U.S. employment surges while global central banks maintain policy rates

Author: Portfolio Specialist Group

March 12, 2018

AGF Weekly Perspectives

“A recap of last week’s top economic news and what’s to come”

U.S. employment surges

  • U.S. nonfarm payrolls added 313,000 jobs in February, supported by strong full-time employment, and far exceeding expectations with the strongest gain in 19 months. New positions were found in construction, retail trade and professional services as the participation rate returned to a post-recession peak of 63%.
  • Despite the strong job growth, the U.S. unemployment rate held steady at 4.1% because of the larger workforce.
  • Average hourly earnings decelerated slightly to 2.6% in February, though remains elevated. Positively, a strong 0.6% gain in average hours worked was the most in nearly four years and brought the year-over-year gain to 2.2%.

Canadian employment posts modest gain

  • The Canadian economy added 15,400 jobs in February, rebounding modestly after the prior month’s sharp revision of 88,000 fewer jobs reported. Part-time work supported the headline gain, adding 54,700 positions, while full-time employment shed 39,300 jobs.
  • Service-producing jobs were positive, with strong gains in health care and social services, while goods-producing roles lagged, particularly in manufacturing. Regionally, Ontario led with 15,700 positions added, one of only five provinces to report positive growth in February.
  • Canada’s unemployment rate returned to four-decade lows of 5.8%, and average hourly earnings remained elevated with growth of 3.1% annualized, though were down slightly in the month.

Few changes at central banks

  • The Bank of Canada held interest rates unchanged as expected, with little urgency for imminent tightening. Accompanying comments cautiously noted that trade policies are “an important and growing source of uncertainty” as well as household credit growth, which has decelerated over the past three months.
  • The European Central Bank also held rates steady, although the updated statement removed prior comments around their commitment of being “ready to increase…size and/or duration” of asset purchases, which markets perceived as a display of confidence in economic progress.
  • The Bank of Japan made no changes to policy rates and stimulus measures as widely expected. The upbeat central bank noted the economy is “expanding moderately” as Japan’s economy grew at a 1.6% annualized pace in the fourth quarter of 2017.

Other economic news

  • Canadian housing starts rose 7% in February and above the 12-month average, which in itself is the strongest since 2008. Multi-family urban area starts more than offset a decline in the single-detached segment. The new house price index rose 3.2% annualized in January, with Vancouver and the greater Toronto area leading gains. Building permits also rose in January, advancing 5.6% with a surge in plans for multi-family residential housing in Ontario.
  • U.S. President Trump formally signed tariffs into law on steel (25%) and aluminum (10%) after announcing plans in the prior week. Canada and Mexico were ruled exempt from the tariffs for the time being, though Trump was clear in stating the exception would be reversed should NAFTA talks break down. In part due to failed appeals, Trump’s top economic advisor, Gary Cohn, resigned from his position at the White House during the week.

What’s to come

U.S. inflation reported

  • Following a stellar jobs report, the U.S. Federal Reserve will be monitoring progress of its other key mandate with U.S. inflation reported Tuesday. The eurozone, U.S. and Japan will also report industrial production activity during the week.

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