Kaboom!!

That loud bank you may have heard today was the employment reports being released this morning. While the US exploded, it appears Canada is imploding.

The US employment report released at 8:30 this morning blew the doors off, with over 330K jobs created in the month of March. Coming in well above estimates, it confirms the US economy is the little engine that could, and just keeps plodding along. Combined with inflation that is holding, or growing slightly, Jerome Powell and the US Fedare probably on the sidelines for dropping rates for a while now, and if we see another blowout employment report, plus inflation creeping higher – could even increase rates.

Unfortunately, as we turn North, things aren’t looking so hot. Canada’s employment report came out with a whimper, and showed a loss of 2200 jobs for the month of March. Worse than that, the unemployment rate edged up to 6.10%. When you add 80,000 people a month to the population, you are gonna have more people seeking work, and as such the unemployment rate is going to climb. Estimates were for the rate to rise slightly to 5.9% from February’s 5.8%, so 6.1% is a big variation on a number than usually doesn’t jump around a lot.

However, it is gonna be even worse news here: Rates aren’t coming down. This was backed up by the fact that the Canadian government bond yield was UP 3.1 bps on the day. Even the 1 year note didn’t really change a lot today. While I am sure every realtor and mortgage agent is doing Tik Toks about how job losses are good for mortgage holders, we need to read the report a bit more. In the employment report, it showed that wages year over year accelerated at a 5.1% annual clip. Wages growing at 5.1% year over year is a big inflationary signal. Tiff cannot cut interest rates when wages are growing 5.1%. For the record, the 5.1% is an increase from February when annual wages were growing 5.0% year over year. So even month over month wages are growing.

In order to get inflation, you need people to be paid more. If people are paid more, they will spend more, and that is how we get inflation.

The even bigger problem with the employment report today, is it carries on a trend whereby private employers are laying off or firing, and the government is doing all the hiring. I hate to break this to people, but the government cannot hire everyone!!!!. That being said, current governments are sure as hell gonna give it a try apparently. Private employers are reducing staff, lowering head counts, shutting down or delaying projects, and bit by bit, the Canadian workforce is becoming self employed, or government employed. This is not normal, and sure as hell not healthy.

Sorry to be the bearer of bad news on this Friday, but it appears that the Canadian labour market is living in the ” path of totality”, full of darkness. Unlike Monday’s big event though, this will last for more than a minute or two. Generally it takes 6 months to a year to fix the labour market – at a minimum. Increasing wages, decreasing private sector employment, and higher unemployment are all key indicators of a stagflation type economy.

As I have often said, the Canadian and US economy are diverging, and reports like today I feel will become more common. The Canadian dollar took it on the chin today as rate cuts are being backed out of the US Federal Reserve after today’s report. 3 cuts, might be down to 1 or 2, and there is a growing chorus of companies predicting they may only be able to squeak in 1 rate cut in 2024 – if at all.

It is days like today that prove that finance is a fickle art. Normally one would think that job losses would lead to a rate cut, however, as today proved – that isn’t always the case. It certainly keeps a June rate hike in the lexicon, but it doesn’t guarantee it. We will know more once Tiff has his presser next week. If he turns dovish, then June becomes a real possibility – but if he remains hawkish ( as he has been for months now ) , then June becomes July, which may become September.

Enjoy your weekend, and remember kids – don’t look into the eclipse!!!