Howdy! Canada will be releasing its September jobs report this Friday at 12:30 pm GMT.
You know what that means, right? That’s right! It’s another chance to pillage some quick pips from the Loonie before the week ends.
And if you need to get up to speed on what happened last time and what’s expected this time, then you better read up on today’s Event Preview.
What happened last time?
- Net employment change: -51.6K vs. +5.1K expected, +54.1K previous
- Jobless rate: 6.0% vs. 5.9% expected, 5.8% previous
- Labor force participation rate: 65.3% vs. steady at 65.4% expected
- Average hourly wage rate m/m: 0.23% vs. -0.78% previous
- Average hourly wage rate y/y: +2.85% vs. +3.18% previous
The August jobs report revealed that employment fell by 51.6K in August, which is a swing and a miss since the market was expecting a small 5.1K increase.
However, the decline in jobs was due to the loss of 92K part-time jobs. Full-time employment, meanwhile, grew by 40.4K, so the disappointing headline reading wasn’t too bad.
Even so, the decline in jobs, together with a lower labor force participation rate, caused the unemployment rate to jump from 5.8% to 6.0%.
But on a more positive note, the average hourly wage rate increased by 0.23% month-on-month (-0.78% previous), putting an end to three consecutive month of monthly declines in wage growth.
However, the year-on-year reading is not too impressive since that came in at +2.85% (+3.18% previous), which is the weakest annual increase in eight months.
In summary, Canada’s August jobs report printed a disappointing reading for jobs growth, which is why the Loonie’s initial reaction was to weaken across the board.
However, the report actually painted a somewhat mixed picture since full-time employment increased and wages finally grew after three consecutive months of declines. And that’s likely why follow-through selling on the Loonie was only limited.
What’s expected this time?
- Net employment change: +25.0K expected vs. -51.6K previous
- Jobless rate: 5.9% expected vs. 6.0% previous
- Labor force participation rate: steady at 65.3% expected
For the employment situation in September, the general consensus is that the Canadian economy generated 25.0K jobs, which is a nice recovery after losing 51.6K jobs back in August.
There’s also a consensus that the 25.0K increase in jobs would be enough to push the jobless rate down from 6.0% to 5.9% since most economists agree that the labor force participation rate was likely unchanged at 65.3%.
So, do the leading labor indicators offer any clues?
We only have Markit’s manufacturing PMI report to work with, and it noted that:
“Staffing levels increased at a robust pace in September, which marked two years of sustained job creation across the manufacturing sector. Survey respondents linked higher payroll numbers to greater business investment and forthcoming new product launches.”
What about historical tendencies? Do they offer additional insights?
Well, jobs growth usually accelerates between August and September, which is in-line with the consensus that jobs growth recovered.
As to how economists have fared with their guesstimates, economists apparently have a strong tendency to undershoot their forecasts, so there are far more upside surprises than downside surprises.
To summarize, there is a consensus that jobs growth recovered in September. And that’s supported by historical data since the readings for September are usually better compared to the readings for August.
However, historical trends also show that economists have a rather strong tendency to be too pessimistic with their guesstimates, resulting in lots and lots of upside surprises, which skews probability more towards a potential upside surprise.
It’s also worth noting that Markit’s manufacturing PMI report found anecdotal evidence pointing to stronger jobs growth (at least in the manufacturing sector).
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.
And as usual, do keep in mind that traders have their sights on the headline reading for net change in employment. If the reading is better-than-expected, then that Loonie usually has a bullish knee-jerk reaction. Conversely, if jobs growth misses expectations, then the Loonie usually gets kicked lower. And the Loonie’s reaction to the August jobs report is an example of this.
As for follow-through buying, that usually depends on the details of the report, with wage growth and full-time employment in focus. However, oil is usually (but not always) the determining factor, so make sure to keep an eye on oil prices as well. And if you didn’t know, you can check real-time prices of oil futures here and here.