What's going on with wages?

The usual caveats about the volatility in Canada's monthly labour force survey apply, but....the November data, released by StatsCan this morning, are remarkably strong, except in one key respect, which we'll get back to.

Employment across the country reportedly grew by 94,000 in the month, the best figure for any month in more than six years.  This pushed the unemployment rate down to 5.6 percent, the lowest figure recorded since StatsCan started publishing this series in 1976. Details of the jobs added in the month look equally positive. Just about all of the gains were in full-time employment, and almost 79,000 of the new jobs were in the private sector.  Over the past twelve months employment in the economy has risen by 219,000 or 1.2 percent, with all of the gain represented by full-time positions.

If you want a reason to be skeptical about the data -- and with this series, you should -- consider the fact that StatsCan is reporting that employment rose by 24,000 in the Province of Alberta in November, dropping that Province's unemployment rate by a full percentage point.  It's hard to square those numbers with the howls of anguish coming out of Alberta on a daily basis, as oil prices collapse and increased numbers of wells are abandoned.  StatsCan's data may be right on the money, but there seems at least the possibility that something -- most likely the seasonal adjustment factors -- is creating a misleading picture.

If the Bank of Canada's policy decisions are data-dependent, as Governor Poloz regularly reminds us, then these figures must surely prompt markets to price in a rate hike early in 2019, right?  Not necessarily.  The one key weakness in today's numbers is the performance of wages.  Year-on-year wage growth was rising smartly in the first half of this year, reaching a worrisome 3.9 percent in May.  Since then it has been slipping steadily lower, and in November stood at just 1.5 percent, materially below the rate of CPI inflation.

The sluggishness of wage growth in the face of a strong economy and tight labour market is not just a Canadian phenomenon, and no fully satisfactory explanation has been found.  Recent pronouncements by Governor Poloz indicate that the Bank of Canada is not quite as convinced as it once was that the economy is operating at full capacity, and the trend in wage growth over the past half-year seems to support that.  If the economy can keep adding jobs without triggering fears of a wage-price spiral, there will be less need for the Bank to keep moving rates higher.  No rate hike is likely in January, and unless there are some nasty surprises in the December jobs report, a move in February is probably off the table too.