November jobs data: little comfort for policymakers

Employment data for the US and Canada for November, released in both capitals this morning, offer little reason to expect an early pivot in monetary policy, give that both the Federal Reserve and the Bank of Canada seem to be taking a Phillips-Curve-based approach to rate setting. 

In the US, the Bureau of Labor Statistics reported that non-farm payrolls rose by 263,000 in November, leaving the unemployment rate unchanged at 3.7 percent.  The number of jobs was above market expectations,  but after taking into account revisions to the two preceding months (downward for September; upward for October), it represented the slowest pace of job growth since April 2021. It is also well below the average gain of 392,000 per month seen so far in 2022.  Less positively, at least from an FOMC perspective, wages rose 0.6 percent in the month, bringing the year-on-year gain to 5.1 percent. This is still well below the rate of inflation, but does not give any evidence that the hoped-for Phillipsian trade-off is starting to occur.   

Taken at face value, today's data would seem to present a case for another aggressive rate hike by the Fed at its December 13-14. However, Fed Chair Jay Powell has hinted broadly at the possibility of a less aggressive move this month. Recall also that the last FOMC statement suggested that the committee would be cognizant of the lagged effect of past rate moves in setting future policy.  A 50 basis point move seems the likeliest outcome, but another 75 bp hike would not be a big surprise. 

In Canada, the headline number does not look quite as robust: employment rose just 10,000 in November, well below the outsized gain of 108,000 posted in October. However, some of the details suggest that the overall labour market remains healthy. The unemployment rate ticked down to 5.1 percent; full-time employment rose by 51,000 positions; and year-on-year hourly wages rose 5.6 percent. This is the sixth straight month of wage gains in excess of 5 percent, though this figure remains well below the annual pace of inflation. 

These figures suggest the Bank of Canada's rate decision next week will be a little less difficult than the Fed's. Although the job market is tight, employment gains in recent months have been relatively modest, aside from the anomalous strength in October. However, the historically low unemployment rate and the steady rise in wages both warrant caution, until it becomes clear that past rate hikes are having the desired effect. As in the US, a 50 bp rate hike seems likely this month.