Canada: Employment expectations have been persistently thwarted - Scotiabank

Research Team at Scotiabank explains that Canada releases the latest Labour Force Survey of employment conditions today for the month of February and expectations for a day of reckoning following the recent incredible string of job gains have been persistently thwarted.

Key Quotes

“Canada has gained 239,000 jobs over just the past six months. If annualized, then a full year’s worth of such gains would break the all-time record for annual job growth that was set about four decades ago. At some point, one of two things must happen: either output growth will accelerate in order to merit new hires to date; or employers will wonder why they sacrificed productivity growth by hiring so many workers. I fear the latter, but can’t offer timing guidance on a volatile household survey. It is not unusual for Canadian employers to meet output demands more through labour than capital inputs through fairly persistent under-investment relative to the US economy, which helps explain a longstanding productivity challenge.”

“Wage figures will also matter. Wage gains offer a price signal on how tight or loose labour markets may be, and offer one indication of cost-push inflation pressures of relevance to the BoC’s 2% inflation target. Hence why discussions on how labour markets affect central banks usually turn toward discussions about the Phillips curve. The wage figure that has tended to matter the most to the BoC in the past has been for permanent employees. The deceleration to only 1.5% nominal wage growth in January was below the latest 2.1% rise in CPI such that real (inflation-adjusted) wages are slightly falling and that’s a weight against the toppish consumption cycle. Canadians are suffering real wage erosion which may suggest soft full-cycle productivity growth.”

“This is occurring despite less slack in Canadian labour markets than stateside where wage growth has been running a full point faster than in Canada despite a lower labour force participation rate that may have more room to increase than in Canada. The two countries have very similar age structures of the population pyramids.”