Investors appear to be reconsidering the risk that the U.S. economy could be about to tip into a recession, following Tuesday’s data which revealed the red-hot labor market is finally loosening up.
That data showed job openings fell to a 21-month low of 9.9 million in February, down from a revised 10.6 million for the prior month. Soon after those figures came out, alongside a report revealing factory orders declined a third time in the past four months, investors flocked to the safety of Treasurys — everything from 6-month T-bills TMUBMUSD06M,
4.719%
through 30-year bonds TMUBMUSD30Y,
3.606%
— and sent gold prices inching closer to record highs.
Tuesday’s data dented the appeal of stocks, with Dow industrials DJIA,
-0.59%
and the S&P 500 SPX,
-0.58%
snapping four straight sessions of gains to finish lower — along with the Nasdaq Composite COMP,
-0.52%.
The ICE U.S. Dollar Index DXY,
-0.04%
was off 0.5%. And traders now see a 98% chance that the Federal Reserve’s main interest rate target will fall by year-end from where it is now — between 4.75% and 5%; they think there’s a decent chance that policy makers will pause next month and in June before possibly cutting rates in July.
The tone in financial markets has shifted since March, when stocks managed to shake off concerns about the global banking sector and posted their largest monthly gains since January. That occurred as the 2-year Treasury yield experienced its biggest one-month plunge since January 2008, and the 10-year TMUBMUSD10Y,
3.357%
declined by the most in a month since March 2020.
On Tuesday, though, stocks fell in tandem with yields as traders priced in a scenario in which the Fed is essentially done with interest-rate hikes after May. Fed funds futures traders have clung to prospects of rate cuts by year-end since March, when troubles at Swiss banking giant Credit Suisse CS,
+1.11%
prompted them to factor in a full percentage point of easing from the Fed through December.
“Because we’ve really seen job openings remain elevated for quite some time, today’s data was significant,” said Edward Moya, a senior market analyst for the Americas at OANDA Corp. in New York. “It looks pretty clear that we are going to see parts of the economy break and we are heading for a recession. We forget that there’s also a banking crisis going on, so there’s going to be some pain that’s really going to cripple small and medium businesses. We are going to see some tough times and are probably going to see this play out in markets.”
Talk of a possible U.S. recession has gone on for about a year, without coming to fruition — helping stock investors focus on the brighter side of things and all three major indexes score year-to-date gains.
Just a day ago, a surprise oil-production cut announcement led by Saudi Arabia over the weekend put the prospects of $100-per-barrel oil prices back on the radar, and initially seemed bad for the Fed’s ongoing fight against inflation. As Monday’s trading wore on, investors regarded higher oil prices as beneficial for some U.S. companies, and used the OPEC+ announcement as an opportunity to drive Dow Industrials and the S&P 500 to a higher finish.
While Tuesday’s job-openings data generally supports the idea that a softer labor market could help ease wage pressures, investors appeared to be more focused on the signs it is sending about the prospects for economic growth, according to Moya. “We now seem comfortable living with $100-a-barrel oil and, right now, it’s pretty clear we are recession-bound. There were a lot of people thinking an oil spike would keep inflation jitters in place, but it seems like there’s too much weakness in the economy to do that.”
At bond giant PIMCO, economist Tiffany Wilding and Andrew Balls, chief investment officer of global fixed income, released a 6- to 12-month economic outlook for global markets and economies. In it, they said that recent volatility in the banking sector has raised the prospect of a significant tightening in credit conditions and, therefore, the risk of a “sooner and deeper recession.”
Meanwhile, Mark Haefele, CIO of UBS Global Wealth Management, said his firm is maintaining a cautious stance on growth stocks and that a “new bull market is unlikely on the horizon.” And at BMO Capital Markets, rates strategists Ian Lyngen and Ben Jeffery said “there is mounting evidence that the notion the U.S. economy is on strong enough footing to withstand materially higher interest rates may have been misplaced.”
“The JOLTS [Job Openings and Labor Turnover Survey] data showed job openings decelerating a lot more rapidly than initially anticipated, suggesting the number of openings per person has fallen quite sharply,” said Gennadiy Goldberg, a senior U.S. rates strategist at TD Securities in New York.
“It’s the first indication that firms are stopping their hiring sprees,” Goldberg said via phone. “The question for markets is, ‘Will this translate into weaker payroll growth in the coming months?’”
TD doesn’t see a growing risk of a recession since “the labor market is quite strong,” Goldberg said. The firm expects Friday’s nonfarm payroll report to show a gain of 270,000 jobs in March, above the 238,000 median forecast of economists polled by The Wall Street Journal.
“We are starting to see the first signs that the labor market is starting to react to tighter financial conditions,” Goldberg said. “But we can’t take away much from this about the next few payrolls or the depth of the next recession.”
OTTAWA – Statistics Canada says retail sales rose 0.4 per cent to $66.6 billion in August, helped by higher new car sales.
The agency says sales were up in four of nine subsectors as sales at motor vehicle and parts dealers rose 3.5 per cent, boosted by a 4.3 per cent increase at new car dealers and a 2.1 per cent gain at used car dealers.
Core retail sales — which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers — fell 0.4 per cent in August.
Sales at food and beverage retailers dropped 1.5 per cent, while furniture, home furnishings, electronics and appliances retailers fell 1.4 per cent.
In volume terms, retail sales increased 0.7 per cent in August.
Looking ahead, Statistics Canada says its advance estimate of retail sales for September points to a gain of 0.4 per cent for the month, though it cautioned the figure would be revised.
This report by The Canadian Press was first published Oct. 25, 2024.
OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.
Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.
The change is scheduled to come into force on Nov. 8.
As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.
The program has also come under fire for allegations of mistreatment of workers.
A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.
In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.
The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.
According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.
The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.
Temporary foreign workers in the agriculture sector are not affected by past rule changes.
This report by The Canadian Press was first published Oct. 21, 2024.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
