Don’t hold your breath for rate relief

Everything tends to settle down during the holiday season, so it’s no surprise that the December jobs report was just middle-of-the-road. The U.S. gained 216,000 new jobs last month, led by the government (+52,000) and healthcare (+38,000) sectors. The official unemployment rate (U3) held steady at 3.7%.

Over two out three new government jobs were with local governments, which most likely means they’re gearing up for this year’s elections. Construction added 17,000 jobs, while transportation/warehousing lost 23,000.

Employment in Canada was dead flat—literally. Statistics Canada reports that the economy saw a net gain of just 100 jobs in December. Gains in the service and healthcare sectors were completely offset by job losses in manufacturing and in wholesale and retail trade.

The unemployment rate in Canada held steady at 5.8%, equivalent to 4.5% in the U.S.

The big question in all this is how the numbers will affect decisions on interest rates by the Federal Reserve and the Bank of Canada. In Canada, the December CPI isn’t out yet, but it will be by the time the Bank of Canada meets to decide what to do with its benchmark interest rate on January 24th.

On one hand, job growth has flatlined. CIBC projects that unemployment may rise as high as 6.5% in the first half of this year. On the other hand, hourly wages were up 5.4% YoY in December, “the fastest pace for wage gains in more than a year,” says Global News.

In the U.S., inflation rose from 3.1% in November to 3.4% December. That’s still down from September’s 3.7%, but well above 3.0% in June.

A month ago the Fed was “hinting” that it would cut rates in 2024. Now that the December jobs report is in, the president of the New York Federal Reserve says “interest rates will likely need to stay high ‘for some time’” until it becomes clear that inflation is moving in the direction of 2%.

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