 116,000, suggesting a tightening of underlying slack is ongoing in pre-existing employment. Total hours worked were up 1.3% and were 2.7% below their pre-pandemic level as a whole. All of these factors filtered into the hourly wage figure, which saw an increase from 0.1% MoM in June to 0.6% in July. This is the best barometer of labour market tightness, with the number of workers earning a higher wage in their new job sitting at 53.9% – up from the 49.5% average in 2019.
As the underlying data is more constructive than the headline employment figure suggests, today’s labour force survey results confirm the Bank of Canada’s optimistic view on the recovery in employment.
2019 levels of employment are definitely achievable in Canada under the current economic trajectory, which should confirm expectations of rate hikes in H2 2022 or earlier, discounting any further economic shocks.
USDCAD spikes after North American labour market data, but largely due to broad USD strength after a bumper NFP reading
Author: Simon Harvey, Senior FX Market Analyst
Following today’s CAD labour market data, Harvey spoke with Reuters regarding the loonie’s reaction. Read here.