Record Employment Suggests June Rate Hike, Say Dealers

higher-interest-rates No one foresaw this degree of job creation.

April’s 109,000 new jobs set a record for a single month, and crushed economists’ median estimate of 25,000.

In percentage terms, it was the biggest monthly employment gain since 2002.

Canada has now regenerated two-thirds of the jobs it shed in the recession. Given this strength, inflation risks are once again top of mind.

After yesterday's jobs report, every major securities dealer is now predicting a 1/4 point rate hike in June, July and September (source: Reuters).  By the end of this year, securities dealers forecast a 1.25 percentage point increase in the overnight rate.

National Bank economist, Yanick Desnoyers, says “a rate hike in June is a done deal,” barring unforeseen events.  In just over three weeks, we’ll find out if he and his peers are right.

  1. Digging a little deeper, 60% of the newly created jobs were part-time, 90% of the gains were in housing related industries, and if all of this signals a tightening labour market why were wages unchanged? Meanwhile, the average duration of unemployment just hit a ten-year high and the manufacturing sector recorded its largest decline in almost a year.
    Against this backdrop, another bank economist ominously predicts that “a rate hike in June is a done deal”. Like we haven’t already been expecting a rate hike in June for about 6 months now?? Perhaps the opportunity to nudge people towards the bank’s more profitable fixed-rate mortgages was just too good to pass up.
    The bottom line is that the security premium you have to pay for fixed-rates has never been higher (thanks Rob for pointing this out), our global markets are in turmoil, our primary export market (the US) may be on the verge of a second housing correction and our economic growth is still being propped up with stimulus steroids. If you are in a variable-rate mortgage, Puh-leeze do not lock in the first time the central bank moves rates up.
    One flashy job report headline does not a trend make.

  2. Wondering if the Greek debt crisis might have policy makers hold off on the rate increase until the impact becomes more clear.

  3. This employment report can’t be trivialized. I have watched the numbers for years and don’t recall ever seeing a report so far from expectations.
    The full-time/part-time distinction is delusive. StatsCan’s labour force survey always includes both full-time and part-time employment. Analysts forecast the headline number and it combines both.
    Even if you only choose to consider full-time employment, the 44k full-time jobs created in April exceeded analysts forecast for both full and part-time jobs combined.
    Unemployment duration is not material if the overall employment rate has improved significantly.
    Canada did lose 21,000 “widget-making” jobs in April, but we are no longer a manufacturing nation. We should give up on that concept because jobs will move to where the cost of production is cheapest. There is nothing that can be done about that without a dramatic reduction in Canada’s tax rates and socialist employment policies.

  4. Those ‘widget-making’ jobs were good paying jobs for people out there. You can tie the high-dollar to those job loses and a interest rate increase will only drive the job losses higher.
    In the spectrum on employable people some people will not choose to spend 4-8 years in university/grad school racking up tremendous amounts of debt to get on that first run of the ladder. university grads should be happy about that as it would make the already poor job prospects even worse.
    It’s like you have a layer of vp over a layer of director over a layer of manager over a layer of team lead over the guy who is actually doing the work in the centre. You should worry when the incentive for that guy to work is no longer there.
    If interest rates rise, Ontario will grind to a halt due to the high dollar. The damage will be unrepairable. Anyone who thinks we are out of this recession is delusional.

  5. Here’s one way it could go:
    BOC does raise rates once or twice starting in June, then HST starts July 1st in Ontario and BC, Hydro rates up 12% in Ontario on May 1st, Home Renovation Tax Credit ended by Federal Government a month or 2 ago, big Banks screwing everybody with scare tactics into fixed rate mortgages and squeezing consumers more, many people scared by dropping stock markets and start to only spend on necessities, Iceland’s volcano keeps erupting (it disrupted air traffic again today), Spain becomes the new Greece which is way worse than what is happening now since Greece is a sliver of the E.U. and Spain is about 10% of E.U.’s GDP, etc…
    My point being there is so much bad out there that how can anyone really predict such high rates to come? Missing in the article above is how much oil prices have dropped and the resulting drop in gasoline prices (way too slowly I know). This will bring inflation way down and give the BOC a lot of wiggle room. My guess is when oil hits the $83 to $85 mark again, then watch out for the rates to rise… and the economie to free fall. Good luck to everyone who doesn’t have a government job.
    Thank you for this website and the updates on mortgages and the various mortgage products. Also enjoy all the comments except for the bullies and the rude people, which are in the minority on this site luckily.

  6. Don’t count on it. Despite what people say, the mandate of the bank of Canada is to fight inflation, not to boost the economy.
    If there’s a choice between fighting inflation and boosting the economy, fighting inflation will win every time.

