Data points

A couple of data releases so far this week with implications for monetary policy on both sides of the 49th parallel....

In the US, the Bureau of Labor Statistics released the employment cost index (ECI) for the December quarter.  This index was once Fed Chairman Greenspan's favourite, at least until it stopped behaving the way he wanted it to. It is generally regarded as a better indicator of overall labour costs than the wage data in the non-farm payrolls reports. 

The BLS data show that overall labour costs rose 1.0 percent in the final three months of December. That's below market expectations, and considerably lower than the 1.3 percent gain posted in the September quarter.  The year-on-year rise in the ECI eased to 5.0 percent in December from 5.1 percent in September. These numbers are well below the headline rate of CPI inflation and show little evidence that the much-feared wage-price spiral is about to materialize. 

That being said, the latest quarter-on-quarter ECI print annualizes to just over 4 percent, slightly above the annualized increase in core CPI for the same three months, which stands at 3.2 percent. This is likely to make the FOMC cautious about declaring victory when it releases its rate decision on Wednesday. A 25 basis point rate hike is the likeliest outcome, and the Fed is likely to be less explicit than the Bank of Canada in signalling a pause in the tightening cycle. 

In Canada, today saw the release of GDP data for November, with the economy eking out a 0.1 percent gain for the month. Service-producing sectors posted a 0.2 percent gain, partly offset by a 0.1 percent decline in goods-producing sectors. Much of the gain in services occurred in the public sector, so the report appears to show that Bank of Canada policy tightening is now starting to weigh on private sector activity. Preliminary estimates suggest that real GDP growth was flat in the month of December.

The data appear to vindicate the Bank of Canada's decision this month to announce a "conditional" pause in its tightening cycle. The Bank expects GDP growth to stagnate for the first half of this year, which right now looks like a reasonable-to-slightly-optimistic forecast. Whether the soft landing turns into a technical recession remains to be seen.