The remarkably strong ADP employment numbers released on Thursday had set markets up, and not in a good way, for a strong non-farm payrolls report. As it turned out, the jobs data for June released by the BLS this morning were on the soft side of expectations, and significant downward revisions of the previous two months of data seem to suggest that the US employment market is starting to soften.
According to the BLS, the US economy added 209,000 jobs in June, the thirtieth consecutive month of rising employment. This was slightly below market expectations for a gain of more than 220,000. Moreover, the figures for the two previous months were revised lower by a total of 110,000 jobs. The rolling three-month average job gain has clearly slowed since the start of the year, though it remains above its pre-pandemic pace.
Importantly for policymakers, wage gains remain well-contained. Both the 0.4 percent month-om-month gain and the 4.4 percent year-on-ear gain in average hourly earnings in June were unchanged from the previous month's data. The absence of wage pressures may reduce the temptation for the Fed to start raising rates again at the FOMC meeting on July 25/26, but markets are not convinced that the tightening cycle is over. The steep falls on Wall Street that followed yesterday's ADP report have not been recouped in Friday morning trading.
Meanwhile in Canada, the jobs data look rather different, but no less interesting. Employment grew by a very strong 60,000 in June, and that headline number may actually understate the strength in the jobs market, as full-time employment rose by 110,000 in the month.
Given the growth in employment, it is somewhat surprising to note that the unemployment rate ticked up to 5.4 percent in June from the previous month's 5.2 percent. The explanation lies in the fact that the labour force grew by a remarkable 114,000 in the month. StatsCan does not elaborate on this, but it seems likely that the huge gain in the labour force is connected to Canada's current high levels of immigration, with upwards of a million newcomers arriving every twelve months. In prior months it had been remarkable how little impact the surge in numbers had on the employment situation, but if that is now starting to change, the jobs market could deteriorate quite rapidly in the coming months as higher immigration persists.
As in the United States, the trend in wage gains is a key consideration for policymakers. On this front, today's report was reassuring for the Bank of Canada. The growth in average hourly earnings slowed to 4.2 percent in June from 5.1 percent in May. the slowest gain seen since May 2022.
The Bank of Canada's rate decision next week is complicated. Wages are in check; employment is strong, but there are signs that the tightness in the labour market is easing, partly as a result of high immigration levels. And there is one wild card: the strike by dockworkers in British Columbia is nearing the end of its first week, with no signs of a breakthrough. Given the importance of the ports of Vancouver and Prince Rupert to the national economy, it will not be long before the effects on output and employment are felt more widely. A rate hike next week still seems more likely than not, but a renewal of the "conditional" pause is not out of the question.
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