REPEAT: MNI BOC ANALYSIS: Jobs Data Won't Accelerate BOC Hikes

Repeats Story Initially Transmitted at 17:30 GMT Aug 10/13:30 EST Aug 10

By Yali N'Diaye

     OTTAWA (MNI) - Canada's economy once again created more jobs than analysts

had expected in July, adding 54,100 positions, after a 38,400 increase in June

that had also topped expectations.

     However, details of the report make it unlikely for the Bank of Canada to

accelerate the pace of its tightening.

--SLOWER WAGE GROWTH 

     The slowdown in the pace of average hourly wage growth for permanent

workers continued, with a progression of 3.0% year-over-year, down from 3.5% in

June and the slowest pace since December 2017.

     This brings the readings more in line with the Bank of Canada's

wage-common, which estimated the growth pace at 2.3% in the first quarter.

     And while the unemployment rate declined to 5.8% in July from 6.0% in June,

it was accompanied by a reduction in the participation rate to from 65.5%. 

--WEAKER JOBS COMPOSITION 

     The composition of the jobs gains also showed the report was not as strong

as the headline suggested.

     The monthly increase was in fact driven by part-time employment, which

surged 82,000, the largest increase since August 2017, while full-time

employment, considered more reflective of stronger business confidence, fell by

28,000.

     In addition, most of July's gain owed to a 49,600 increase in the public

sector, while private sector jobs, more representative of the strength of the

economy, were up only 5,200 over the month. 

     Consistent with the public sector prevalence in hiring over the month, job

gains were concentrated in services, where employment was up a record 90,500,

led by education, health care and social assistance and information, culture and

recreation. 

     Goods-producing industries shed 36,500 jobs, the most since May 2009.

Manufacturing was particularly weak, with 18,400 positions cut at a time

uncertainty about NAFTA negotiations linger while the threat of auto tariffs is

still clouding the horizon. 

--RESILIENT HOUSING

     Despite such headwinds, the central bank is also unlikely to slow down the

gradual tightening, especially with the housing sector showing resilience after

an initial pull back at the beginning of the year, when new stress tests on

mortgages came into effect.

     In addition, higher oil prices continue to provide an additional buffer to

Canadian growth.

     The strength of the U.S. dollar is also playing in favor of Canadian

exports while being a source of upward pressure on inflation. The latest U.S.

policy developments towards Turkey and Russia are also reinforcing the safe

haven flows towards the U.S. dollar.

     And while rising tensions between Saudi Arabia and Canada over human rights

issues made headlines, investors are not panicking. Rightly so, according to

Capital Economics, whose analysts pointed out in a commentary that Canada sends

just 0.2% of its exports to Saudi Arabia and financial links between the two

countries are small.

     Against this backdrop, the BOC is more likely to maintain its gradual

tightening policy than not.

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