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Labour Market Strength Raises Uncertainty on Rate Hikes

11 October 2023

Friday’s unexpectedly strong US payroll numbers raise uncertainty about whether the Fed will need to raise short-term rates one more time in either November or December. Non-farm payrolls increased by 336,000, surpassing the consensus estimate of 170,000, and the numbers for July and August were adjusted upwards by 119,000 jobs. The unemployment rate held steady at 3.8%, as the growth in the labor force was balanced by an increase in the participation rate. Wage growth was moderate, with average hourly earnings rising by 0.2% month-over-month and 4.2% year-over-year.

Despite a tight job market, the rate at which people are quitting their jobs has returned to normal levels. This suggests that workers do not perceive themselves as having increased bargaining power. Interestingly, wage growth has been on a declining trend since March 2022, even though the unemployment rate has remained below 4% since December 2021. This raises an important question for the Federal Reserve: whether an unemployment rate below 4% and modest wage growth are consistent with achieving their 2% inflation target.

Here at home, Statistics Canada’s labour force survey for September showed an increase of 63,800 jobs, well above expectations. While the headline number was strong, a closer look at the data leaves room to question if labour market strength is being overstated. Most of the gains were part-time jobs (+47,900) and total hours worked dropped 0.2%. Most of the gains were in the educational sector (+66,000) which offset the 44,000 decline in the prior month. Since teachers can be paid on a 10-month cycle there is a significant seasonal factor to this sector. 

The unemployment rate remained flat at 5.5%, despite the labour force expanding by almost 60,000 people each month so far this year. The evolving dynamics of population growth are reshaping our understanding of the labor force. The one item that will be of concern to the Bank of Canada is that average hourly wages grew by 5%. While this data is not enough to push the Bank to tight further it will keep the tightening bias in place.

Housing affordability

In recent years, the issue of a housing crisis has been a persistent concern. This problem has deep roots, spanning over five decades. Both homeowners and renters are grappling with challenges such as stagnant incomes relative to rising housing costs, builders facing obstacles in creating affordable housing due to high development and management expenses, and government inaction. The Canadian Housing and Mortgage Corporation (CMHC) has pointed out the daunting financing requirements necessary to ensure affordability in the Canadian housing market, a problem that can’t be solely solved by governments. Stay tuned for our upcoming blog where we’ll discuss potential solutions to this issue.


Independent Opinion

The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any person or organization in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice including investment advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication. Readers are cautioned to always seek independent professional advice from a qualified professional before making any investment decisions.

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