Michael Watkins
December 08, 2023
Weekly Market Update
Data from November showed continued signs of Canada's labour market moderating. The labour market has served as a source of strength for Canada's economy as it emerged from the early stages of the pandemic. A robust labour market resulted in strong Canadian consumers, who pushed spending higher. However, momentum is softening due in part to the aggressive actions by the Bank of Canada (BoC) over the past two years.
- The Canadian economy added 24,900 jobs in November, which was up from the previous month but remains at relatively modest levels. Job additions were concentrated in full-time employment, whereas part-time jobs declined over the month.
- The manufacturing sector added 28,000 jobs in November, contributing to the overall gain. However, this was partly offset by a drop in retail trade and finance jobs.
- Canada’s unemployment rate rose to 5.8% in November, its highest since January 2022. The number of unemployed persons increased over the month. While job additions grew, they did not keep pace with the increase in the labour force, which rose by 36,000.
- The BoC made its final interest rate announcement of 2023 this week. Markets expected the BoC to hold steady at 5.00%, and they delivered as expected, along with a more moderate tone.
It is a precarious time for the Canadian economy, households and businesses. Expectations are rising for the BoC to soon be in a position to begin reducing interest rates in 2024.
South of the border, the aggressive rate hikes from the US Federal Reserve Board (Fed) have helped dampen economic conditions and drive down inflation. Labour market data in recent months has shown that tighter monetary policy from the Fed might also be cooling the labour market. The labour market has been a significant source of strength for the US economy since the beginning of the pandemic.
- US companies announced 45,510 job cuts in November, an increase from the 36,836 job cuts in the previous month. The retail sector announced the most job cuts, suggesting consumer spending might be scaling back.
- Earlier in the week, it was announced job openings fell to 8.7 million in October, the lowest level since March 2021. Hiring intentions are slowing amid waning economic activity and tight financial conditions. This is an important metric for the Fed, which wants the labour market to cool but prefers demand for workers to moderate rather than companies cutting jobs.
- ADP reported that private businesses in the US added 103,000 jobs in November, down from the 106,000 jobs added in October. In recent months, the hiring activity by private businesses has fallen to levels not seen since the beginning of 2021.
- Initial jobless claims have trended higher over the past few weeks. Over the week ended December 2, jobless claims rose to 220,000 from 219,000 in the previous week. The US Bureau of Labor Statistics will released the US unemployment rate for November today, and it fell to 3.7% as U.S. payrolls rose by 199,000 (slightly ahead of expectations).
Data released over this past week show clear signs of the US labour market losing momentum due in part to the aggressive rate increases by the Fed. Companies appear to be scaling back on hiring in the current economic environment. Over the past few years, the US labour market has helped strengthen consumers, which has helped prop up spending and the overall economy.
Looking at the broader global Economic Outlook, the Organisation for Economic Co-operation and Development (OECD) said that it expects global economic growth to slow in 2024 compared to 2023. Global economic conditions remain highly uncertain amid geopolitical tensions, tight financial conditions and relatively muted consumer demand.
- The OECD expects the global economy to expand by 2.7% in 2024. This would mark a slowdown from the organization’s projection of 2.9% growth this year and would be the slowest pace of growth since 2020, when COVID-19 brought the global economy to a near halt.
- Ongoing geopolitical tensions, high borrowing costs and elevated inflation might hinder the economy in 2024. There have been signs of tighter monetary policy weighing on consumer and business activity, and this is likely to persist into next year.
- The OECD believes economic activity in the US and China will likely soften next year, which will drag down global economic growth. While the US economy has proven resilient in 2023, slower consumer spending is expected, which might stall growth. The OECD expects Canada’s economy to expand by only 0.8% next year.
- The economic organization expects global inflation to moderate further in 2024, inching closer to central bank targets. The OECD expects global inflation to slow to 5.2% in 2024 and 3.8% in 2025.
- Despite expectations of inflation slowing, it might remain elevated in some countries and regions, and central banks from those areas could leave interest rates higher for longer. In contrast, other central banks might be looking to cut interest rates as inflation slows more quickly and economic conditions wane. Expectations are heightening that the Bank of Canada and US Federal Reserve Board could begin cutting rates next year.
Heading into 2024, economic conditions can best be described as uncertain. Globally, tight financial conditions are taking hold, which is hurting households and businesses. The same is happening here in Canada, where the economy contracted in the third quarter. The ebbs and flows of economic conditions often present attractive opportunities in equity and fixed income markets.
Source: CIBC Morning Market Brief