Opinion polls in both Canada and the US consistently show that the populace is deeply unhappy with the state of the economy. The US media seem to make an effort to report economic developments accurately, but the Canadian media have been screaming recession for the better part of eighteen months, and large segments of the online commentariat have moved right on to pronouncing the onset of a full-on depression. The only conclusion we can really reach here is that for most people, inflation is the only economic statistic they really pay attention to, because the data on the real economy tell a very different story -- as today's employment reports underline in the strongest possible terms.
In Canada, StatsCan data show the economy followed the addition of 40,000 jobs in August with a further 64,000 in September, way above market expectations. So far this year, the average monthly rise in employment has been 30,000. There are some oddities in the data, such as a major swing in educational employment from a sharp fall in August to a strong rise in September, something StatsCan attributes to seasonal adjustment. Moreover, about 48,000 of the new jobs were part time in nature, though this should be weighed against the fact that over the past twelve months, the economy has added 474,000 full-time jobs.
These numbers are extraordinarily strong, especially in light of data that seem to show the economy almost stagnating in Q2 and Q3. In one sense, however, they may not be strong enough. Thanks to very high levels of immigration, the labour force grew by an estimated 72,000 in September, after growing more than 100,000 in August. Even the remarkable job gains seen in recent months have been insufficient to absorb all of the newly-available workers; the unemployment rate was unchanged at 5.5 percent in September.
Average hourly earnings rose 5.0 percent from a year ago, in line with the gain seen in the two preceding months. This is undoubtedly too high for the Bank of Canada's comfort, but it is unlikely that there will be any change in official interest rates in the near term.
In the US, the BLS reported this morning that the economy added 336,000 jobs in September. This was far above market expectations and well above the already robust monthly average of 267,000 positions seen over the past year. Revisions added a further 119,000 to the job gains posted for July and August. The unemployment rate was unchanged at 3.8 percent. Average hourly earnings rose only 0.2 percent in the month, bringing the year-on-year increase to 4.2 percent. This is too high for the Fed's liking, though it is not quite as far above the inflation target as the corresponding number for Canada.
As is the case in Canada, it seems unlikely that today's data will lead to any shift in Fed policy in the near term, though that did not prevent a fairly panicky (though short-lived) market reaction. However, it seems clear that the Fed, and for that matter the Bank of Canada, will see little reason to contemplate rate cuts as long as the economy is strong enough to create jobs at the rate we are currently seeing. The selloff in global bonds over the last couple of weeks seems to reflect that reality; it remains to be seen whether people answering calls from opinion pollsters can also be convinced. Probably not, if this CNN article is anything to go by.
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