TORONTO — The headline 312,000 gain in payroll employment, plus 58,000 worth of upward revisions to the prior two months should calm some concerns about the near-term economic backdrop, RBC Economics reported today.
The unemployment rate still rose to 3.9% from 3.7%, but that is still historically very low and down from 4.1% a year ago. Evidence continued to mount that tight labor markets are giving workers more bargaining power, the release noted.
Wage growth unexpectedly ticked up to 3.2% on a year-over-year basis to a new cycle high and up from 2.8% in the third quarter. Combining rising hours worked and wages leaves a pretty solid household income backdrop still in place, said Nathan Janzen, senior economist.
“Other economic data has not been quite as good, but also not as bad as might be ordinarily implied by recent financial market volatility,” he explained. “The economy still looks to have ended 2018 growing at an above-potential rate — just not quite as strong as the unsustainable 4% pace from the second and third quarters.
“Of course, part of the concern in financial markets is related to uncertainty about the external, rather than domestic, growth and possible escalation of international trade disruptions,” he added. “The U.S. government shutdown hasn’t helped instill confidence, particularly with a potentially more disruptive debt ceiling debate still to come later this year.
“Nonetheless, while comments from the Federal Reserve in December suggested policymakers have been somewhat unnerved by recent developments, the U.S. economy still looks to be running above long-run capacity limits while interest rates are still at historically low levels,” said Janzen.
“To be sure, the list of things that can go wrong at this mature point in the economic cycle is probably longer than the list of things that can go right, but current conditions still argue that there is room for official interest rates to ultimately grind gradually higher,” he added.
Canada’s jobs market ends 2018 on a positive note
RBC Economics expected a modest pullback in employment growth in December following a the 94,000 jobs gain in November, so today’s reported 9,000 increase was a pleasant surprise, said Josh Nye, senior economist.
The Canadian unemployment rate, which had fallen by 0.4 percentage points in the prior three months, managed to hold steady at a 44-year low.
“I would say that 2018 certainly wasn’t as impressive as 2017 in terms of job gains, but it still represented another year of solid improvement in Canada’s labor market,” said Nye.
Employment growth averaged 14,000 per month in 2018, all of it full-time, and three of four industries recorded gains for the year, he added, noting that the fourth quarter proved to be the best month for job growth and also saw the largest decline in the unemployment rate.
“We think that will contrast with a soft quarter for GDP growth. Our current tracking is for annualized growth of slightly more than 1% to close out the year,” said Nye.
The latest jobs reports, along with the fourth-quarter Business Outlook Survey, give the Bank of Canada some positive data points to consider at next week’s policy meeting.
“Nonetheless, we think recent tightening in financial conditions, growing global growth concerns, and lower oil prices will lend a dovish tone overall,” Nye explained. “Well-behaved inflation and muted wage growth give the Bank of Canada time to be patient and evaluate how those factors are impacting Canada’s economy in early-2019.
“We continue to think interest rates will move higher this year because low unemployment points to an economy at its capacity limits; however, don’t expect a move until the second quarter.”
SOURCE: RBC Economics press release