How y’all doing, forex buddies? Most market players have their sights on the U.S. NFP report. However, the U.S. isn’t the only one that will be releasing its jobs report since Canada will also be releasing its jobs report this Friday at 12:30 pm GMT.
And if you’re looking for a post-BOC catalyst that may give you an opportunity to pillage some quick pips from the Loonie before the week ends, then that’s your best bet. And I just so happen to have an Event Preview for it.
What happened last time?
- Net employment change: +54.1 vs. +17.5K expected, +31.8K previous
- Jobless rate: 5.8% vs. 5.9% expected, 6.0% previous
- Labor force participation rate: 65.4% as expected vs. 65.5% previous
- Average hourly wage rate m/m: -0.78% vs. -0.30% previous
- Average hourly wage rate y/y: +3.18% vs. +3.63% previous
Canada’s July jobs report showed that the Canadian economy generated 54.1K jobs, greatly exceeding expectations for a 17.5K increase (+31.8K previous).
However, a closer look at the details revealed that jobs growth was fueled exclusively by the 82K increase in part-time employment since full-time employment actually fell by 28K, which is rather disappointing.
And while the jobless rate improved from 6.0% to 5.8% (5.9% expected), that was partly driven by the labor force participation rate also falling from 65.5% to 65.4%, which means that some Canucks decided to leave to labor force and is a bad sign for the Canadian economy.
And the bad news doesn’t end there since wage growth was also disappointing.
As for specifics, the average hourly wage rate fell by 0.78% month-on-month, marking the third consecutive month of negative monthly wage growth. The 0.78% monthly decline is also the sharpest slide since May 2016.
Year-on-year, the average hourly wage rate only increased by 3.18%, which is the poorest reading in five months and also marks the second straight month of ever slower increase for the monthly reading.
In short, Canada’s July jobs report was mixed on the surface, but negative overall. Jobs growth did exceed expectations, though, which is why the Loonie’s initial reaction was to jump higher (overlay of CAD pairs is inverted).
But as mentioned earlier, the jobs report was negative overall, which is why follow-through buying was very limited and bears even began to win out eventually.
What’s expected this time?
- Net employment change: +5.1K expected vs. +54.1K previous
- Jobless rate: 5.9% expected vs. 5.8% previous
- Labor force participation rate: steady at 65.4% expected
Most economists forecast that the Canadian economy generated around 5.1K jobs during the August period (+54.1K previous). There’s therefore a consensus that jobs growth slowed in August.
Some economists, such as the economists from the National Bank of Canada, even think that jobs growth may have stalled in August.
And according to these economists, they forecast that jobs growth stagnated in August because they forecast that GDP growth will slow in Q3, so jobs growth also has to slow after printing strong gains for two months.
Getting back on topic, most economists also think that jobs growth will not be able to keep up with working age population growth since the labor force participation rate is expected to hold steady at 65.4% but the jobless rate is expected to deteriorate from 5.8% to 5.9%.
So, do the leading labor indicators offer any clues?
- Markit’s manufacturing PMI report noted that the “latest data indicated a robust and accelerated rise in payroll numbers across the manufacturing sector.”
- The comprehensive Ivey PMI report won’t be released until after Canada’s jobs report is release. We’re therefore a bit handicapped here.
What about historical tendencies? Do they offer additional insights?
Comparing jobs growth in July against jobs growth in August, there’s a clear tendency for jobs in August to be stronger, which goes against the consensus for a slowdown in jobs growth.
Economists also have an apparent tendency to be too pessimistic with their guesstimates since there are plenty of upside surprises over the years.
To summarize, most economists think that jobs growth slowed in August since the consensus reading for net employment change is only +5.1K (+54.1K previous).
The Ivey PMI report won’t be released until after the jobs report is released, but we do have Markit’s manufacturing PMI report, and Markit’s findings point to stronger jobs growth (at least in the manufacturing sector).
Historical trends also don’t agree with the consensus since jobs growth usually strengthens in August.
Moreover, historical trends also show that economists have a rather strong tendency to undershoot their guesstimates since there are plenty of upside surprises. And that skews probability more towards a possible upside surprise.
But as always, just keep in mind that we’re playing with probabilities here, so there’s always a chance that jobs growth may surprise to the downside instead.
Also as always, do keep in mind that the Loonie usually has a knee-jerk reaction to jobs growth. However, follow-through buying usually depends on the details of the report, with wage growth and full-time employment in focus.
Finally, keep in mind that NAFTA talks will resume later today and will likely continue until Friday (or beyond), unless they have a meeting of the minds before then. It would therefore be prudent to keep an eye and ear out for NAFTA-related developments as well.