Strong jobs data -- not helpful!

So a month ago, Statistics Canada announced that the economy shed more than 2,000 jobs in March, with the unemployment rate jumping to 6.1 percent.  In the minds of both analysts and the media, this seemed to lock in the case for a rate cut by the Bank of Canada on June 5; more recent announcements from the US -- slowing employment growth, rising initial jobless claims -- appeared to suggest that a rate-cutting cycle might soon be underway south of the border too.

That consensus has been put into doubt by Canada's April employment data, released this morning by Statistics Canada. Employment rose a staggering 90,000 in the month, way above all expectations. Despite that increase, the unemployment rate was unchanged at 6.1 percent as the labour force continued its torrid growth, rising more than 107,000 from the preceding month. Even allowing for the customary extreme volatility of Canada's employment data, the headline numbers certainly cast doubt on the likelihood of an early rate cut.

Media coverage of the data has quickly focused on the fact that 50,000 of the new jobs were part-time in nature. True enough, but this may be something of an aberration: for the past year as a whole, full-time employment has risen by 272,000, compared to only 104,000 new part-time positions.  The standard critique, that it is only the public sector that is creating jobs, also does not apply, as 50,000 of April's new jobs were in the private sector, with a further 14,000 representing self-employment. 

One welcome development from a policy standpoint is that wage growth slowed in the month. Average hourly earnings rose 4.7 percent year-on-year, down from the 5.1 percent gain recorded in March. However, given Canada's lamentable productivity record, that still seems too high for the Bank of Canada's comfort.

Expectations for a June rate cut, and the relief it will bring for mortgage borrowers, have been firmly locked in for some time now, and the Bank will be wary of crossing up the markets.  However, it appears that the April CPI data, due for release on May 21, may now be the crucial factor in determining whether that early rate cut happens. Recall that headline CPI ticked up to 2.9 percent year-on-year in March, with unexpectedly strong month-on-month gains. Another negative surprise in the April data could well push the start of the rate-cutting cycle back to the following Governing Council meeting, set for July 24.