July’s Job Creation Reports: Fed Will Be Accepting; BoC Will Be Pleased

Try thinking like a central banker. Your main goal at the moment is to bring down inflation to around +2.0% year over year. Your primary weapon to achieve that end is high interest rates. They’ll slow consumer spending and housing starts but will also cause collateral damage in labor markets. Signs of kinks in job creation will be greeted with a smile.

Given this framework for success, how will the Federal Reserve and the Bank of Canada view the latest (July) reports on employment in their respective countries? The Fed will be accepting but not delighted. The Bank of Canada (BoC) will be pleased but with a measure of regret.

In the U.S., July’s Labor Situation Report from the Bureau of Labor Statistics (BLS) records a +187,000 increase in the nation’s total number of jobs. (There was also a -49,000 jobs revision to the total number previously reported for June.)

The U.S. year-to-date monthly average of job creation has slipped to +258,000, down -44.2% from the +463,000 figure that was realized, on average, from January to July 2022. Moderation is underway, although the latest seasonally adjusted (SA) unemployment rate (U) in America tightened to 3.5% from 3.6% in the prior month. The SA U rate has been under 4.0%, a low benchmark on its own, for 18 months in a row, dating back to January 2022.

In Canada, through the first half of this year, there was job growth that was better than in H1 of last year. Therefore, while a contraction in the increase in July would have been seen by the BoC as better than a decrease, the latest month’s tally of -6,000 jobs will be greeted, nonetheless, with equanimity. Average monthly job creation in Canada, at +41,000, is still running higher than it was during the first seven months of last year, +37,000.

Canada’s latest SA U rate rose to 5.5% from 5.4% in June, and it was up from 4.9% in July 2022.

Canada’s not seasonally adjusted (NSA) R-3 U rate, which is calculated according to the same methodology in the U.S., climbed to 4.8% in July from 4.3% in June. The American equivalent figure (i.e., NSA U) was a full percentage point lower at 3.8% in July.

Construction employment in the U.S. in July was +19,000 jobs. The monthly average to date this year has been +16,000, a fall off from last year’s +26,000.

Construction employment in Canada in July was -45,000 jobs. The monthly average so far in 2023 north of the border has signaled a retreat, -8,000 jobs. The seven-month average last year was +13,000.

Hourly wages for ‘all jobs’ in the U.S. are in the +4.4% to +4.8% range. Construction workers are doing considerably better, with hourly pay hikes ranging from +5.4% to +5.8%, depending on whether the survey pool includes or excludes bosses. The increases for production workers only, leaving aside supervisors, are the ones at the upper ends of the ranges.

The year-over-year step up in the hourly earnings rate for ‘all jobs’ in Canada, as reported by Statistics Canada, is presently +5.0%.

Among all industries, ‘hospitality’ was the one that suffered the sharpest declines in employment in both countries during the worst phases of the coronavirus pandemic. Recently, with mask mandates repealed, it has been showing the largest y/y percentage recoveries in employment.

But there are signs of growth in such job opportunities slowing. While July’s y/y jump in ‘accommodation and food services’ employment in Canada was still outsized at +7.5%, the U.S. result for the ‘leisure and hospitality’ sector, at +4.4%, shifted closer to pre-health-crisis normalcy.