U.S. job growth accelerated in February, but a rise in the unemployment rate and moderation in wage gains kept on the table an anticipated interest rate cut in June from the Federal Reserve.
Nonfarm payrolls increased by 275,000 jobs last month, the labor Department’s Bureau of Labor Statistics said in its closely watched employment report on Friday. Data for January was revised down to show 229,000 jobs created instead of 353,000 as previously reported.
Economists polled by Reuters had forecast 200,000 jobs added, with estimates ranging from 125,000 to 286,000. Payrolls are above the roughly 100,000 jobs needed per month to keep up with growth in the working age population.
The labour market is supporting the economy, which is outperforming its global peers. Economists do not expect a recession this year. The unemployment rate rose to 3.9 per cent in February after holding at 3.7 per cent for three straight months.
Despite a rash of high-profile layoffs at the start of the year, employers are generally holding on to their workers after struggling to find labour during the COVID-19 pandemic. Though labour supply and demand are falling back into balance, amid a rise in immigration and older workers delaying retirement, some sectors of the economy remain desperate for skilled workers.
There were 1.45 open jobs for every unemployed person in January, still above the average of 1.2 during the year before the pandemic, government data showed this week. The Fed’s Beige Book report also showed “difficulties persisted attracting workers for highly skilled positions” in February.
Average hourly earnings edged up 0.1 per cent last month after gaining 0.5 per cent in January. That lowered the year-on-year increase in wages to a still-high 4.3 per cent in February from 4.4 per cent in January.
Fed Chair Jerome Powell told lawmakers this week that rate cuts would “likely be appropriate” later this year, but emphasized they “really will depend on the path of the economy.”
Canada’s economy added a net 40,700 jobs in February, double the expected gain, data showed on Friday, and wage growth slowed for a second consecutive month as the central bank continues to hold interest rates at a 22-year high.
However, the jobless rate ticked up to 5.8 per cent, Statistics Canada said.
Analysts polled by Reuters had forecast a net gain of 20,000 jobs and for the unemployment rate to edge up to 5.8 per cent from 5.7 per cent in January. The unemployment rate has been steady at that level for three of the past four months, Statscan said.
“There is still evidence from today’s data that labour market conditions are loosening, but only very gradually and not in a way that demands an imminent reduction in interest rates,” said Andrew Grantham, a senior economist with CIBC Capital Markets, adding he expects first rate cut in June.
The Bank of Canada on Wednesday said it was too early to consider lowering borrowing rates. It has kept its key overnight rate unchanged at 5 per cent at the past five policy-setting meetings.
“Wage growth, which had been running at 4 or 5 per cent … there’s certainly some early signs that it’s beginning to ease,”
Governor Tiff Macklem told a news conference on Wednesday, adding that it was still not enough to warrant an early rate cut.
The annual growth in the average hourly wages of permanent employees – a figure tracked by the central bank – slowed to 4.9 per cent from 5.3 per cent in January, reaching its lowest level since June.
Though Canada added jobs, the employment rate fell slightly in part because of population growth, Statscan said.
It was the fifth consecutive monthly decline in employment rate, making it the longest period of consecutive decreases since April 2009, Statscan said.
The US job market report, which came at the same time as Canada’s, showed that its economy also absorbed more jobs than expected by analysts as its economy continued to outperform global peers. However, its unemployment rate rose.
Canada’s February job gains were driven by full-time work, where 70,600 positions were added, more than offsetting the 29,900 jobs shed in part-time work.
Money markets reflect around an 85 per cent chance of a rate cut in June and fully price a 25 basis point cut in July. Those bets did not change much after the release of the jobs report.
The Canadian dollar was trading 0.2 per cent higher at 1.3435 to the U.S. dollar, or 74.43 U.S. cents, after touching its strongest intraday level since Feb. 12 at 1.3427.
Employment in the goods sector decreased by a net 6,300 jobs, mainly in manufacturing and agriculture, while the services sector gained a net 46,900 jobs, led by accommodation and food services and professional, scientific and technical services.
The Bank of Canada held its benchmark interest rate steady for the fifth consecutive time, in a tight-lipped decision that offered few hints about the timing of future rate cuts.
The widely anticipated move keeps the policy interest rate at 5 per cent, a level reached last July after one of the most aggressive monetary policy tightening campaigns in Canadian history, aimed at tackling runaway price increases.
With the rate of inflation inching closer to the bank’s 2-per-cent target, and the Canadian economy growing at a snail’s pace, central bank officials don’t expect to raise interest rates further.
At the same time, they’re not yet willing to entertain rate cuts, which would offer relief to homeowners with mortgages and businesses struggling to pay debts.
