Canada: Underlying trend in job growth could remain fairly muted - CIBC

The Canadian employment report showed the economy added 35K jobs in December after losing 71.000 in November. Andrew Grantham, analysts at CIBC points out the Canadian dollar strengthened and yields rose following the report, as investors reduced the odds of a near-term cut from the Bank of Canada (BoC).

Key Quotes: 

“The employment count may have only recouped half of the ground lost in the prior month, but the strong mix of job gains (all paid, private sector) and reduction in unemployment rate (to 5.6% from 5.9%) will keep the Bank of Canada on the sidelines for now. However, given the sluggish pace of economic growth seen towards the end of last year, leaving employment growth still outpacing GDP, we see scope for some softer job gains in the coming months which will keep our forecast for an interest rate cut alive.”

“These figures can be very volatile on a month-to-month basis and our research has shown that this volatility has actually increased quite a bit over the past two years (even after accounting for the higher population). Because of that, it’s always best to view these figures as three or even six-month averages. Looking at the six-month average shows that 2019 was a year of two halves for the Canadian labour market.”

“The partial rebound in employment means that the Canadian economic alarm bells have quietened down. However, given the still not great trend in jobs and GDP growth towards the end of the last year, it’s also too early to sound the all clear. Given that GDP growth is running below potential, we suspect that the underlying trend in job growth could remain fairly muted, which would see the unemployment rate creep higher towards 6% and the Bank of Canada responding with an interest rate cut in April.”