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.