Crisis Era Jobs Data
According to Statistic Canada’s monthly job report, Canada saw the biggest monthly drop in employment in November since the financial crisis. This staggering headline should have been somewhat anticipated given the recent disparity between employment growth tracked by StatsCan’s two different surveys; albeit, the shortened timespan over which this moderation occurred creates a shock. Job growth in Canada over the past year is now averaging approximately 26 thousand positions and growing at 1.6%, which is more in line with the broader performance of the Canadian economy.
Beyond the sticker shock, the most noticeable afterthought of today’s job numbers is that the Bank of Canada didn’t have this data when they chose to keep interest rates on hold this past Wednesday. As expected, going into the announcement, the Canadian central bank left rates unchanged for the ninth consecutive meeting.
Today’s data is further indication that the economy is softening into next year. And another headline Friday competing with the disastrous job numbers was that Stephen Poloz will not stand for reappointment as the Bank of Canada Governor. His term is up June 2, 2020. This too, although not a surprise, as no governor since Gerald Bouey in the 1970’s and 1980’s stood for two consecutive terms leaves further uncertainty around policy direction in the new year.
Forecasts have been consistent that the Bank of Canada would eventually need to keep pace with the rest of the Western World central bankers and follow their leads into cutting interest rates. For several reasons, Canada was able to hold off (for the time being), as the Canadian economy saw what may be viewed as anomalous strength through the third quarter. Business investment picking up was a positive indicator, but ultimately other macro indicators, and particularly ones linked to trade are seeing past strengths viewed as one-offs.
All bets are (or perhaps were) on for the Bank adjusting course in the beginning of next year, but what has been overlooked is whether Governor Poloz will position himself as a lame-duck. This would be in lieu of actively adjusting policy rates. This does not render him impractical in a scenario where he may need to be reactive, but in a ‘status quo’ economy and given his track record over the past near 7 years, the most probable outcome is a central bank shifting to the sidelines.
What we have witnessed with Stephen Poloz is a Governor that may often over-speak but has exercised more caution and restraint when it came to adjusting policy and rates. Absent from economic conditions seriously deteriorating into 2020, it would seem more likely in the conservative realm of the central bankers that they hold the course. For this, there are examples in modern history where the incumbent does not look to prescribe the policy of their successor.
This does not necessarily alter our views for the direction of the Canadian dollar, which we still see trending lower into the new year. That said, it is also unlikely the economy falls out of bed, which for this reason enforces the status quo scenario. Canada’s job numbers were disastrous, but given the overshoot of the prior months, it’s more likely that we are witnessing a return to mediocrity.