The US job creation engine accelerated dramatically last month, further bolstering the case for a rate hike at the Federal Reserve’s meeting later this month. According to the Bureau of Labor Statistics, 162,000 jobs were added in August—representing a massive overshoot relative to the 55,000-position consensus forecast—while the previous two months were revised down by a total -23,000 positions, bringing the three-month average pace of job creation up to 71,000, from 30,000 ahead of the update.
Perhaps more crucially, the unemployment rate held at 4.1%, and average hourly earnings climbed 0.3% month-over-month, speeding up from the 0.1% pace set in the prior month and rising 3.1% year-over-year—suggesting that the demand for workers is still outpacing supply. Measures below the headline level are becoming more important as an aging population and the immigration crackdown combine to slow growth in the US labour force.
The dollar is reversing some of yesterday’s losses and Treasury yields are up across the front of the curve as traders add to bets on a rate hike in two weeks. Fed fund futures are now putting near-60% odds on a hike, with another priced in by March 2027.
The report comes after Fed governor Christopher Waller yesterday argued that labour markets look stable, saying he would favour leaving rates unchanged at the central bank’s meeting in two weeks if inflation pressures continue to ease. However, “If inflation comes in hot” in next Friday’s consumer price index report,” he said “I would consider a rate hike”.
On the northern side of the 49th Parallel, the Canadian economy lost jobs last month, eroding market expectations for a rate hike by year end. An update just published by Statistics Canada shows 41,700 positions were lost in August, marking a sharp reversal from the 75,100 gain recorded in the prior month and undershooting the circa-14,000-job consensus forecast. The unemployment rate held at 6.4%, matching estimates.
The bulk of the losses—35,900 positions—were subtracted in full time roles. The annual increase in the average hourly wage for permanent employees—closely watched by monetary policymakers—fell to 2% from a year earlier, down from 3% percent in the prior month.
The Bank of Canada, which on Wednesday delivered a modestly-hawkish hold, is now expected to stay on hold into the new year as policymakers wait for more clarity on the longer-term growth trajectory in the Canadian economy and seek to assess the impact of the latest escalation in trade tensions with the US. In the here and now, US-Canada rate differentials are widening and the Canadian dollar is plunging, fully unwinding yesterday’s advance.