US Federal Reserve Chair Jerome Powell has been signalling a rate cut for some time, and after today's FOMC meeting a cut duly came: a 25 basis point reduction, taking the target range for Fed funds to 2-2.25 percent. Considering the consistency of Powell's recent hints, it's perhaps a small surprise that the vote was not unanimous: two Governors would have preferred to keep rates unchanged.
It's unlikely that today's move will be sufficient to mollify Donald Trump, whose anti-Fed rhetoric has grown more ludicrous with every passing week. It's hard to imagine that the modest tightening the Fed has undertaken in the past year, which has left the rate close to zero in real terms, has produced a "deadweight" on the US economy, but that's how Trump affects to see it.
Given the tone of much of the FOMC statement, the decision to cut rates seems more than slightly odd. The Fed notes that job gains are solid, the unemployment rate is low, and consumer spending is growing more rapidly. The sole risk to growth that the statement identifies is the global economic outlook, and here one of the principal sources of uncertainty is, of course, the global tariff wars initiated by Trump. In effect the Fed is cutting rates in order to offset the risks posed by ill-advised US trade policies, a fact that must surely have led to some queasiness at the FOMC.
Looking ahead, the Fed's base case calls for sustained economic expansion, a strong labour market and inflation stable near the 2 percent target. However, it remains ready to act as appropriate to keep growth and inflation on track. Bizarre as it seems, the main source of the uncertainties that could derail the US economy and compel the Fed to cut again is just down the street, in the Oval Office of the White House. If Trump wants the Fed to keep cutting rates, he just has to continue making stupid policy decisions. Looks like a safe bet.
Wednesday 31 July 2019
Friday 26 July 2019
The end of the Trump boom?
According to Donald Trump and his economic Nightmare Team (Mnuchin! Kudlow!! Navarro!!!), this presidency has been marked by a surge in growth inspired by the administration's tax cuts and regulatory reform, with a recent dose of tariffs on top. The truth has always been that Trump inherited an economic expansion that began during the Obama administration and has continued almost without interruption for the better part of a decade. That expansion is now very long in the tooth by historical standards. Since it's always "the economy, stupid" come election time, prolonging the expansion for a few more quarters must be top of mind for the big thinkers at the White House.
Data released by the Commerce Department this morning show that US GDP grew at a 2.1 percent annual rate in the second quarter of the year, down from a 3.1 percent pace in Q1. That was above economists' expectations; even so, two of the past three quarters have seen growth well below the average rate posted during this expansion. Moreover, the Commerce Department made substantial revisions to prior data, which had the effect of boosting reported growth for 2017 while cutting it sharply for 2018. If there ever was a "Trump boom", it seems to have fizzled by the end of his first year in office, with growth rates falling back toward their longer term trend.
There is little objective reason for panic here. Consumer spending, always the principal driver of US growth, is rising at a solid pace, and with unemployment low and wages rising, that should continue. In other respects, however, the malign effects of Trumpian economics are starting to make themselves felt. Several categories of investment spending fell in the quarter, suggesting that the incentives supposedly provided by tax cuts and deregulation are fading -- if indeed they ever existed. In addition, exports fell in the quarter, a trend that can only continue and worsen as Trump continues to pick fights around the world.
The policy implications of this should soon become clear. The growth slowdown reported today should give the Fed all the cover it needs to cut interest rates next week, a move it has already strongly signalled. Fears over the possibility of a more severe deceleration may also lie behind the budget deal that has been reached between the White House and Congress. From a fiscal standpoint it's a stunningly irresponsible deal, but neither side wants to take the blame for a budget fight and possible government shutdown that could drive the economy over the edge. The future, as always, will have to take care of itself.
Data released by the Commerce Department this morning show that US GDP grew at a 2.1 percent annual rate in the second quarter of the year, down from a 3.1 percent pace in Q1. That was above economists' expectations; even so, two of the past three quarters have seen growth well below the average rate posted during this expansion. Moreover, the Commerce Department made substantial revisions to prior data, which had the effect of boosting reported growth for 2017 while cutting it sharply for 2018. If there ever was a "Trump boom", it seems to have fizzled by the end of his first year in office, with growth rates falling back toward their longer term trend.
