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Job Creation Beats Estimates, But Underlying Momentum Slows

The US job creation engine slowed in February, and revisions subtracted heavily from the prior two months – but still managed to generate far more jobs than expected. According to data released by the Bureau of Labor Statistics this morning, 275,000 jobs were added, but the unemployment rate climbed to 3.9 percent as the labour force expanded, and average hourly earnings rose 0.1 percent month-over-month, missing market expectations. Ahead of the release, consensus estimates had pointed to a 200,000-job gain, the unemployment rate was seen holding steady at 3.7 percent, and earnings were expected to rise 0.2 percent. 

Revisions subtracted a combined 167,000 positions from the headline numbers for December and January, while hours worked – often considered a better measure of underlying labour market trends – rose just 0.1 percent month-over-month after dropping -0.2 percent in the prior month. The diffusion index remained very positive, however, rising to 62.6 percent in February as most sectors added jobs. 

The dollar is tumbling, equity futures are moving vertically, and yields are correcting lower after rallying ahead of the release as traders move to price in a more aggressive monetary accommodation process through the back half of the year. 

The Canadian economy added more jobs than anticipated in February. This morning’s update from Statistics Canada shows 40,000 new positions added in the month, but the unemployment rate climbed to 5.8 percent from 5.7 percent in January as the labour force expanded. Consensus estimates had pointed to 20,000 new hires, with elevated population growth and still-high participation rates pushing unemployment to 5.8 percent. 

The services sector generated most of the gains, with the hospitality and professional services groupings offsetting losses in educational services and manufacturing. Total hours worked were up 1.3 percent year-over-year, rising 0.3 percent in the month.

The year-over-year rise in average hourly wages for permanent employees – a factor closely watched by monetary policymakers – fell to 5 percent from a year earlier, down from 5.3 percent in the prior month. 

The Canadian dollar is rising as we go to print, but on balance, it is clear that labour market slack is growing, supporting the case for an eventual pivot toward policy rule-based rate cuts. Expectations for the Bank of Canada’s easing trajectory are likely to remain relatively stable after the dust settles, with markets increasingly convinced policymakers will want to see several months of data before pulling the trigger.

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