MNI BOC State of Play:Stronger Wages Cld Accelerate Tightening

By Yali N'Diaye

     OTTAWA (MNI) - Just Tuesday, the Bank of Canada signaled it saw some light

at the end of the household indebtedness tunnel, albeit in the far away horizon,

partly as a result of better economic conditions, highlighting among them

employment growth.

     In fact, it said in its semi-annual Financial System review that most

borrowers should be able to manage a "moderate" rise in mortgage rates,

"especially if accompanied by improvements to household income."

     Statistics Canada put out numbers on such an improvement Friday, when it

announced that the Canadian economy added added 79,500 jobs in November, far

more than the 10,000 gain expected by analysts and the largest increase since

April 2012.

     Details of the report raised the potential for another rate hike that could

come sooner rather than later.

     Key indicators monitored by the central bank showed further improvement,

starting with wage growth, which, according to the BOC, continued to indicate

slack in the labor market as of October 25, when the central bank left its

overnight rate target unchanged at 1.0%.

     At that time, wage growth had already been showing signs of acceleration,

having reached 2.2% in September as measured by the year-over-year growth of

average hourly wages for permanent workers.

     That pace reached 2.7% in November, Statistics Canada reported Friday, the

largest 12-month gain since April 2016.

     The agency also reported that despite a real GDP growth slowdown in the

third quarter to 1.7%, roughly as expected by the central bank (1.8%), nominal

employees compensation rose 1.3%, the largest quarterly gain in three years.

     And while the annualized real GDP growth rate was as expected by private

sector economists as well, September's showing was slightly stronger than

expected, with a monthly increase of 0.2% instead of 0.1% expected by

economists, handing off a stronger start to the fourth quarter.

     And so far, labor market data for the fourth quarter have confirmed the

strengthening is not just temporary and the quality of employment has been

signaling increased business confidence.

     To recap the results from Friday morning:

     The nearly 80,000 employment gain in November marked the 12th consecutive

increase, bringing the monthly average to 31,300, compared with just 16,600

between January and November 2016; youth employment, the weakness of which has

been a source of concern for Governor Stephen Poloz, rose 30,200, with the

employment rate continuing its upward trend since mid-2016; the monthly average

for full-time employment year-to-date is 33,700, up from 200 over the same

period last year; the share of involuntary part-time workers in total part-time

employment declined to 21.3% from 23.2% a year earlier; jobs mostly came from

the private sector, which added 72,400 positions in November, the largest gain

since October 2012; both services and goods-producing industries added jobs,

including a stunning 30,400 increase in manufacturing, the largest gain since

March 2002.

     But mostly, the wage growth acceleration has been consistent since a dip

last April.

     In its October 25 statement, the BOC said it "will be guided by incoming

data to assess the sensitivity of the economy to interest rates, the evolution

of economic capacity, and the dynamics of both wage growth and inflation."

     On the sensitivity of the economy to interest rates, the FSR slightly

lowered the bar for a rate hike as it finally started to see improvement and

reasons for "additional progress" that should make households more resilient to

higher interest rates.

     On the wage front, Friday's data were another green light.

     While the central bank might want to allow itself a bit more time before

resuming its likely to be "required" tightening, this week's FSR and data did

lower the bar, although housing developments are likely to remain high on the

radar screen for signs of any potential crash.

     Not to mention that uncertainties related to NAFTA negotiations remain in

the background

     The next interest rate announcement will be December 6.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

[TOPICS: M$C$$$]