There is little objective reason for panic here. Consumer spending, always the principal driver of US growth, is rising at a solid pace, and with unemployment low and wages rising, that should continue. In other respects, however, the malign effects of Trumpian economics are starting to make themselves felt. Several categories of investment spending fell in the quarter, suggesting that the incentives supposedly provided by tax cuts and deregulation are fading -- if indeed they ever existed. In addition, exports fell in the quarter, a trend that can only continue and worsen as Trump continues to pick fights around the world.
The policy implications of this should soon become clear. The growth slowdown reported today should give the Fed all the cover it needs to cut interest rates next week, a move it has already strongly signalled. Fears over the possibility of a more severe deceleration may also lie behind the budget deal that has been reached between the White House and Congress. From a fiscal standpoint it's a stunningly irresponsible deal, but neither side wants to take the blame for a budget fight and possible government shutdown that could drive the economy over the edge. The future, as always, will have to take care of itself.
Thursday 18 July 2019
Deal or no deal?
Boris Johnson, who looks set to become UK Prime Minister next week, is promising to "deliver Brexit" by October 31 come hell or high water. The spin on this from Johnson's camp is that he is trying to threaten a no-deal Brexit in an effort to get the EU to revisit the deal negotiated by Theresa May. The unanimous response of "no way!" from everyone within the EU, from Donald Tusk to the Taoiseach, suggests that all Johnson will achieve is a particularly nasty no-deal Brexit.
Today the UK's Office for Budget Responsibility spelled out the potential costs of such an outcome, and they're not pretty. As its name suggests, the OBR's primary focus is on fiscal policy, and its analysis examines the impact of a no-deal Brexit on the public finances. Based on its assumption that a no-deal Brexit would plunge the economy into recession, the OBR projects that public borrowing for 2019-2020 under a no-deal scenario would twice as large as it would be if there were an agreed deal. Moreover, massively higher borrowing would continue under a no-deal scenario throughout the OBR's customary five-year forecasting horizon.
In an effort to avoid accusations of bias, the OBR has used the latest IMF assessment of the impact of Brexit on UK economic activity. This shows the economy falling into recession in 2020 before gradually recovering beyond that. Needless to say, the use of outside expertise has not mollified the hard-line Brexiteers, who are again accusing pro-Remain forces of scaremongering -- "Project Fear".
The entirely ludicrous Jacob Ress-Mogg has gone so far as to suggest that a no-deal Brexit would in fact boost GDP by 80 billion pounds, a number that appears to have been pulled straight out of the air. It's perhaps worth remembering that much earlier in the Brexit debate, Rees-Mogg blurted out that it might take fifty years for the benefits of Brexit to be realized! It's.... unlikely that both of these statements are correct.
If Johnson is indeed the next PM, he faces an all-but-impossible task in getting anything other than a no-deal exit by October 31, not least because the House of Commons, seized of the urgency of this national disaster, will be taking most of the summer off. Both Johnson and Rees-Mogg have mused aloud about proroguing Parliament in order to prevent it from stopping a no-deal Brexit. As it has been from the outset, Brexit is an anti-democratic shambles.
I can't end this without a hat-tip to the excellent blogger Diamond Geezer, who on Wednesday summed up the whole ghastly farrago with this inspired Tweet:
Next week Britain's worst Prime Minister, who replaced Britain's worst Prime Minister, will be replaced by Britain's worst Prime Minister
to which one can only add, at the worst possible time.
