Latest report should leave central bank comfortable with recent decision to hold for second time
October’s jobs report will leave the Bank of Canada more “comfortable” with its decision to hold interest rates at 5 per cent, economists say.
Statistics Canada’s employment report on Nov. 3 showed the jobless rate jumped to 5.7 per cent from 5.5 per cent, higher than expected. The economy generated a net gain of 17,500 jobs, falling short of estimates of 25,000.
Average hourly wages, which eased to a 4.8 per cent increase year over year from five per cent in September, will also be on the central bank’s radar.
These numbers are important because policy makers believe a tight and overheated jobs market and rising wages stoke demand and inflation.
When it held rates on Oct. 25, the central bank said, “Governing Council wants to see downward momentum in core inflation, and continues to be focused on the balance between demand and supply in the economy, inflation expectations, wage growth and corporate pricing behaviour.”
Simon Harvey, head of currency analysis at Monex Europe and Canada, said the deceleration in wage growth “should translate into a continued decline in the BoC’s measures of core inflation.”
Here’s what economists say about the latest jobs numbers and what they mean for the Bank of Canada and interest rates.
“The fact that the population again outpaced job creation led the unemployment rate to rise. In the current context, where the Bank of Canada is trying to rein in inflation, the surge in headcount gains risks boosting demand for goods and services and inflaming price pressures. However, over time, it should help to continue to increase the supply of available workers as well as reduce labour market tightness and potential wage-push inflation.
“We remain of the view that the Bank of Canada’s next move will be a cut in the second quarter of 2024. The still-tight labour market is showing signs of easing, and Canadian consumers and businesses still haven’t felt the full effects of prior borrowing cost increases. We continue to anticipate that the economy will enter a mild recession in the coming quarters. Of course, upcoming data on inflation will be key, although this too is showing signs of moving in the right direction.”
“Weakness in economic activity appears to be slowly filtering through to a softer labour market, with job growth slightly weaker and the unemployment rate marginally higher than expected in October . . . . Overall, today’s report is further evidence that more rate hikes are not necessary to cool the economy, and combined with a weaker U.S. figure as well could see market expectations for interest rate cuts brought forward earlier into 2024.”
“The more modest rise in employment and essentially unchanged hours worked in October suggest that labour demand is easing gradually. And with the unemployment rate rising again thanks to strong labour supply growth, the Bank of Canada should feel more confident that wage pressures will continue to ease.”
“When the Bank of Canada decided to hold rates at five per cent last week, it did so because of a notable slowing in economic momentum. While this has been apparent in reduced consumer spending and a weakening housing market, the labour market left the BoC wanting more. But, given the rise in the unemployment rate and continued weakening in the underlying details, today’s report is likely to make the BoC feel more comfortable about its decision to hold. Looking forward, we are expecting this employment trend to continue, while high rates and persistent inflation make the case for the BoC to remain on hold in December.”
“With some progress made in October to create some slack in the labour market and slower wage growth, the likelihood of further rate hikes in the near future has diminished. Our view remains that the policy rate has likely peaked and that the Bank of Canada will stay on the sideline and watch previous rate increases work their way through the economic system and reduce inflationary pressures.”
“The BoC will still be cautious about easing off on the monetary policy brakes while inflation is still high. But signs of softening in labour markets should reinforce the decision to pause rate hikes for now and increase the odds that the next rate change will (eventually) be a cut. Our own base-case assumes the overnight rate will begin to move gradually lower in the second half of next year.”
“The re-emergence of slack in the labour market is … starting to weigh on wage growth, which fell from 5.2 per cent to five per cent year over year (for permanent employees). This should translate into a continued decline in the BoC’s measures of core inflation, which if confirmed would support our view that the BoC has now concluded its hiking cycle and will now rely on below potential growth in guiding inflation back to target. This moves the market’s spotlight onto when the next change in policy will occur. In this case, that is an interest rate cut. In our view, the BoC is unlikely to ease before Q2 next year, but there is a risk that if growth conditions crater and lead to a more substantive unwind in the labour market, thus weighing on wage growth and the consumption outlook for 2024, that the BoC is forced to ease policy back to neutral as early as Q1.”
“Combined with GDP data earlier this week, October’s job report show that the Bank of Canada’s previous rate hikes are effectively cooling the economy, and no further rate hike would be required.”
“Extremely restrictive monetary policy has dampened demand to such an extent that companies no longer perceive a labour shortage, if various surveys are to be believed. This is reflected in private sector hiring, which has stagnated in recent months. The details of the report are no more reassuring, with the public sector being the only segment to generate jobs in October….
“In our view, this morning’s report confirms that the Bank of Canada was right to keep rates unchanged at its last decision, and that even this summer’s rate hikes were perhaps unnecessary. The rate hikes implemented since the beginning of the monetary tightening have yet to have their full effect on the economy, suggesting a bumpy road ahead.”
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
Companies in this story: (TSX:ROOT)
The Canadian Press. All rights reserved.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
The Canadian Press. All rights reserved.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
Companies in this story: (TSX:TRZ)
The Canadian Press. All rights reserved.
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