Canada: Employment growth to advance at a 20k pace in May - TDS

The research team at TDS is looking for the May Labour Force Survey of Canada to underscore a tightening in labour market conditions on balance as they forecasts employment growth to advance at a 20k pace in May, marking a marginal pickup from the 3k recorded increase in April.

Key Quotes

“Gains in the private services and manufacturing industry groups are expected to drive the May pickup. Services jobs are coming off two relatively weak months while surveys have pointed to a resurgence in factory hiring. The breakdown between full- and part-time employment is uncertain this month, as the pullback in full-time jobs suggests some rebound whereas the long string of gains in prior months may give way to a further correction in May. If anything, part-time jobs are more likely to see net gains in May. Note that the construction strike in Quebec in late May should have no impact on the survey as workers affected by labour disputes are still deemed as employed in the LFS.”

“The unemployment rate will draw attention following its 0.2pp descent to 6.5%, which reflected an unfavourable 0.3pp plunge in labour force participation. The April drop however mainly reflected a correction in prime-age participation, which climbed to a historical high of 87.3% in March. Hence the April figures draw limited concern over participation, and some stabilization or pickup in labour force growth in May should drive the unemployment rate slightly higher to 6.6%, though there is risk for an unchanged read.”

“On wages, we see scope for a moderate pickup in average hourly earnings among permanent employees partly on a base effect. Recall that earnings growth slowed to a subpar 0.5% y/y in April, though the recent deceleration is in stark contrast to the SEPH wage series of salaried employees, which continued to average above a 2% pace through March. Over the course of this year, the material declines in economic slack over the past three quarters should help drive LFS wages higher.”

“Foreign Exchange

The May employment report will help set the tone for CAD over the coming week. Two-way risks in oil prices have led to some choppy trading in USDCAD but an upside surprise in labour market data show bode well for CAD near-term. Our forecast against consensus expectations translates into a 0.8-sigma upside surprise, which is consistent with a 0.4% drop in USDCAD. We look for an acceleration in growth momentum to underpin a modest recovery in CAD, especially as the market starts to reprice the risks around an earlier BoC rate hike. Our HFFV shows that USDCAD looks a bit cheap to cyclical drivers. Still, we prefer to use any bounces as selling opportunities with our near-term projections pointing to a push below 1.33 over the next month.”