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Howdy! If you’re looking for catalysts that will likely give you a chance to pillage some quick pips from the Loonie, then heads up because Canada will be simultaneously releasing its jobs report and GDP report this Friday (Dec. 1, 1:30 pm GMT).

Canada’s jobs and GDP reports usually give the Loonie a volatility injection. However, this Friday’s top-tier reports are also the final reports before next week’s BOC statement, so there’s a higher-than-average chance that the Loonie will react strongly.

1. Canada’s November jobs report

What happened last time?

  • Net employment change: +35.3K vs. +15.0K expected, +10.0K previous
  • Jobless rate: 6.3% vs. steady at 6.2% expected
  • Labor force participation rate: 65.7% vs. steady at 65.6% expected
  • Average hourly wage rate m/m: +0.38% vs. +1.66% previous
  • Average hourly wage rate y/y: +2.40% vs. +2.17% previous

Canada’s October jobs report looked mixed on the surface since the jobless rate deteriorated from 6.2% to 6.3% but jobs growth exceeded expectations by printing a net increase of 35.3K jobs, which is more than double the consensus for a 15.0K increase and a stronger pace of job creation compared to September’s +10.0K to boot.

However, a closer look at the details shows that October jobs report was actually very good.

You see, the jobless rate rose partly because the labor force participation rate improved to 65.7% instead of holding steady at 65.6% as expected. And that’s a good thing since a higher participation rate is usually taken as a sign that the economy is getting better, thereby encouraging more workers to join or rejoin the labor force.

Moreover, the stronger-than-expected jobs growth was due to the rather substantial increase of 88.7K full-time jobs. Sadly, 53.4K part-time jobs got axed and partly offset the strong growth in full-time employment.

Still, the stronger full-time employment growth more than made up for the loss of part-time jobs. And it gets even better because full-time jobs generally offer better job security and pay more than part-time jobs.

Moving on, wage growth was also pretty good. Sure, the average hourly wage rate only increased by 0.38% month-on-month in October, which is a drastic slowdown from September’s 1.66% surge. However, that still marks the third consecutive month of positive wage growth.

More importantly, average hourly wage rate in October grew by 2.40% year-on-year, which is not only faster than September’s +2.17%, but is also the strongest annual reading in 18 months and marks the fourth consecutive month of stronger annual wage growth to boot.

Overall, Canada’s October jobs report was very positive, which is very likely why the Loonie strengthened significantly against ALL its forex rivals as a knee-jerk reaction to the report.

Overlay of Inverted CAD Pairs: 15-Minute Forex Chart
Overlay of Inverted CAD Pairs: 15-Minute Forex Chart

What’s expected this time?

  • Net employment change: +10.0K expected vs. +35.3K previous
  • Jobless rate: steady at 6.2% expected
  • Labor force participation rate: steady at 65.7% expected

For the upcoming November jobs report, most economist forecast that the Canadian economy generated 10.0K jobs, which means that the consensus is that jobs growth slowed in November.

As for the other labor indicators, the consensus is that the jobless rate and the labor force participation rate would hold steady at 6.2% and 65.7% respectively.

And sadly, we can’t glean some insights from leading indicators since Markit’s Canadian manufacturing PMI report will be released after the jobs report is released while the comprehensive PMI report will be released a week after the jobs report.

As for historical tendencies, well, they don’t really give any helpful hints since it’s a coin toss when it comes to how economists fared with their guesstimates for jobs growth.

The same can be said of how jobs growth in November fared compared to October. Although jobs growth in November has been slower in the past three years. There’s no guarantee that the pattern will hold, however. But it does support the consensus that jobs growth slowed in November.

In summary, we’re driving blind here because the leading indicators will be released AFTER the jobs report (so much for calling them “leading” indicators).

Also, historical tendencies don’t have clear-cut patterns to take advantage of. Jobs growth in November has been slower compared to October during the last three years, though. However, there’s no guarantee that pattern will hold since jobs growth during the five years before that tended to show an acceleration in jobs growth.

2. Canada’s September GDP report

What happened last time

  • GDP m/m: -0.1% vs. 0.1% expected, 0.0% previous

Canada’s August GDP report was quite disappointing since it printed a 0.1% month-on-month contraction, which is the opposite of expectations that the Canadian economy grew by 0.1% month-on-month.

Moreover, this is the first monthly contraction in 10 months. And looking at the details of the GDP report, the sharp decline in manufacturing output (-1.0% vs. -0.2% previous) and further declines reported by retail trade (-0.4% vs. -0.2%) and mining, quarrying and oil and gas extraction (-0.8% vs. -1.4% previous) were the main culprits for the negative monthly GDP growth in August.

Overall, Canada’s August GDP report was disappointing on the surface and the details didn’t really help to mitigate the disappointment. As such, the Loonie weakened pretty much across the board.

