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US Job Growth Rebounds, Unemployment Rate Hits 10-Year Low & Canadian Job Growth Slows

The US economy added jobs for the 79th consecutive month in April, continuing the longest ever job expansion phase in the history of the US economy. In April, the US economy added 211k jobs, with economist consensus estimates at 185k. This was the third time in 2017 that job additions in the US economy were more than 200k. The March number was revised lower to 79k from 98k reported last month. The unemployment rate derived from a separate survey of households edged lower to 4.4%, the lowest since May 2007. The improvement in unemployment rate could be attributed to a decline of 200k in the work force, which pushed the labor participation rate lower to 62.9%. The impact of higher job growth is still not feeding through to wage inflation which was quite benign at 2.5% (year on year). The broader unemployment rate U-6, including discouraged workers and part time workers who are seeking full time jobs, fell lower by 3 bps to 8.6%, indicating continued momentum in job gains at a broader level.  The U-6 employment rate at 8.6% is the lowest since November 2007. The US economy has reversed all job losses from the financial crisis, and is now at pre-financial crisis levels.  One reason why jobs gains are not translating into higher wages could be due to the fact that job growth was higher in some of the lower payer segments. The hospitality sector added 55k jobs, professional and business services increased by 19k, and the government also added 17k jobs.

In Canada, job gains muted at 3.2k, well below economist consensus estimates at 10k. The composition of the job gains was also not encouraging with 31.2k full time positions being shed, and 34.3k part-time jobs being created. The unemployment rate dipped lower by 2 bps to 6.5%, the lowest it has been since October 2008.  The dip in unemployment rate was partially due to 45.5k people not counted in the labor force. Overall, there is some momentum in job growth with the Canadian economy having added jobs for six consecutive months now. In Ontario, unemployment rate dipped lower to 5.8%, the lowest it has been since January 2001. The impact of lower oil prices and a weaker Loonie, combined with the buoyant real-estate sector has spurred job growth in Ontario over the last two years.  One point which is of concern is the absolute lack of wage gains in Canada, with wages increasing 0.7% (year-on-year) in April - the lowest since the late 1990s. Ontario has been the biggest contributor to low wage growth, clocking 0.2% (year-on-year) in wage gains. The GTA being a hot spot for immigration, increased labor supply is keeping a lid on wage growth.

MARKET REACTION

The US Dollar firmed up across the board as the probability of a rate hike in June increased to about 80%. There is one more set of payroll numbers in May for the FOMC to review before their June meeting. The Canadian Dollar was hit on both sides due to stronger US data and weaker Canadian data, which sent the Loonie falling further. The USD/CAD traded just a touch below 1.3800 after the release of both sets of payroll data, but gave up gains due to a rally in crude oil prices, closing the day just above 1.3700. The Canadian Dollar has fallen 3.6% from its strongest level in mid-April, and could be vulnerable to a reversal with two important factors. Firstly, crude oil prices could rebound if OPEC & its partner non-OPEC countries decide to extend the production cuts. Secondly, any signs of ease in US-Canadian trade tensions would result in speculators cutting short Canadian Dollar positions, which at 47.7k contracts is the highest level since last February when the USD/CAD traded over 1.4000. 


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