Today the UK's Office for Budget Responsibility spelled out the potential costs of such an outcome, and they're not pretty. As its name suggests, the OBR's primary focus is on fiscal policy, and its analysis examines the impact of a no-deal Brexit on the public finances. Based on its assumption that a no-deal Brexit would plunge the economy into recession, the OBR projects that public borrowing for 2019-2020 under a no-deal scenario would twice as large as it would be if there were an agreed deal. Moreover, massively higher borrowing would continue under a no-deal scenario throughout the OBR's customary five-year forecasting horizon.
In an effort to avoid accusations of bias, the OBR has used the latest IMF assessment of the impact of Brexit on UK economic activity. This shows the economy falling into recession in 2020 before gradually recovering beyond that. Needless to say, the use of outside expertise has not mollified the hard-line Brexiteers, who are again accusing pro-Remain forces of scaremongering -- "Project Fear".
The entirely ludicrous Jacob Ress-Mogg has gone so far as to suggest that a no-deal Brexit would in fact boost GDP by 80 billion pounds, a number that appears to have been pulled straight out of the air. It's perhaps worth remembering that much earlier in the Brexit debate, Rees-Mogg blurted out that it might take fifty years for the benefits of Brexit to be realized! It's.... unlikely that both of these statements are correct.
If Johnson is indeed the next PM, he faces an all-but-impossible task in getting anything other than a no-deal exit by October 31, not least because the House of Commons, seized of the urgency of this national disaster, will be taking most of the summer off. Both Johnson and Rees-Mogg have mused aloud about proroguing Parliament in order to prevent it from stopping a no-deal Brexit. As it has been from the outset, Brexit is an anti-democratic shambles.
I can't end this without a hat-tip to the excellent blogger Diamond Geezer, who on Wednesday summed up the whole ghastly farrago with this inspired Tweet:
Next week Britain's worst Prime Minister, who replaced Britain's worst Prime Minister, will be replaced by Britain's worst Prime Minister
to which one can only add, at the worst possible time.
Wednesday 17 July 2019
Canada CPI: slightly better news
If you look at the headline measure and the Bank of Canada's favoured core measures, the Canadian CPI report for June, released by Statistics Canada this morning, was somewhat reassuring. Headline CPI slipped to 2.0 percent year-on-year from May's 2.4 percent reading, and the mean of the three core measures edged lower in the month to stand at almost exactly 2.0 percent.
A look behind the numbers is slightly less comforting. All eight major components of the CPI as tracked by StatsCan are moving higher, indicating that although price pressures are generally contained, they are widespread. The fall in the headline number in June was entirely due to a year-on-year decline in energy prices, notably for gasoline. Excluding the energy component, the increase in CPI for the month was 2.6 percent.
Headline CPI data have been distorted for the past year by unusually wide gyrations in gas prices. Higher gas prices in mid-2018 pushed headline inflation higher, but for the last several months the unwinding of that one-time impact has tended to pull the headline reading lower. Last year's surge should now be completely out of the index, so in the coming months headline CPI and CPI ex energy should tend to converge. With energy prices potentially moving higher as a result of tensions in the Persian Gulf, this implies that headline CPI will be above target for at least the next few months.
Even if the Bank of Canada is prepared to tolerate above-target CPI in the short term, as it almost certainly is, there are other concerns. Chief among these is the upward trend of wages, which reached a 3.8 percent year-on-year gain in June. The Bank of Canada is almost alone among major central banks in predicting a strengthening domestic economy over the next twelve months. If this forecast is correct, the tightness in the jobs market that has allowed wage gains to accelerate will continue and perhaps worsen.
The Bank's policy choices will be increasingly hemmed in by rising labour costs on the one hand and fears over the impact of a strengthening exchange rate on the other. Governor Stephen Poloz may be quietly grateful that the imminent Federal election gives him the perfect excuse to stand pat for the next few months.
A look behind the numbers is slightly less comforting. All eight major components of the CPI as tracked by StatsCan are moving higher, indicating that although price pressures are generally contained, they are widespread. The fall in the headline number in June was entirely due to a year-on-year decline in energy prices, notably for gasoline. Excluding the energy component, the increase in CPI for the month was 2.6 percent.
