All green for the U.S. and Canada! Both economies printed stronger than expected employment reports for the month of May, as the U.S. added 280,000 jobs versus the projected 222,000 rise while Canada’s hiring gains of 58,900 were nearly six times as much as the estimated 10,200 increase. What do these figures mean for their respective economies and for their currency’s forex price action?
1. North America’s where it’s at!
When it comes to an economic recovery, U.S. and Canada appear to be outpacing the rest of its peers. Even though the Canadian economy was off to a rough start this year due to the persistent oil price slump and the U.S. also hit a few road bumps in the past months, the latest employment reports suggest that both countries could be in for much brighter days ahead.
The U.S. NFP report for May indicated a notable improvement in the participation rate, which means that more Americans have returned to the labor force to resume their job hunt. The labor force participation rate climbed from 62.8% to its four-month high of 62.9%, spurred mostly by renewed confidence in the jobs sector. In addition, the share of those who have been unemployed for 27 weeks or more fell to a six-year low of 28.6% while the number of discouraged workers dropped to its lowest level since October 2008.
In Canada, the labor market showed resilience in the midst of an oil industry slowdown, as energy-dependent cities still managed to churn out small employment gains while non-energy export companies stepped up their hiring. Apart from that, the country’s broadest measure of unemployment which takes discouraged workers and involuntary part-timers into account is already nearing its pre-recession levels. Canada can thank its diverse economy and its close trade ties with Uncle Sam for all this!
2. Stronger expectations of a September Fed hike
For most forex market watchers, the upbeat U.S. employment report for May pretty much sealed the deal for a September Fed interest rate hike. Bear in mind that dollar bulls had been holding out for a really REALLY impressive jobs number before charging across the forex charts, and it looks like that’s exactly what they got!
To sweeten the deal, average hourly earnings showed a stronger than expected 0.3% increase versus the projected 0.2% gain and the previous 0.1% uptick. On a year-over-year basis, this marks a 2.3% pickup in wages, surpassing the 2% average annualized increase over the past six years.
Economic analysts remarked that the latest U.S. jobs report was enough to confirm the Fed’s view that the weakness in Q1 was just temporary. If this momentum is sustained in the next few months, the Fed is likely to stay on track to tighten sometime in autumn.
3. No need for another BOC rate cut?
Even though the policymakers over at the Bank of Canada aren’t exactly gearing up for a rate hike just yet, Canada’s May employment report could give them enough reason to maintain their neutral stance or even shift to a slightly hawkish one.
BOC Governor Poloz sounded a little cautious in their recent rate statement, highlighting the risks to financial stability and the negative impact of the Loonie’s appreciation on exports and domestic inflation. However, he also pointed out that Canada is following the footsteps of the U.S. and that he expects a return to solid growth for both economies this quarter. And that’s what the May jobs reports showed! Boo yeah!
4. Weakness in oil and energy sector
But before throwing all caution to the wind, lemme tell you that not all was fine and dandy with the latest jobs figures from the U.S. and Canada. While the headline figures and some of the underlying data showed promising results, the numbers from the oil and energy sector still reflected weak spots.
In the U.S., the mining industry reported a loss of 17,000 jobs in May, marking its fifth consecutive monthly decline in hiring and bringing the total industry layoffs to 68,000 this year. According to energy company owners, a lot of projects have been either cancelled or delayed since the tumble in oil prices was eating up the profits from these operations.
Meanwhile, in Canada’s energy-rich Alberta region, hiring slumped by 6,400 while the area’s unemployment rate surged from 5.5% to 5.8%. Overall, the country’s natural resources industry shed 2,400 jobs in May, which isn’t too bad but is still a decline nonetheless.
Judging from the forex reaction to these reports, it looks like the Greenback and the Loonie might be in for more upside, especially against their currency counterparts whose economies aren’t faring so well. Of course one or two good data points aren’t enough to make a trend but traders might continue to price in positive expectations for both economies moving forward.