Howdy! If you’re looking to pillage some quick pips from the Loonie before the week ends, then heads up because Canada will be releasing its latest jobs report this Friday at 1:30 pm GMT. And you can gear up for this top-tier event by reading up on today’s Event Preview.
What happened last time?
- Net employment change: +78.6K vs. -2.5K expected, +79.5K previous
- Jobless rate: 5.7% vs. 6.0% expected, 5.9% previous
- Labour force participation rate: 65.8% vs. steady at 65.7% expected
- Average hourly wage rate m/m: +0.23% vs. +0.60% previous
- Average hourly wage rate y/y: +2.73% vs. +2.78% previous
Canada’s December jobs report revealed that the Canadian economy generated 78.6K jobs. This is a pleasant surprise for Loonie bulls (and a nasty surprise for Loonie bears) because the consensus was that Canada would shed 2.5K jobs.
Looking at the details of the report, jobs growth was driven mainly by the 54.9K increase in part-time employment. Full-time jobs, meanwhile, only increased by 23.7K. Even so, this marks the fourth consecutive month of increases in full-time jobs, which is a great sign for the Canadian economy.
Moreover, the solid jobs growth caused the jobless rate to improve from 5.9% to 5.7%, which is a 41-year low. That’s right! a 41-year low, not a 41-month low.
And that’s despite the labor force participation rate ticking higher from 65.7% to a six-month high of 65.8%.
As for wage growth, the average hourly wage rate only increased by 0.23% month-on-month in December, which is slower compared to November’s +0.60%. However, this still marks the fifth consecutive month of wage growth.
Year-on-year, this translates to an annual growth rate of 2.73%, easing from November’s +2.78%. Still, December’s annual wage growth is the second strongest reading since April 2016, so it’s still a very good figure.
Overall, Canada’s December jobs report was very positive, so much so that market analysts said that odds for a January BOC rate hike spiked higher, which also caused the Loonie to surge higher across the board. And we now know that the BOC did hike during the January 17 BOC statement.
What’s expected this time?
- Net employment change: -2.0K to +11.5K expected vs. +78.6K previous
- Jobless rate: 5.8% expected vs. 5.7% previous
- Labor force participation rate: 65.7% vs. 65.8% previous
For this Friday’s jobs report, there’s no real consensus with regard to jobs growth. However, most guesstimates fall between a slight 2.0K decline to a weak 11.5K increase in net employment.
There’s therefore an implied consensus that Canada’s employment situation drastically deteriorated during the January period.
And to reinforce this theme that Canada’s labor market worsened in January, the jobless rate is also expected to tick higher from 5.7% to 5.8% while the labor force participation rate is forecasted to have eased from 65.8% to 65.7%.
So, do the leading labor indicators offer any clues?
- Markit’s manufacturing PMI report notes that Canadian manufacturing companies increased their payroll numbers “at the steepest pace since last August.” Unfortunately, Markit’s findings are incomplete since the service sector actually provides the bulk of job gains in Canada.
- The comprehensive Ivey PMI report’s employment index eased slightly from 56.7 to 56.5. The reading is above the 50.0 stagnation level, which means that employment continued to grow, albeit at a slightly weaker pace.
Hmm. The leading indicators seem to lean more towards the possibility of weaker jobs growth in January.
However, probability appears to be skewed more towards an upside surprise since Markit is saying that employment in the manufacturing sector surged while Ivey is saying that overall employment only slightly deteriorated.
In contrast, most economists forecast that jobs growth drastically slowed in January (or even became negative).
Moving on to historical tendencies, there are more instances when jobs growth accelerated in January, which lend support to the leading indicators, especially Markit’s findings that jobs growth surged in the manufacturing sector.
As to how market analysts fared with their guesstimates for jobs growth in January, well, they obviously tend to be too pessimistic and undershoot their forecasts, resulting in more upside surprises than downside surprises.
In summary, there’s no true consensus on how jobs growth will turn out. Although there’s an implied consensus that jobs growth deteriorated somewhat drastically in January.
However, the leading indicators contradict this implied consensus. Moreover, historical tendencies show that economists tend to be too pessimistic with their guesstimates, resulting in more upside surprises.
Probability therefore appears skewed more towards an upside surprise, at least with regard to jobs growth.
But as always, just keep in mind that we’re playing with probabilities here, so there’s always a chance that jobs growth will surprise to the downside instead.
Also as always, just keep in mind that the Loonie usually has a bullish knee-jerk reaction if jobs growth surprises to the upside. And the Loonie’s reaction to the previous jobs report is a classic example of this. But on the flip side, a miss usually causes the Loonie to tank.
Also, follow-through buying or selling in the wake of the jobs report is usually only limited since oil usually becomes a factor. Although the Loonie’s correlation to oil has weakened recently, apparently because of NAFTA-related worries since even the BOC expressed some concerns with regard to NAFTA during the January BOC statement.