It has been a busy start to the summer. This week, the Bank of Canada raised its policy interest rate by 0.25%, as expected. Inflation figures released this week in the U.S. suggested that pricing pressures continue to ease. The second quarter corporate earnings season has officially begun. We also recently received employment data updates in both Canada and the U.S. Overall, the labour situation in North America, despite marginal changes, remains healthy. We discuss the labour market below.

 

The Canadian economy added 60,000 jobs in the month of June, predominantly in the retail, manufacturing, health care and social services sectors. The unemployment rate increased from 5.2% to 5.4%, an uptick largely driven by a growing labour force, as Canada’s population surpassed 40 million for the first time. Wage growth registered at 4.2%, which was the slowest pace of growth in over a year. According to the latest outlook survey by the Bank of Canada, labour availability has become less concerning for businesses. This is a notable change from the past two years, during which access to labour was a dominant issue for most businesses.

 

The U.S. added 209,000 jobs in the month of June, led by government, health care, social services and construction sectors. While this figure was slightly lower than expected, it was offset by a near-historic-low unemployment rate of 3.6% and unexpectedly strong wage growth of 4.4%. The headline data suggested that the job market remains tight, even with a slowing pace of job gains. The 6-month moving average of monthly new jobs, which was close to 445,000 a year ago, is now down to roughly 278,000. Layoffs across the technology sector and some larger companies have garnered significant media attention but appear to be contained as the trend of weekly initial jobless claims, which refer to claims for unemployment benefits filed by newly unemployed individuals, has only gradually been moving higher this year. All of this suggests that the U.S. labour market remains healthy and stable, with pressures that are slowly moderating.

 

Much of the North American economy’s resilience to date stems from a strong employment backdrop. Consumer demand, particularly for services, continues to be strong despite elevated interest rates and prices, thanks to plentiful jobs and rising pay. Emerging signs suggest that companies that had been recruiting intensely just a few years ago have shifted their plans. Some have announced layoffs. We expect that this trend may persist and could potentially lead to broader deterioration in the employment picture as more interest rate increases work their way through the economy. This could reduce consumer demand and force more companies to recalibrate their workforce. The pendulum of job creation may be beginning to swing toward job destruction, albeit slowly. For this reason, we maintain a cautious approach in managing our client portfolios and are patiently waiting to take advantage of opportunities as they arise.

 

If you have any questions, please do not hesitate to contact us.