Productivity |  Quebec continues to catch up

Bad news, jobs are increasing

The economy continues to create jobs…unfortunately. I never thought I would write such a thing, but at the point where we are, job creation is not really desirable.

why then? Because the Bank of Canada is doing everything it can to slow down the economy and thus slow down inflation by raising interest rates. However, Canadian job creation reported on Friday tells us that the institution’s measures are taking time to make themselves felt, raising fears of further interest rate hikes… and stronger mortgage payments.

Despite seven increases in the Bank’s rate in 10 months in 2022, to 4.25%, the Canadian economy remains quite strong, as indicated by the creation of 104,000 jobs in December reported by Statistics Canada.

However, various indicators showed that the economy was shaken by these interventions by our central bank. The residential real estate market is slowing noticeably across Canada. already 3me quarter of 2022, that is, during the summer, Quebec’s GDP fell by 1.9%, on an annualized basis. Another negative quarter, and it could have been called a recession, if we stick to the technical definition.

But now, since September, the job market has been strong from coast to coast.

On average, the employment rate reached 61.8% in Canada in December, up from 61.3% in September. And in Quebec, the employment rate rose between July and December as much as it had fallen between March and July. The employment rate is the proportion of people aged 15 and over who are employed.

This strength in employment pushes the annual average unemployment rate to record lows in 2022.

The consequence is quite predictable. Once again, the Bank of Canada is at risk of raising its key rate in its next release on January 25. Two other important indicators are expected before the Bank’s decision, namely inflation for the month of December, on January 17, and business prospects, on January 16.

But already, many economists are wet: the Bank will raise its key rate again on January 25, they forecast, this time by 25 basis points (0.25 percentage points), to 4.5%.

At least that’s the view of economists at the Desjardins Group, BMO and CIBC after the release of Canadian jobs data.

For its part, the economic department of the National Bank indicates that financial markets are considering an increase in the key rate of 19 basis points, compared to 16 points prior to the publication of Statistics Canada employment figures. Although the minimum rate hike is 25 points, investors – who are moving the parameters of the markets – therefore believe that we are very close to another key rate hike.

…but the stock market is going up!

End of analysis? Well, no. Normally, this jump in the probability of a Bank of Canada rate hike should have cooled stock markets or at least had a neutral effect. However, the stock markets have rallied considerably. The Toronto Stock Exchange’s S&P/TSX Index even jumped 1.6% on Friday, and the S&P 500 index jumped 2.3%.

How is this apparent contradiction to be explained? This is because the United States also released employment data on Friday. Here the data is not bad either: creation of 223,000 jobs in December, more than the consensus of 203,000 jobs.

But this good job creation hides less glorious performances. The service sector has fallen, and while employment has generally risen, the total number of hours worked per week fell to 34.3 hours, a 32-month low.

Importantly, the data points to significantly weaker wage pressures than economists predicted. Annualized wage growth in the United States (3-month average) thus fell from 4.7% to 4.1% in December, the lowest level in 8 months, according to an analysis by the National Bank.

This was seen as a sign that the US Federal Reserve’s rate hike to curb inflation is paying off. And quickly, the yields of the 2-year and 10-year bonds in the United States reacted, falling 16 and 13 basis points respectively, settling at 4.29% and 3.59%. In Canada, the fall was much more modest (6 points and 3 points, to 3.11% and 4%).

This sign of a possible moderation in inflation in the United States had repercussions on the stock markets, with rises in the main indices.

In short, nothing is decided yet. The only certainty, and you can bet big on this, is that the stock markets will fluctuate, as a former colleague told me.

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