Headline CPI data have been distorted for the past year by unusually wide gyrations in gas prices. Higher gas prices in mid-2018 pushed headline inflation higher, but for the last several months the unwinding of that one-time impact has tended to pull the headline reading lower. Last year's surge should now be completely out of the index, so in the coming months headline CPI and CPI ex energy should tend to converge. With energy prices potentially moving higher as a result of tensions in the Persian Gulf, this implies that headline CPI will be above target for at least the next few months.
Even if the Bank of Canada is prepared to tolerate above-target CPI in the short term, as it almost certainly is, there are other concerns. Chief among these is the upward trend of wages, which reached a 3.8 percent year-on-year gain in June. The Bank of Canada is almost alone among major central banks in predicting a strengthening domestic economy over the next twelve months. If this forecast is correct, the tightness in the jobs market that has allowed wage gains to accelerate will continue and perhaps worsen.
The Bank's policy choices will be increasingly hemmed in by rising labour costs on the one hand and fears over the impact of a strengthening exchange rate on the other. Governor Stephen Poloz may be quietly grateful that the imminent Federal election gives him the perfect excuse to stand pat for the next few months.
Sunday 14 July 2019
Say what?
I've suggested here before that the sports section of the newspaper is usually where you'll find the worst writing. It's not that there are no good sportswriters -- the peerless Frank Deford is my personal favourite and current Toronto practitioners Bruce Arthur and Cathal Kelly are excellent-- but the subject itself seems to bring out the worst in some journalists.
The Toronto Star's Rosie diManno is a particularly interesting case. It seems as if she has the freedom to write about anything she wants. so as well as offering up her thoughts on her preferred sports (which include skating, baseball, hockey and tennis), she also gets to cover court proceedings (the more lurid the better) and even international affairs.
When she's writing about "serious" subjects. Rosie's prose is workmanlike and readable. When she switches to sports, however, some synapse in her brain fires up and her writing becomes quite crazed. Her article in today's paper about the Halep-Williams final at Wimbledon begins with this short paragraph, which surely ranks as one of the worst I've ever read:
Before it’s dipped in molten gold and preserved for history — ossified as memorable grandeur — sporting greatness inevitably flakes off. The shedding of invincibility gilding.
I suppose we should be grateful that the metaphor doesn't get badly mixed, though trust me, there's plenty of that in the paragraphs that follow. But, seriously, Rosie? It's as if you think that an intrinsically unserious subject like sports -- grown ups playing kids' games -- can't be written about in a serious way. That's insulting to your readers, don't you think?
Then again, Ms diManno can maybe take comfort that she didn't write this sentence, from the UK's Independent paper in September 2008. The perpetrator of this particular outrage was James Lawton. like Rosie a veteran hack whose strangled prose always seemed to escape the attentions of the editor. Ready? Here goes:
Also, and you could see it plainly enough when Faldo embraced him after he had won his fourth straight point in the cause that had looked to be lost the moment Garcia could not disguise the fact he had no answer to the power and the authority of young Anthony Kim in the opening singles match, that here was, for the foreseeable future, probably the most dynamic candidate to lead a European drive to regain some of their old competitive edge in South Wales in two years' time.
Parse that if you dare!
The Toronto Star's Rosie diManno is a particularly interesting case. It seems as if she has the freedom to write about anything she wants. so as well as offering up her thoughts on her preferred sports (which include skating, baseball, hockey and tennis), she also gets to cover court proceedings (the more lurid the better) and even international affairs.
When she's writing about "serious" subjects. Rosie's prose is workmanlike and readable. When she switches to sports, however, some synapse in her brain fires up and her writing becomes quite crazed. Her article in today's paper about the Halep-Williams final at Wimbledon begins with this short paragraph, which surely ranks as one of the worst I've ever read:
Before it’s dipped in molten gold and preserved for history — ossified as memorable grandeur — sporting greatness inevitably flakes off. The shedding of invincibility gilding.
