📝Canada Labour Market Performed Better Than Markets Understood: Scotiabank

This was a better report than markets understood. Jobs were flat (-1.4k m/m) with a 95% confidence interval of anywhere between about –58k and +55k. Job growth slowed because the prior month’s surge of youth employment was reversed. All of us in consensus went too high on job growth estimates because we underestimated the volatility in that youth category. ‘Adult’ employment nevertheless posted a healthy gain alongside another very hot month for wage growth that challenges Governor Macklem’s contention that wage growth is slowing. Excessive population growth particularly in the temps category is responsible for a rising unemployment rate and it is of no service to anyone to candy coat this fact. Hours worked signal solid Q2 GDP growth but deliver a tentative early warning sign for the way the monthly GDP figures ended Q2 and transitioned to Q3. Chart 1 provides a few high level details.

Markets overreacted in my opinion. They saw the flat headline reading and asked no further questions while piling into the front-end in favour of easing bets. The 2-year Canada yield rallied by 5–6bps post data, 10s rallied by 3–4bps and the Canadian dollar slightly depreciated. Pricing for the BoC’s July decision added an extra 2bps to now sit at about 14bps of a quarter point reduction. - Scotiabank