REPEAT: MNI BOC State of Play: Wage Growth Picks Up Speed

Repeats Story Initially Transmitted at 15:36 GMT Nov 3/11:36 EST Nov 3

By Yali N'Diaye

     OTTAWA (MNI) - Data released Friday reinforced a recent trend of

strengthening wage growth and weakness in goods trade.

     On the labor market front, data showed the fourth quarter is starting on a

stronger note, with developments in wages and youth employment likely to bring

some comfort to the Bank of Canada, which has been concerned over subdued wage

inflation and discouraged youth.

     Virtually all indicators of Statistics Canada's October Labor Force Survey

were green: year-over-year average hourly wage growth for permanent workers

picked up speed to reach 2.4% in October, the fastest increase since April 2016,

maintaining a six-month upward trend since reaching a dip last April; private

sector full-time employment was the key driver with 88,700 full-time jobs and

39,100 private sector positions; and not only did youth employment rise 17,500

on the month, but more young people looked for jobs, leading to a 1.0-point

increase in the participation rate to 63.7%; hours worked increased 2.7%

year-over-year, up from 2.4% in September; all industries posted gains in the

goods-producing sector, and while employment in services rose just 1,400,

details showed diverging moves with some strong gains offsetting weakness

largely concentrated in trade (-35,900).

     Such an outcome should comfort the BOC, and supports Governor Stephen

Poloz' recent comments. During a testimony before the House finance committee

Tuesday, he said that in the near term, he expects that as excess is being

absorbed in the labor market, "wage growth is going to pick up because companies

can afford it."

     That being said, the reasons for caution remain, especially on the external

front, with uncertainty surrounding NAFTA negotiations amid weakening goods

exports.

     In addition, the U.S. Department of Commerce announced its final decision

Thursday to impose duties of 20.83% (revised down from 26.75% in a preliminary

decision) on Canadian softwood lumber, which represents 7% of exports.

     Foreign Affairs Minister Chrystia Freeland said Thursday Canada would fight

the "deeply troubling" decision, including through litigation. This is not the

first time a dispute about Canadian lumber wood arises between the two

countries, however.

     On Friday, trade data showed ongoing weakness contrasting with the strong

employment report. Export volumes edged up just 0.3% in September after three

consecutive months of declines ranging from 1.4% to 2.2%, with the real trade

balance posting a C$3.4 billion deficit in the third quarter after a C$0.3

billion surplus in the second quarter.

     The data also confirmed the Canadian dollar appreciation's impact on import

prices, which fell 4.6% in the third quarter, when the loonie appreciated on

average 5.5 cents against the U.S. dollar, after rising 2.0% in the second

quarter. This was the largest quarterly import price drop since the second

quarter of 2003.

     The BOC expects the impact of the recent appreciation of the Canadian

dollar on CPI inflation won't peak before the second quarter of 2008.

     In fact, the foreign exchange effect led the BOC to slightly lower its

estimate of the contribution of net exports to GDP growth in 2018 and 2019.

     The central bank also said in October that a weaker auto sector should

weigh on export performance in the third quarter and that's exactly what

Statistics Canada's data reflected Friday, meaning such weakness is unlikely to

change the appreciation of the BOC.

     The agency said motor vehicles and parts "contributed the most" to the

third quarter 7.9% export decrease, the largest since the second quarter of

2009. In fact, excluding the latter sector, exports rose 1.8% in October instead

of declining 0.3%.

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