Slowly slowing

Employment data for July for the US and Canada, released this morning in DC and Ottawa, appear to confirm a modest easing in previously tight job markets in both countries.  This is certainly what the Fed and Bank of Canada have been hoping for, though it remains far from clear that its is their policies that have actually brought it about.

In the US, BLS data show that employment rose by 187,000 in July, with downward revisions in previous estimates for both May and June.  Today's print was slightly below market expectations of 200,000 new jobs and well below the average gain of 312,000 recorded over the past twelve months. It was also marginally below the average monthly employment gains recorded in pre-pandemic days, although the relevance of that comparison is steadily diminishing. 

The gain in employment left the unemployment rate virtually unchanged at 3.5 percent, within the narrow range that has been in place for the past year. Average hourly earnings rose 0.4 percent in the month, for a year-on-year gain of 4.4 percent. This suggests that wages are now more or less keeping up with inflation, but offers scant evidence that the historically tight jobs market has produced anything like a wage-price spiral -- real wages are well below their pre-inflation-spike level. 

In Canada employment fell by a statistically insignificant 6,400 jobs in the month, with almost all of the losses coming in part-time employment. The sempiternally useless analysts' consensus had expected a gain of 25,000 jobs. The lack of new jobs was sufficient to push the unemployment rate up for a third straight month; it now stands at 5.5 percent, still low by historical standards. 

Until recently it had been remarkable that employment seemed to be keeping up with the rapid growth in the labour force that has resulted from unprecedented immigration levels. This no longer appears to be true: from January to July, the population has grown 1.4 percent, while employment has only risen 0.7 percent. This will bear close watching in the months ahead, as there is no reason to think that immigration levels will slow any time soon. 

In contrast to the US, wage gains may yet be an issue in Canada, at least in the Bank of Canada's eyes. Average hourly wages, which had slipped to a 4.2 percent year-on-year increase in June, bounced back to a 6.0 percent increase in July. The past few months have seen a marked increase in strike activity across Canada -- Federal public servants in May, BC port workers in July, Toronto supermarket staff currently -- as unions seek to recoup purchasing power lost over the last two years. The Bank will be watching this closely, though none of the wage settlements that have been announced so far seem to be directly inflationary.

All in all, today's data appear to give both the Fed and the Bank of Canada room to pause their tightening cycles in the near term. That said, there is still plenty of data to come before they reconvene to decide their next rate moves toward the end of the summer.

Finally, just one local anecdotal note. Yes, I know economists aren't supposed to use anecdotal evidence but -- spoiler alert -- all economists do. One of our successful local hostelries has just announced that it is significantly reducing its opening hours until further notice, because it simply cannot find the staff to open normally. The unemployment rate in my area is generally above the national average, so one can only imagine that similar things are taking place elsewhere in Canada. I'm just sayin'.