I suppose we should be grateful that the metaphor doesn't get badly mixed, though trust me, there's plenty of that in the paragraphs that follow. But, seriously, Rosie? It's as if you think that an intrinsically unserious subject like sports -- grown ups playing kids' games -- can't be written about in a serious way. That's insulting to your readers, don't you think?
Then again, Ms diManno can maybe take comfort that she didn't write this sentence, from the UK's Independent paper in September 2008. The perpetrator of this particular outrage was James Lawton. like Rosie a veteran hack whose strangled prose always seemed to escape the attentions of the editor. Ready? Here goes:
Also, and you could see it plainly enough when Faldo embraced him after he had won his fourth straight point in the cause that had looked to be lost the moment Garcia could not disguise the fact he had no answer to the power and the authority of young Anthony Kim in the opening singles match, that here was, for the foreseeable future, probably the most dynamic candidate to lead a European drive to regain some of their old competitive edge in South Wales in two years' time.
Parse that if you dare!
Friday 12 July 2019
Fed to Trump: "you're right"
Ramping up his bully-boy campaign for lower interest rates last week, Donald Trump declared that "we don't have a Fed that knows what it's doing". This week the Fed came remarkably close to admitting that the famously economics-illiterate Trump might just be right.
Minutes of the June FOMC meeting, released this week to coincide with Fed Chair Powell's Humphrey-Hawkins testimony, show that the Committee members are moving ever closer to pulling the trigger on the rate cut that the White House is demanding. Well-known risks to the near-term outlook, such as the Trump-inspired trade wars, are just one of the top-of-mind issues. What is really striking is that FOMC members are coming to the realization that the economy just isn't working the way they thought it did. Employment is continuing to grow almost ten years into the expansion with no sign of rising wage pressures and little evidence of an inflationary breakout. This sentence from the minutes sums it all up:
Several participants pointed out that they had revised down their estimates of the longer-run normal rate of unemployment and, as a result, saw a smaller upward contribution to inflation pressures from tight resource utilization than they had earlier.
Sad as it is to admit it, that seems to be very much the point that Trump has been trying to make all along. It's a stunning admission for the FOMC to make: the notion of an inevitable trade-off between unemployment and inflation, captured by the well-known Phillips Curve, has been a bedrock of policy-making for decades. Now, for reasons not yet fully understood, it no longer seems to apply.
Against this backdrop, Chairman Powell's testimony to Congress came very close to confirming that the Fed will cut its funds target when the FOMC meets at the end of the month. Even at the June FOMC meeting, some members were ready to consider a rate cut, and Powell noted this week that in the interim, uncertainties about trade and the global economy had continued to weigh on the US outlook. While affirming that the economy remains solid, Powell left little doubt that the Fed would use the tools at its disposal to keep the expansion going.
What does all this mean for the Bank of Canada? The Bank released its Monetary Policy Report this week, and its upbeat tone is in marked contrast to the more cautious mood at the Fed. While fully acknowledging the trade-related risks, the Bank seems fully convinced that the slow patch endured by the economy at the start of this year is over. It is forecasting higher growth through next year, in contrast to the slowdown looming south of the border.
Deputy Governor Carolyn Wilkins -- who seems very much to be the next Governor-in-waiting -- tried to portray this not as a divergence between the two economies, but as a convergence, in the sense that both countries are reverting to their trend rates of growth -- Canada from below, the US from above. Be that as it may, the monetary policy implications look clear, assuming the Bank's analysis is right: there is little scope for the Bank to match any Fed rate cut in the near term. Considering that Canadian CPI is either at the 2 percent target (if you look at the core rates) or well above it (if you look at headline CPI); and considering further that wage growth is now well above inflation, at 3.8 percent year on year, the case for a rate cut looks weak regardless of what may happen at the Fed.
