What the Latest Canadian and U.S. Employment Data Mean for Our Mortgage Rates

by Dave Larock

Anyone keeping an eye on where mortgage rates are headed should pay close attention to the monthly Canadian and U.S. employment reports because the cost of labour is one of the main drivers of overall inflation. Bond yields, and by association mortgage rates, move in response to changes in expectations of future inflation.

Canadian Employment Data Highlights

• The Canadian economy added 42,900 new jobs last month, almost double the 22,500 new jobs the market was expecting. This continues the roller-coaster trend we have seen of late where there is a net decline in jobs one month and a net increase the following month.
• We have now averaged roughly 16,000 new jobs over the most recent twelve months and approximately 10,000 new jobs over the most recent six months. These data indicate a slow decline in our employment momentum, which isn’t even tracking in line with the 20,000 or so new jobs we need to create each month to keep pace with the ongoing growth of our labour force.
• Most of last month’s gains were in youth-focused part-time work (30,100 new part-time jobs for the month) and in public sector hiring (39,300 new public-sector jobs for the month). That type of job creation does not equate with the kind of longer-term income growth that it will take to get our economy humming again.
• Further to that point, the service sector added 58,500 new jobs while goods-producing employment shrank by 15,600 jobs and manufacturing employment shrank by 9,200 jobs. This disconnect is concerning because manufacturing jobs create a powerful multiplier effect, which triggers job creation across our broader economy. Manufacturing jobs also tend to be higher paying.
• Average hourly wages did manage to eke out a small 0.2% gain for the month, which marked a 2.2% year-over-year increase over the most recent twelve months. That’s higher than our inflation growth of 1.1% over the same period (as measured by our Consumer Price Index), but not by enough to fuel a significant uptick in consumer spending or to materially alter inflation-growth forecasts.

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