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Job growth to keep interest rate hikes on track

Canada added 11,200 jobs in October, the U.S. added 250,000 (Bloomberg)

Canada’s job market is trucking along. The economy pumped out 11,200 jobs in October.

That’s pretty much in line with the 10,000 jobs analysts expected. The unemployment rate fell to 5.8 per cent, which matches a 40-year low.

The good news is 33,900 were full-time compared to a loss of 22,600 part-time jobs. But wage growth is sluggish, slowing to 2.2 per cent. Which is well below the 3.9 per cent recorded earlier this year.

“The Bank of Canada has a bit more work to prove its point, because not only are wages tame, but recent growth indicators aren’t nearly measuring up to what we’ve seen stateside, reflecting the boost the U.S. has received from fiscal stimulus, and today’s soft export figures didn’t give it any ammunition behind its argument that growth rates are set to pick up again,” Avery Shenfeld, Chief Economist at CIBC Capital Markets, told Yahoo Finance Canada.

The Bank of Canada has already raised its trend-setting interest rate five times since Governor Stephen Poloz’s first hike in mid-2017. It currently sits at 1.75 per cent. Poloz recently removed the word gradual to describe future rate hikes.  

Economist Brett House at Scotiabank, told Yahoo Finance Canada, he expects the Bank of Canada to continue raising rates in 2019. He’s calling for 5 more quarter-point increases by Q1 2020.

“In the Canadian numbers, we saw long-term unemployment drop to its lowest level since 2009: a sign people are being pulled back into the labour force,” says House.

Employment growth has slowed considerably since this time last year, but that was to be expected.

“With many years of gains behind the labour market, there simply isn’t a lot of remaining slack, and monthly numbers should naturally begin to drop,” Karl Schamotta, director of research at Cambridge Global Payments, told Yahoo Finance Canada.

Schamotta thinks the Bank of Canada remains on course for at least one hike, possibly two in the early new year.

U.S. economy churning out jobs

Hiring picked up across the border in October. The U.S. added 250,000 jobs in October and unemployment rate held steady at 3.7 per cent, a 49-year low.

Wage growth picked up to the best year-over-year gain since 2009. That’s likely to keep the Federal Reserve on track to continue hiking rates.

Given the Fed’s focus on wage growth (and overall inflation), today’s number will help to offset weakness in other areas (financial market turbulence, house-price weakness, and dropping purchasing manager surveys) but shouldn’t accelerate the pace of rate hikes,” says Schamotta.

Shenfeld also thinks the data will keep the Fed on pace for more hikes.

“The Fed assumes that overheating would come if growth continued to run at its recent pace in the US, and it will use that argument to justify pushing interest rates higher in the next couple of quarters,” says Shenfeld.

Brett House expects the Fed will hike four more times through 2019, by a quarter-point each time.

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