  7. One thing I know is that the predictions of these experts have been more or less like a coin toss in the past, and I don’t see why it would be different this time.
    Probably they are right about the June or July rate increases, but given the EU situation it cannot be as bad as the big banks want us believe, I would think. (the 1000-point DOW drop does not signal confidence in the economy either, I guess).
    After few 0.25% (or 0.50%) increments BoC may be forced to stop, or start reducing the rates again if the economies take another downward spin. Who knows.

  8. In terms of the “quality” of the jobs created, the report was very strong. The job creation was nearly 100% private sector, and, although about 60% of the jobs created were part-time, since July 2009, growth has been concentrated in full-time positions. (i.e. one report does not a trend make). The 3 month moving average is also up to ~50,000 jobs. That’s pretty stellar.
    Wages grew by 2.0% y/y, which isn’t bad. Regardless, employment is a lagging indicator of economic activity, so you wouldn’t expect wages to skyrocket at this point.
    Not all of the economic news out there is rosy, but it’s pretty hard to find much to squawk about in this LFS.
    Al R

  9. I agree don’t jump on the fixed rate bandwagon as soon a s the rates go up. In the long term you always save money with variable. The world markets are still in turmoil and job numbers can quickly disappear if our exports are hurt due to declining markets outside our country. Also a lot of these jobs were part-time and not the full time paying jobs that were lost during the recession. Don’t be fooled by these numbers , the BOC will have to monitor the world situation carefully before raising their rates to any great extent. Currently I feel that variable will win out over the next five years once again due to world volatility overridng our own countrys economy .

  10. If you were to lock the time has passed…should have done so when a 5yr could be had a 3.69% over a month ago. With todays rates it is now better to stick with the variable.

  11. I find it amazing how so many people are fooled by so-called ‘positive’ jobs reports. Wages rose 2%? Umm, in which world would this be in then? I dont know a single person that has seen a wage rise in the past 12 months. Conversely, almost everyone I know has had either a wage freeze or very commonly a pay cut, reduced hours and cuts to their benfits packages, whilst paying ever increased taxes for health insurance and unemployment benfits, not to mention the new HST that is a tax on all.
    Add to that the rising cost of food, fuel and most commodities and the average person is being squeezed from all sides.
    One of the main reasons they are surviving at all is due to low interest rates which in turn means low cost of debt. Once rates begin to rise, whatever ‘rebound’ we supposedly have right now will be snuffed out in an instant.
    So, quite to the contrary, I DO believe Employment numbers can be trivialised. They are so skewed to show whatever the Govt wants them to show, they’re almost irrelevant. Ask the man in the street, ask your friends and co-workers. Are they better off or worse off financially than they were 1 year or 2 or 3 years ago. I would put money on it that 75% or more would be worse off.
    Canada is a great country for many reasons but the Employment market is horrendous, despite what ‘rosy’ picture the media and Govt would have us believe. As someone with 20 years experience in Technology, I can tell you with certainty that there are at least 200 applicants for ANY one Tech job out there and promotion is completely non-existant. Pay rates are declining each year, irrespective of how much personal money the worker uses to better their own qualifications and experience.
    Rates may very well go up in June and July but by the end of the year, not only will they likely have stopped rising, I wouldnt be at all surprised to see them begin to fall again as the double dip recession moves from a possibility to an almost certainty.

  12. Maybe you’re hanging around with the wrong people. The majority of Canadians are not living hand to mouth as you suggest.
    PS. Your government conspiracy theory really diminishes your believability IMO.

  13. I agree with JO that if the rates rise significantly then their will be a crisis situation where people will not be able to keep up with payments . There are too many people in Canada who have over extended their credit. Sound familiar to anyone? Remeber the U.S. mortgage crisis. That can happen in Canada too!

  14. Speaking as someone with many years of Senior Management experience and done countless hirings, I can advise you that I have never ever ever hired anyone who walks into a job interview and does not demonstrate optimism and overall positive demeanour.
    There is not a positive word in your whole rant and I would guess that has something to do with all the negativity that seemingly surrounds you.

  15. You guys are delusional if you think the current conditions call for zero interest rate policy. This is an unprecedented event that will most likely not happen again in your lifetime. Interest rates are going up because excess liquidity will breed instability and mass speculation. All this will rise inflation concerns for commodities that we all need to survive. Rates will go up despite the fact that average debtors with 147 debt to income ratios will be decimated and precipitate a continued recession. This recession never ended because all the GDP gains have been stimulus driven in the housing market. A lot of housing jobs will be disappearing after the HST comes into play so any positive jobs report really just foreshadows the plunge we’ll have in the next 5 months.

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