Overlay of Inverted CAD Pairs: 15-Minute Forex Chart
Overlay of Inverted CAD Pairs: 15-Minute Forex Chart

What’s expected this time?

  • September GDP m/m: 0.1% vs. -0.1% previous
  • Q3 GDP y/y annualized: 1.6% vs. 4.5% previous

For this Friday’s September GDP report, the consensus is that the Canadian economy bounced back from the previous month’s contraction and is forecasted to have grown by 0.1% month-on-month.

This Friday’s GDP report is special, though, since September is the final Q3 month, which means that this Friday’s GDP report would also include the quarterly estimate. And the consensus is that the Canadian economy grew by 1.6% quarter-on-quarter annualized in Q3, which is slower compared to Q2’s solid +4.5%.

So, do the leading and related economic indicators offer any clues?

Well, Canada’s trade data show exports in September only contracted by 0.30% which was only a bit worse than the 0.28% decline in imports. These readings are a bit better compared to the 0.69% slide in exports and 0.40% tumble in imports back in August, which is why Canada’s trade deficit slightly fell from C$3,181.40 to C$3,179.70 in September.

However, imports for all of Q3 were 4.88% lower (+5.11% previous) compared to imports in Q2 while exports fell at a steeper 7.86% (+2.68% previous), so Canada’s trade deficit widened from C$5,453.40 in Q2 to C$9,425.80 in Q3.

As such, trade was very likely a drag to quarterly GDP growth in Q3 but may have given monthly GDP growth a slight nudge to the upside.

Moving on to consumer spending, retail sales only grew by 0.1% in September. That’s better than the 0.1% contraction reported in August, though. For all of Q3, however, retail sales only grew by 0.46%, which is slower compared to the 1.38% increase recorded in Q2.

It therefore looks like consumer spending will give monthly GDP growth a boost but will have a weaker positive contribution to quarterly GDP growth.
As for fixed investments, building permits increased by 3.8% in September.

But for the whole of Q3, it doesn’t look too good since the total value of building permits issued for both residential and non-residential buildings in Q3 was down by 32.92% compared to Q2.

Okay, what about historical tendencies? Well, economists tend to be too optimistic and overshoot their guesstimates, so downside surprises are more common, at least for the monthly GDP reading.

As for the quarter-on-quarter reading, we’ve got limited historical data to work with, but from the small sample below, economists do tend to undershoot their guesstimates, so there are more upside surprises.

In summary, available GDP components are pointing to a likely recovery in September. On a quarter-on-quarter basis, however, things don’t look to good. The consensus that GDP ticked higher month-on-month while GDP weakened quarter-on-quarter therefore sound about right.

With regard to historical tendencies, a downside surprise for the month-on-month reading seems likely. The quarter-on-quarter reading, meanwhile, appears to have a tendency for an upside surprise although it’s worth pointing out that the sample data are limited, so take that with a grain of salt.

Final thoughts

If the GDP report and jobs report both print better-than-expected numbers, or conversely, both print worst-than-expected numbers, then there’s no problem since the Loonie will likely react positively to the first scenario and negatively in the second scenario.

However, it becomes a problem if the readings are mixed. And unfortunately, it’s very rare for Canada’s monthly GDP report, quarterly GDP report, and jobs report to all be released simultaneously. In fact, I can’t recall it happening in the last 10 years, so there’s no clear precedent as to which economic report will have a bigger impact on the Loonie’s price action.

With that said, I think the jobs report is more likely to trigger a reaction from the Loonie, especially if wage growth and jobs growth both disappoint. After all, there are no leading indicators and historical tendencies don’t give a clear picture. In other words, nobody has a clear idea on how the upcoming jobs report will turn out.

Moreover, we’ve already got most of the GDP components and the BOC even warned that GDP growth slowed in Q3 when it stated in the previous BOC statement that:

“Growth is expected to moderate to a more sustainable pace in the second half of 2017 and remain close to potential over the next two years.”

“[P]rojected export growth is slightly slower than before, in part because of a stronger Canadian dollar than assumed in July.”

“Housing and consumption are forecast to slow in light of policy changes affecting housing markets and higher interest rates. Because of high debt levels, household spending is likely more sensitive to interest rates than in the past.”

However, there’s also a risk that the Loonie will take more directional cues from the GDP report, especially if the quarter-on-quarter annualized reading beats expectations and the BOC’s forecast that Q3 GDP grew by 1.8% quarter-on-quarter annualized since that may revive rate hike expectations.

Source: October BOC Monetary Policy Report
Source: October BOC Monetary Policy Report

Anyhow, since this is an economic report for the Loonie, and since the Loonie’s price action seems to be affected by oil prices again, it may also be prudent to keep an eye on oil prices. And if you didn’t know, you can check real-time prices of oil futures here and here.