Both the Federal Reserve and the Bank of Canada have recently signalled that they are prepared to keep rates on hold for the time being, while waiting to assess the effect of their past tightening moves. Both central banks have indicated that their future rate decisions will be, to use an old cliche, data dependent, with developments in the labour market very much front of mind. Employment data for October, released in both countries today, suggest that both banks may be able to avoid any further tightening.
In the US, data from the Bureau of Labor Statistics show that the US economy added 150,000 jobs in October. This was below market expectations and marked a sharp fall from the 297,000 jobs added in September. That September number was revised down from an initial estimate above 330,000. The October number is also materially below the average monthly gain of 258,000 jobs created over the past twelve months. The unemployment rate ticked higher to stand at 4.9 percent.
Importantly for the Fed, there is still no evidence of significant upward pressure on wages. Average hourly earnings rose a scant 0.2 percent in October, the same as in September. This brought the year-on-year rise to 4.1 percent, down from 4.2 percent a month earlier.
In Canada the story is similar in many ways, but with the added complication that the labour force is growing extremely fast because of high immigration. After adding an aggregate of more than 100,000 jobs in August and September, the economy added only 18,000 positions in October.* With the labour force growing by almost 58,000 in the month, this pushed the unemployment rate up by 0.2 percentage points to 5.7 percent, by coincidence identical to its pre-pandemic level.
The impact of immigration on the size of the labour force shows up even more starkly on a longer view. Since January, employment has grown by an average of 28,000 per month, but the monthly increase in the labour force has been over 80,000. It is thus no surprise to see the unemployment rate moving up steadily from the cyclical low of 4.9 percent reached in mid-2022. It is also worth noting that the Federal government seems to be realizing, however belatedly, that the current situation is unsustainable. It announced this week that it intends to stabilize immigration levels, although not until 2026.
As in the US, wage gains in Canada remain relatively restrained. The year-on-year rise in average hourly earnings slipped to 4.8 percent in October from 5.0 percent in September, However, in light of numerous high-profile labour disputes in recent weeks (the Big Three auto makers, the St Lawrence Seaway and many others), this is something the Bank of Canada will continue to monitor closely.
All in all, these are Fed-and Bank-friendly numbers. One month of data is far too little to declare a trend, but things do seem to be moving in the direction policymakers want.
* Interestingly, the construction sector accounted for all of the net new jobs in the month. Given well-founded concerns over where all the immigrants are supposed to live, this presumably counts as welcome news.
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