In a May jobs data surprise, both Canada and the U.S. added jobs for the month. Anthony Okolie talks with James Orlando, Senior Economist, TD Bank, about the factors behind the buoy in jobs, and what that could mean for the economy recovery.
- Hello. And welcome to the MoneyTalk COVID-19 Daily Bulletin for Friday, June 5. I'm Anthony Okolie. In a few minutes, I'll be speaking with James Orlando, Senior Economist at the TD Bank Group, about the latest jobs numbers in Canada and the US. But first, a quick wrap of today's headlines-- and we begin with the jobs report.
Canada's labor market unexpectedly added 290,000 jobs in May, while the unemployment rate ticked up to 13.7%. It was a surprise turn for the job market, as provinces have only recently begun to ease lockdown restrictions. It was a similar picture in the US, where employers added a record 2.5 million jobs in May, while the jobless rate fell to 13.3%, suggesting the US may well be on the road to recovery after its fastest plunge in history.
The mortgage rules for homebuyers are changing. Effective July 1, Canada Mortgage and Housing Corporation will now require high-risk borrowers to have higher credit scores and lower debt burdens to qualify for mortgage insurance.
Signs of hope for the energy industry-- oil prices advanced amid reports OPEC and its allies will meet on the weekend to finalize an agreement extending production cuts until the end of July.
Finally, more options for those planning their summer vacations-- the Ontario government announced that short-term rentals, including lodges, cabins, cottages, homes, and condominiums, will be allowed to resume operations starting Friday at midnight. And that's a wrap of your headlines. Next, my conversation with James Orlando--
James, we just got the May jobs numbers-- is a big surprise to the upside. What happened?
- Yeah. This was a shockingly positive report. In Canada, we gained about 300,000 jobs over the month of May. Most of these were full-time jobs, which is a great sign.
And another positive sign was the fact that the hours worked had increased. And so a lot of people saw during some of the shutdowns that hours reduced. So we started seeing those bounce back pretty strongly. So this is a very positive report, especially after the two negative reports we got in March and April.
- And certainly, it's a big swing from March and April, as you mentioned. So what accounts for this swing?
- Well, mostly, this is due to the fact that we started seeing a reopening of the Canadian economy. And the fact that it has been so strong in this time period speaks a lot of volumes about some of the efforts that were made by the federal government to keep Canadians on the payroll even though they might not be producing at the level they were before or even though they might be at home during that time period. So we're starting to see some of the fruits of the fact that we are seeing the economy reopen and the fact that people are coming back to work.
- And I want to get to that point about the economy coming back stronger. Could this be a signal that the economy has hit bottom?
- It certainly could. And I hope so. We're in a situation right now where the economy is rebounding. The economy is reopening. There is risk that we could be-- have setbacks in the future. The path of recovery is extremely uncertain. The risk of a second wave of COVID cases that causes more shutdowns in the future-- that's a big risk. But right now, we're moving in the correct direction, which is a very positive sign for us.
- And in terms of direction, how do you see this recovery playing out? Do you see this as a U-shaped recovery or a V-shaped recovery given these latest jobs numbers?
- That's the big question. Right now, we're seeing, I would say, an inflection point, potentially, right now in the job numbers and in the economy. When we look at how things are going, we have about 300,000 jobs gained in this report today. Now, compare that to the fact that we had about 3 million job losses over the previous two months. So we've recovered about 10% of the losses we had as a result of the COVID-19 impact.
Now, that is not necessarily a V shape. And the fact that we are still going to slowly be reopening, the fact that people are going to be potentially hesitant going to restaurants, going to movie theaters, going on public transportation-- that means that we're not going to get, most likely, a V-shaped recovery and a big bounce back, although this is a sign that we're moving in the direction of-- back to normal, effectively.
- Given these numbers, what are the implications for financial markets going forward?
- So financial markets are certainly rallying on this news of positive job gains in Canada and in the United States. They're definitely pricing in the benefits of reopening for the economy, the fact that economic growth is looking like it's rebounding. This is good news for corporate profits as well. And so equity markets have been doing fairly well.
We're seeing this in fixed income markets, where yields are starting to rise, less potential chance of action by central banks to help stimulate the economy. Currency markets are doing well. Specifically, the Canadian dollar has appreciated dramatically over the last few weeks on the fact that we're having this risk sentiment rebound. And so because we had so much good news over the last couple weeks, risk assets are definitely pricing in this positive narrative.
- To wrap up everything given these big job numbers, what's the one big takeaway?
- The big takeaway is the fact that more Canadians are working right now. More Canadians have jobs. And the number of hours they're working is increasing. This is great news for the recovery. It shows that we are potentially working through the COVID-19 impact and that we're moving into a more positive situation for the Canadian economy.
- James, thank you very much for your time.
- Thank you.