Canada adds wage gains to stellar jobs performance

Bloomberg

Canada’s labor market continued surprising in May, with a greater-than-expected 54,500 jobs gain that also finally came with signs of a pick-up in wages. The employment gain — the third biggest one-month increase in the past five years — was driven by the addition of 77,000 new full-time jobs, which offset falling part-time employment. Economists had forecast a 15,000 increase in employment.
The employment gains bode well for the continuation of the country’s expansion, which is the fastest among the Group of Seven, as Canada emerges from the oil price collapse and benefits from a soaring real estate market. It also could raise pressure on the Bank of Canada, which has been citing worries about slack in the economy for being cautious, to increase rates sooner.
“Job growth is astoundingly strong in Canada and the data-quality critics face an uphill battle in choosing to ignore what is now a quite long-lived trend,” Derek Holt, economist in Toronto at Bank of Nova Scotia, wrote in a note to clients.
The 316,800 new jobs over the past year is the biggest 12-month gain since February 2013 — and levels the economy has seldom produced since the 2008-2009 recession. The pace of annual wage rate increases accelerated to 1.3 percent in May, after falling to a record low 0.7 percent in April. That may begin to clear up one of the most puzzling recent developments of the country’s labor market — slumping wage gains in the face of sharp increases in employment.
Another sign of potential tightness is that wages for temporary workers are up 4.8 percent year-over-year. Manufacturing added 25,300 jobs during the month and the embattled sector has produced a 43,000 employment increase so far this year. The increase in May is the biggest since 2002. Still, services have done the heavy lifting over the past year, accounting for 295,200 of the new jobs
Canada’s currency appreciated after the report, rising 0.3 percent to C$1.3462 at 9:56 a.m. Toronto time. Benchmark two-year government bonds yielded 0.75 percent, up 3 basis points from Thursday. Odds of a rate increase this year climbed to 37 percent, according to Bloomberg calculations on overnight index swaps. They were 7 percent a month ago.
Nick Exarhos, CIBC: “It’s a pretty clear cut message from today’s employment report for Canada: the labor market is in good shape. Over the past year, the Canadian economy has added 317K jobs, equivalent to 1.8% growth. That pace is roughly one-and-a-half times as fast as we would have expected if output in Canada was growing at its economic potential. That’s clearly more good news for the Bank of Canada, which is eyeing how quickly we can close the slack that opened in the wake of the oil shock. That timeline now suggests tightening from the BoC by early 2018—something that isn’t yet priced by the bond market.”
Nathan Janzen, Royal Bank of Canada: “Strengthening in labor markets and stronger recent GDP growth numbers increasingly argue that current ultra-low interest rates may no longer be needed to support the economy. We nonetheless, continue to expect slow wage growth, lack of upward pressure in consumer prices, and uncertainty about US trade policy during the upcoming NAFTA renegotiation will keep the Bank of Canada cautious and don’t expect a rate hike until the first half of 2018.”
A separate report released by Statistics Canada showed utilization of industrial capacity at the highest since 2007. Data show manufacturers were operating at 83 percent of their potential level of output, also the highest level since 2007.