And yet.....the ability of the Bank of Canada to set policy independent of the Fed is always severely constrained, given the relative size of the two economies and the strong linkages between them. The exchange rate usually tells the tale and eventually forces the Bank's hand. Markets have taken note of the apparent policy divergence and have pushed the Canadian dollar to a nine-month high this week, with further gains on the horizon. This may be helpful in bringing inflation under control, but it will soon start to weigh on real activity, especially if markets come to believe that the policy divergence will be long-lasting. Departing Governor Stephen Poloz may not have to cut rates before he leaves at the end of the year, but his successor is likely to face some big calls early in her or his term in office.
Minutes of the June FOMC meeting, released this week to coincide with Fed Chair Powell's Humphrey-Hawkins testimony, show that the Committee members are moving ever closer to pulling the trigger on the rate cut that the White House is demanding. Well-known risks to the near-term outlook, such as the Trump-inspired trade wars, are just one of the top-of-mind issues. What is really striking is that FOMC members are coming to the realization that the economy just isn't working the way they thought it did. Employment is continuing to grow almost ten years into the expansion with no sign of rising wage pressures and little evidence of an inflationary breakout. This sentence from the minutes sums it all up:
Several participants pointed out that they had revised down their estimates of the longer-run normal rate of unemployment and, as a result, saw a smaller upward contribution to inflation pressures from tight resource utilization than they had earlier.
Sad as it is to admit it, that seems to be very much the point that Trump has been trying to make all along. It's a stunning admission for the FOMC to make: the notion of an inevitable trade-off between unemployment and inflation, captured by the well-known Phillips Curve, has been a bedrock of policy-making for decades. Now, for reasons not yet fully understood, it no longer seems to apply.
Against this backdrop, Chairman Powell's testimony to Congress came very close to confirming that the Fed will cut its funds target when the FOMC meets at the end of the month. Even at the June FOMC meeting, some members were ready to consider a rate cut, and Powell noted this week that in the interim, uncertainties about trade and the global economy had continued to weigh on the US outlook. While affirming that the economy remains solid, Powell left little doubt that the Fed would use the tools at its disposal to keep the expansion going.
What does all this mean for the Bank of Canada? The Bank released its Monetary Policy Report this week, and its upbeat tone is in marked contrast to the more cautious mood at the Fed. While fully acknowledging the trade-related risks, the Bank seems fully convinced that the slow patch endured by the economy at the start of this year is over. It is forecasting higher growth through next year, in contrast to the slowdown looming south of the border.
Deputy Governor Carolyn Wilkins -- who seems very much to be the next Governor-in-waiting -- tried to portray this not as a divergence between the two economies, but as a convergence, in the sense that both countries are reverting to their trend rates of growth -- Canada from below, the US from above. Be that as it may, the monetary policy implications look clear, assuming the Bank's analysis is right: there is little scope for the Bank to match any Fed rate cut in the near term. Considering that Canadian CPI is either at the 2 percent target (if you look at the core rates) or well above it (if you look at headline CPI); and considering further that wage growth is now well above inflation, at 3.8 percent year on year, the case for a rate cut looks weak regardless of what may happen at the Fed.
And yet.....the ability of the Bank of Canada to set policy independent of the Fed is always severely constrained, given the relative size of the two economies and the strong linkages between them. The exchange rate usually tells the tale and eventually forces the Bank's hand. Markets have taken note of the apparent policy divergence and have pushed the Canadian dollar to a nine-month high this week, with further gains on the horizon. This may be helpful in bringing inflation under control, but it will soon start to weigh on real activity, especially if markets come to believe that the policy divergence will be long-lasting. Departing Governor Stephen Poloz may not have to cut rates before he leaves at the end of the year, but his successor is likely to face some big calls early in her or his term in office.
Friday 5 July 2019
It's complicated
Listen carefully and you can hear the groans from the boardrooms of the US Federal Reserve and the Bank of Canada. Why can't the jobs market make our lives a bit easier? After several months of relatively weak growth, which has triggered expectations of rate cuts, the US employment picture brightened markedly in June. Meanwhile in Canada, after some remarkably strong numbers, which had triggered expectations that the Bank would not follow any Fed easing, job creation went into reverse in the latest month.
