US job creation held up and the unemployment rate held steady last month, further reinforcing market expectations for a prolonged period on the sidelines from the Federal Reserve. According to the Bureau of Labor Statistics, 115,000 roles were added in April—representing an overshoot relative to the 65,000-job consensus forecast—while the jobless rate stayed at 4.3%. The two previous months were revised lower by a modest 16,000 positions, and average hourly earnings climbed 0.2% month-over-month, slowing slightly from the pace set in the prior month, but rising 3.6% year-over-year—exceeding the 3.3% pace of headline inflation over the same period.

We suspect that artificial intelligence spending is playing a major role, boosting job creation in the construction sector even as employment growth outside the healthcare and education sectors lags, but there’s little question the economy is demonstrating a degree of resilience not priced into financial markets earlier this year.

The dollar is holding steady and Treasury yields are inching up across the front of the curve as traders leave monetary policy expectations essentially unchanged. Imminent leadership change notwithstanding, investors are convinced policymakers will prioritise the fight against inflation over labour market softness this year, and see the distribution of risks tilted toward monetary tightening—not loosening.

Here in Canada, labour markets softened last month, reducing odds on rate hikes from the Bank of Canada before the end of the year. An update published by Statistics Canada this morning showed -17,700 positions lost in April while the unemployment rate climbed to 6.9 percent as more people entered the labour force. Consensus estimates had pointed to 10,000 new hires, with the jobless rate holding at 6.7 percent. Wage growth decelerated slightly with full-time hourly average earnings, up 4.8% on a year-over-year basis after printing 5.1% in March.

The Canadian dollar is ratcheting lower as traders pull back on monetary tightening expectations previously incorporated in rate curves, and differentials tilt in the greenback’s favour. Swaps are showing 35 basis points in rate hikes priced in by year end, down from roughly 45 ahead of the release.

On a cumulative basis, Canada has shed 112,000 jobs since January 1, marking the worst start to the year since the pandemic, and the global financial crisis before that. We think signs of stability will emerge in the coming months as trade uncertainties are reduced and downward momentum in housing markets begins to slow, but today’s data points to a long and difficult road ahead for the Canadian economy.