Kevin Wants A Job Man…

Jobs are the talk of the town this morning with both Canada and the US releasing June employment numbers.

State side saw growth of 206,000 new positions. While this is a beat of the consensus of 200,000, it is well below previous months job gains, and is more evidence that things are slowing down. That being said, is it slowing down enough for the Fed to cut rates? Probably not. The US is now in a bit of a goldilocks economy where we aren’t quite hot enough to raise rates, but we aren’t slow enough to cut rates.

On the Canadian side, things are a little more bleak. Jobs in June came in at -1400 for the month – basically flat, but the unemployment rate edged up from 6.2% to 6.4% . The unemployment rate has increased from 5.1% in April 2023 to 6.3% in June 2024 – Holy Shit!!!

Once again though, the headline number is not the problem, the underlying data is. Again we are seeing job losses in areas like manufacturing, office work, and solid jobs, but massive increases in fast food, accommodation ( hotels ) etc. We are trading in good paying positions for temporary low wage positions. This trend has been going on for a while now, and it is continuing. While a job is counted for the survey not matter the pay, I think we can all agree that a job at McDonalds is not going to give you the same lifestyle that a $30.00/hour construction job would.

So, this means the BOC cuts in July, right? Not so fast. The continuing trend in the employment numbers has been wage inflation, and July did not disappoint. Once again we are seeing wage growth blow past anything we expect, with June wages coming in with a 5.4% year over year increase. May was bad at 5.1% year over year increase, and we just smoked that number and increased it another .3%. How can the BOC cut rates when wages are growing 5.4% year over year? So long as we are seeing wage growth like this, you can kiss any meaningful rate cut goodbye.

Of course, we cannot forget that Canada would have added around 75,000 people to the population during June, so there are a lot more unemployed people walking around than the report may suggest. Canada has not had jobs growth to match population growth in 6 months, so every month there are more and more unemployed people. Not exactly something that helps us get out of the economic rut we are in.

Bonds are reacting of course with the Canada 5 year down by 8 bps, essentially undoing the rally from Wednesday of 8 bps. The Canadian dollar is losing a bit of ground to the USD on the news, taking it down by .03%, and the US 10 year bond is shedding some bps as I type, although nothing more than we would expect. With the US holiday yesterday, the start of summer in Canada, and the weekend coming up, look for bonds, currencies and stocks to all trade up and down, and quite possibly the closing number will look a lot different than the opening number as traders go to work, re position their bets on the new data, and re-hedge or un-hedge the positions they had going into the reports.

Summer months generally tend to have a lot less volume as traders head to the Hampton’s and the Muskoka’s on vacation, and junior traders run the desk. Lower volume can lead to volatility spikes in data intra day, so always check back on the regular.