“With inflation still close to 3 per cent and underlying inflationary pressures persisting, the assessment of Governing Council is that we need to give higher rates more time to do their work,” Mr. Macklem said at a news conference after the announcement.
“We don’t want to keep monetary policy this restrictive for longer than we have to. But nor do we want to jeopardize the progress we’ve made in bringing inflation down,” he said.
In a highly unusual move, the bank left the entire last paragraph of its rate announcement unchanged from its previous statement in January, pushing back on private-sector speculation that the bank might use Wednesday’s rate decision to pivot to a more dovish stance.
Bay Street analysts and traders are betting the bank will begin cutting interest rates in the coming quarters. The key question is whether this will happen in April, June, July or perhaps even later.
Market reaction to the announcement was relatively muted, although investors pared back bets on an April rate cut. Interest rate swap markets, which capture market expectations about monetary policy, put the odds of an April rate cut at around 20 per cent, and the odds of a cut in June at just under 70 per cent.
“It wouldn’t be the Bank’s style to hint today about a rate cut as far off as June, so we’ll stick with our call for a rate cut that month despite the lack of fresh dovish talk today,” Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, said in a note to clients.
“Clearly, we’ll need more progress on inflation, and perhaps on wages, for that outcome, so we’ll be watching at the upcoming jobs and CPI data as we fine tune our forecasts.”
Mr. Macklem batted away questions during the news conference about the possible pace of interest rate cuts once the bank does start easing monetary policy. However, he did suggest that it could be a drawn out process.
“I think it’s very safe to say we’re not going to be lowering rates at the pace we raised them,” Mr. Macklem said.
The bank has made substantial progress in getting inflation under control. After hitting a peak of 8.1 per cent in the summer of 2022, the annual rate of consumer price index inflation came in at 2.9 per cent in January, back within the bank’s 1 per cent to 3 per cent target range.
Encouragingly, this decline has happened without the economy entering a recession or a major spike in unemployment. That increasingly looks like the “soft landing” many economists thought would be impossible a year ago.
The bank also noted that labour market pressures have been easing. That suggests that the rapid pace of wage growth seen over the past year could begin to slow – something the bank thinks is necessary to bring inflation back to its target.
Still, overall price pressures in the economy remain elevated. The bank’s preferred measures of core inflation, which strip out the most volatile parts of the CPI, are running in the 3 per cent to 3.5 per cent range. Mr. Macklem said he and his team need to see “sustained easing in core inflation” before considering rate cuts.
“One month doesn’t make a trend; you need to see a few months,” he said.
There are also pockets of the economy where prices continue to rise rapidly, putting pressure on household finances. Shelter price inflation, which includes mortgage interest costs, rent and other housing expenses, came in at 6.2 per cent in January.
Shelter inflation poses a particular problem for the central bank. Mortgage interest costs, which are directly tied to the bank’s own rate decisions, are the single biggest driver of CPI inflation. But if the bank cuts rates, offering relief to homeowners with mortgages, it would likely cause home prices to rise, further hitting housing affordability.
Likewise, Mr. Macklem has said the bank can do little to bring down rent inflation, which is being driven by a structural mismatch of housing supply and demand.
“Gasoline prices are expected to continue to add volatility to inflation in coming months, and shelter price pressures are likely to persist. In other words, the path back to our 2 per cent target will be slow, and progress is likely to be uneven,” Mr. Macklem said.
“Risks to global energy prices and transportation costs related to conflicts remain elevated. Domestically, inflation could prove more persistent than expected,” he added.
The bank expects CPI inflation to remain near 3 per cent until the middle of the year, then to decline to around 2.5 per cent by the end of the year and back to the 2-per-cent target in 2025.
The bank’s next rate announcement is on April 10, at which time the bank will also publish a new forecast for inflation and economic growth.
Crude oil futures fell for a second consecutive day Tuesday as China’s pledge to boost economic growth and OPEC+ production cuts failed to lift prices.
The West Texas Intermediate contract for April dropped 72 cents, or 0.91%, to $78.02 a barrel. May Brent futures shed 57 cents, or 0.69%, to $82.83 a barrel.
The Beijing government on Tuesday set an economic growth target of about 5% for 2024 and announced the issuance of $138.9 billion in “ultra-long” special Treasury bonds to fund major projects.
OPEC and its allies, OPEC+, agreed on Sunday to extend crude production cuts of 2.2 million barrels per day through the second the second quarter.
Walter Chancellor, an energy strategist with Macquarie, told clients in a note Sunday that the extension of OPEC+ cuts, which was widely expected, had probably already been priced into the market.
Traders have worried for months that faltering economic growth in China and an abundance of crude produced in the Americas, above all the U.S., will put downward pressure on prices.