The US non-farm payrolls report showed that the economy added 224,000 jobs in June, the highest for any month since January. Remarkably, given the advanced age of the expansion, 335,000 people joined the labour force in the month. This caused the unemployment rate to tick up to 3.7 percent, still low by historical standards. It is evident that received notions of what constitutes effective full employment no longer apply.
Wages stood 3.1 percent higher year on year. This is welcome news after a long period of relative stagnation but must be something of a red flag to the Fed. A combination of near-record low unemployment and rising wages is hardly the normal background for a rate cut, though that is unlikely to stop Donald Trump and his bizarro economic adviser, Peter Navarro, from calling for one. Then again, the inversion of the Treasury curve indicates that markets are starting to price in a recession, but today's data will surely temper expectations for more than one rate cut by the end of this year.
In Canada, employment fell by a statistically insignificant 2200 jobs in June, putting an end to a remarkable series of gains. As in the US, the number of people looking for work increased in the month, with the result that the unemployment rate edged up to 5.5 percent. Wage gains continue to accelerate, reaching 3.8 percent year-on-year in June, which will certainly figure into the Bank's thinking.
As usual when there is a slight setback in employment, StatsCan opted to focus on the longer-term numbers, which are indeed remarkable: 421,000 new jobs in the past year, and 132,000, almost all full-time, in the second quarter alone. One encouraging figure within the regional breakdown is a 10,000 increase in employment in Alberta, which seems to be recovering from some very tough times in late 2018.
Considering that the standard error of StatsCan's estimate for employment is almost 30,000, it would be wise not to read too much into the June data. At the same time, recent gains in employment have appeared to be out of line with underlying economic activity data, so a pullback of some sort is no surprise. Depending on how things evolve in the next month or two, markets may have to rethink the idea that the Bank of Canada will not be able to match any rate moves by the Fed -- always assuming, after today's numbers, that such moves are forthcoming.
The US non-farm payrolls report showed that the economy added 224,000 jobs in June, the highest for any month since January. Remarkably, given the advanced age of the expansion, 335,000 people joined the labour force in the month. This caused the unemployment rate to tick up to 3.7 percent, still low by historical standards. It is evident that received notions of what constitutes effective full employment no longer apply.
Wages stood 3.1 percent higher year on year. This is welcome news after a long period of relative stagnation but must be something of a red flag to the Fed. A combination of near-record low unemployment and rising wages is hardly the normal background for a rate cut, though that is unlikely to stop Donald Trump and his bizarro economic adviser, Peter Navarro, from calling for one. Then again, the inversion of the Treasury curve indicates that markets are starting to price in a recession, but today's data will surely temper expectations for more than one rate cut by the end of this year.
In Canada, employment fell by a statistically insignificant 2200 jobs in June, putting an end to a remarkable series of gains. As in the US, the number of people looking for work increased in the month, with the result that the unemployment rate edged up to 5.5 percent. Wage gains continue to accelerate, reaching 3.8 percent year-on-year in June, which will certainly figure into the Bank's thinking.
As usual when there is a slight setback in employment, StatsCan opted to focus on the longer-term numbers, which are indeed remarkable: 421,000 new jobs in the past year, and 132,000, almost all full-time, in the second quarter alone. One encouraging figure within the regional breakdown is a 10,000 increase in employment in Alberta, which seems to be recovering from some very tough times in late 2018.
Considering that the standard error of StatsCan's estimate for employment is almost 30,000, it would be wise not to read too much into the June data. At the same time, recent gains in employment have appeared to be out of line with underlying economic activity data, so a pullback of some sort is no surprise. Depending on how things evolve in the next month or two, markets may have to rethink the idea that the Bank of Canada will not be able to match any rate moves by the Fed -- always assuming, after today's numbers, that such moves are forthcoming.
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