CAD: Upbeat labour report ends a tough year - ING

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 11, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – James Smith, Economist at ING, notes that the Canadian Friday’s Labour report showed a small bounce back in the jobs market, with a greater-than-expected net gain in employment (22.8k vs 8k consensus) making up for the surprise decline in November.

    Key Quotes

    “The labour market grew faster than consensus in December, led by an increase in the number of part-time workers and the health sector, whilst the unemployment rate remained unchanged at 7.1%. A reading of 29.2k part-time jobs more than offset the 6.4k fall in full time employment. Though monthly labour numbers can be volatile, 2015 was a good year for the labour market as a whole, with a reported total job gains of 151.8k and a growth rate of 0.9% (faster than the 0.7% rate in 2013 and 2014).

    Nevertheless, the overall effect of the commodity price collapse in the past 18 months has hit the Canadian economy particularly hard. Employment in natural resources fell 6.8% during 2015 with the highest declines in this sector being in the largest oil-producing regions, Alberta, Saskatchewan and Newfoundland and Labrador.

    The labour statistics are typically a lagging indicator of economic growth, so this report is not especially helpful in indicating where the economy is heading. Instead, the adjustment to the decline in Canada’s terms of trade and loss in oil revenue were highlighted in a speech last Thursday by Governor Poloz as being the main drivers of current economic fragility. Canada experienced a technical recession in the first half of 2015 largely due to cuts in capital investment within the resource sector.

    Last month, the Bank of Canada maintained their overnight rate at 0.5% and we do not expect a further rate cut at the 20 January rate meeting. That being said, the BoC have reemphasised their ability to implement unconventional monetary policy measures if the “economy was hit with another major shock” and recently adjusted their effective lower bound for the bank rate to minus 50bp. Therefore, given the further recent declines in oil prices and consequential negative effects on the Canadian economy, a rate cut is possible in 2016, but any further easing is initially likely to be channelled through the introduction of new forward guidance and a weaker CAD.”
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