Gold futures for April settled at $2,126.30 per ounce, the highest level dating back to the contract’s creation in 1974.
When adjusted for inflation, gold set an all-time high of about $3,200 in 1980, according to Peter Boockvar, chief investment officer at Bleakley Financial Group.
“We’re still a ways away, which then also points to the potential upside,” said Boockvar, who believes gold will also test the inflation-adjusted record.
TC Energy TRP-T +0.45%increase said on Monday it has agreed to sell Portland Natural Gas Transmission System (PNGTS) to BlackRock for $1.14-billion as part of its ongoing efforts to reduce debt and fund investments.
Best known for its Keystone oil pipeline, the company is undergoing an overhaul. Last year, it said it would spin off its liquids business to focus on transporting natural gas.
CEO Francois Poirier had said in 2022 TC Energy planned to raise more than $5-billion through 2023.
The company is grappling with long-term debt of about $49.976-billion as of Dec. 31, 2023, as well high costs at its Coastal GasLink pipeline in British Columbia.
PNGTS is a 475-kilometer (295-mile) transporter of natural gas serving the upper New England and Atlantic Canada markets.
Blackrock will assume $250-million of outstanding debt at PNGTS. The deal is expected to close mid-2024, with the cash being split pro-rata according to the current PNGTS ownership interests (TC Energy 61.7 per cent and Energir, owned by Northern New England Investment Company, 38.3 per cent).
The company is aiming to sell at least $3-billion worth of assets this year to reduce debt, likely through two to four sales.
OPEC+ members led by Saudi Arabia and Russia agreed on Sunday to extend voluntary oil output cuts of 2.2 million barrels a day into the second quarter, giving extra support to the market amid concerns over global growth and rising output outside the group.
Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, said it would extend its voluntary cut of one million barrels a day (b/d) through the end of June, leaving its output at around nine million barrels a day.
Russia, which leads OPEC allies collectively known as OPEC+, will cut oil production and exports by an extra 471,000 barrels a day in the second quarter. Russian Deputy Prime Minister Alexander Novak gave new figures showing that cuts from production will make up a rising proportion of the measure.
Oil has found support in 2024 from rising geopolitical tensions and Houthi attacks on Red Sea shipping, although concern about economic growth has weighed. While OPEC+ was widely expected to keep the cuts in place, Russia’s announcement could bolster prices further.
“There was a surprise from Russia,” said UBS analyst Giovanni Staunovo, who called the developments largely expected.
“If the Russian cuts are fully implemented, additional barrels would be removed from the market. So that is a surprise move no one expected and could lift prices,” he added.
Brent crude settled US$1.64 higher, or 2 per cent, at US$83.55 a barrel on Friday, up more than 8 per cent so far this year.
OPEC+ members announced the cuts individually on Sunday and OPEC later issued a statement confirming the 2.2 million barrels-a-day total. Saudi state news agency SPA said the cuts would be reversed gradually, according to market conditions.
“The decision sends a message of cohesion and confirms that the group is not in a hurry to return supply volumes, supporting the view that when this finally happens, it will be gradual,” analysts at investment bank Jefferies said in a report.
OPEC+ in November had agreed to the voluntary cuts totalling about 2.2 million barrels a day for the first quarter, led by Saudi Arabia rolling over a cut it had first made in July.
“The rollover was anticipated but extending it to the end of the second quarter might come as a surprise,” said Tamas Varga of oil broker PVM. “The market is expected to open stronger.”
For the second quarter, Iraq will extend its 220,000 barrels-a-day output cut, UAE will keep in place its 163,000 barrels-a-day output cut and Kuwait will maintain its 135,000 barrels-a-day output cut, the three OPEC producers said in separate statements. Algeria also said it would cut by 51,000 barrels a day and Oman by 42,000 barrels a day.
Kazakhstan said it will extend its voluntary cuts of 82,000 barrels a day through the second quarter.
OPEC+ has implemented a series of output cuts since late 2022 to support the market amid rising output from the United States and other non-member producers and worries over demand as major economies grapple with high interest rates.
The total OPEC+ pledged cuts since 2022 stand at about 5.86 million barrels a day, equal to about 5.7 per cent of daily world demand, according to Reuters calculations.
Sources told Reuters last week that OPEC+ would consider extending the latest round of output cuts into the second quarter, with one saying it was “likely.”
The oil demand outlook is uncertain for this year. OPEC expects another year of relatively strong demand growth of 2.25 million barrels a day, led by Asia, while the International Energy Agency expects much slower growth of 1.22 million barrels a day.
In a further headwind for OPEC+, the IEA also expects oil supply to grow to a record high of about 103.8 million barrels a day this year, almost entirely driven by producers outside OPEC+, including the United States, Brazil and Guyana.
