This is a slowdown?

Media on both sides of the border are talking up the prospects for an early recession, and markets are starting to price in the possibility of rate cuts by the end of this year. However it seems that nobody has told the labour markets, because April employment data for both Canada and the United States show continuing strength. 

In Canada the economy added 41,000 jobs in April, with the unemployment rate unchanged at 5.0 percent for a fifth straight month. There is one notable change in the composition of the data that may or may not prove to be a turning point: all of the new jobs in the month represented part-time work. This is the first significant increase in part-time employment since October 2022 -- almost all of the impressive job gains recorded since then have been full-time positions. 

One element of the monthly jobs report that the Bank of Canada is undoubtedly keeping a close eye on is the behaviour of wages. Monthly wages rose 5.2 percent year-on-year in April, the third consecutive month that they have outpaced the growth in headline CPI.  There is still no sign of any sort of wage-price spiral, but the Bank will be monitoring to see whether the 12.6 percent raise won by public sector workers, albeit spread over a four-year contract,  starts to trigger larger wage demands elsewhere in the economy. 

In the United States, the BLS reported that the economy added 253,000 jobs in April, leaving the unemployment rate unchanged at 3.4 percent. The report came in well ahead of expectations, though there were some significant downward revisions to some of the job gains initially reported in previous months. In contrast to the situation in Canada, wage gains in the US remain below the rate of inflation, with average hourly earnings up 4.4 percent from a year ago. 

It is unlikely that today's reports will have any significant impact on the policies of the respective central banks in the near term. The Bank of Canada has formally declared a "conditional" pause in tightening while the Fed, despite raising rates again this week, has come close to suggesting its tightening cycle is over for now. However, until there are unmistakable signs that the employment market in both countries is losing momentum, speculation about an early start to rate cuts is entirely premature.