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Last week we received the latest U.S. and Canadian employment reports, and both provided us with valuable insight into where our mortgage rates may be headed.
When employment growth is strong and the demand for labour increases, the cost of labour should rise. Because the cost of labour is one of the key drivers of inflation, a strengthening job market would be expected to push average prices higher. If that happens, bond yields normally rise in response and eventually the Bank of Canada (BoC) would raise its overnight rate to maintain price stability and keep inflation under control. Conversely, if employment demand falls, then over time the cost of labour should fall as well, and that would help push inflation, and eventually interest rates, lower.
Here are the highlights from the latest reports:
Non-Farm U.S. Employment – December
- The U.S. economy added 252,000 new jobs in December, which was slightly above the 240,000 new jobs that the consensus was expecting. The U.S. labour department also added an additional 50,000 jobs to its initial estimates for the prior two months.
- The U.S. manufacturing sector had its best month in more than a year, adding 67,000 new jobs. This is good news for the U.S. economy because, as I have said before, manufacturing job growth has a powerful impact on the demand for labour in other parts of an economy.