Following four consecutive months of job gains, Canadian employment increased by 11,000 (or 0.1%) in November. Economists had expected hiring to decline by 15,000 according to the Bloomberg News survey. All of the rise in employment, however, was in part-time jobs, as full-time hiring fell by 8,700. This pattern is particularly worrisome as over the past 12 months, all of the net rise in employment has been in part-time work. Nationwide, part-time work has grown by 6.4% and full-time has fallen by 0.2% year-over-year.

The jobless rate fell unexpectedly by 0.2 percentage points to 6.8% as fewer people were looking for work. This is the first time the unemployment rate has fallen in five months. 

The fourth straight monthly jobs gain is another boost to an economy healing from a collapse in commodity prices and business investment. Output growth rebounded to a 3.5% pace in the third quarter, and Governor Stephen Poloz said Monday he would only cut his 0.5% benchmark interest rate if there was another shock. His next rate decision is Wednesday.

The November jobs report highlighted the continued weakness in the oil sector. Unemployment in Alberta surged to its highest level in more than two decades to 9.0%, and in the manufacturing region of Quebec, it fell to a record low 6.2%; however, most of the rise in discouraged workers was in Quebec where the labour force dropped by 20,300, the largest drop since December 2014.

Service companies hired 31,200 workers, with almost half of those in the financial services and real estate sector. Goods producers cut back by 20,600, as manufacturing jobs dropped by 11,900 and construction fell 14,400.

The number of hours worked rose 1.1% in November from a year earlier. Average hourly wages of permanent employees grew 1.5% from a year earlier, slower than the 1.8% pace in October.

Clearly, the Bank of Canada will remain on the sidelines next week. Despite stable monetary policy in Canada, however, mortgage rates are rising reflective of the rise in market yields since President-elect Trump won the US election. Some mortgage rates in Canada are priced off of the 5-year government of Canada bond yield, which has risen more than 30 basis points since the election.

US Payrolls Rise As Jobless Rate Falls to Nine-Year Low 

The November jobs report in the US provided a mixed picture as wages and participation rates–two closely watched indicators–showed disturbing declines. The headline payrolls gain was close to expectation, posting 178,000 net new jobs–just shy of the average monthly gain this year. Year-to-date, employers have added an average of 181,000 jobs per month. But the performance has been inconsistent–with a low of 24,000 in May and a peak of 271,000 in June. November’s gain of 178,000 signals steady hiring and more progress toward the Fed’s goal of full employment.

The unemployment rate fell to a nine-year low of 4.6% from 4.9% in the previous month on a drop in the number of people in the workforce. One of the most troubling developments in recent years is a drop in the labour-force participation rate. Its decline is partly because baby boomers are retiring. But the rate for prime-age workers, 25 to 54, has also fallen, matching a 30-year low late in 2015. 

Another piece of good news, however, is that the broader measure of unemployment, which includes people stuck in part-time work and people who have stopped looking, fell from 9.5% in October to 9.3% in November.

Even with tight labour markets, the news on wages was disappointing. Average hourly earnings fell by 0.1% from the prior month, the first decline since December 2014. They rose 2.5% over the past twelve months, following a 2.8% gain in October. 

Other indicators show spotty weakness in the jobs market. Factory payrolls fell once again and retailers reduced payrolls going into the holiday season.

Despite this mixed picture, the headline jobs gain and the fall in the jobless rate assure that the Fed will raise rates when they meet again in December 14.

Canadian employment rose 44,000 (+0.2%) in October–much stronger than expected. But all of the gain was because of more part-time work, as full-time employment fell. The unemployment rate remained unchanged at 7.0% as more people joined the labour force. 

Compared to one year ago, the total number of hours worked was little changed and employment rose by 140,000 (+0.8%, mostly in part-time work (+124,000 or +3.6%). This will certainly keep the Bank of Canada from following the US Federal Reserve’s likely rate hike next month. Indeed, we cannot rule out the possibility of a BoC rate cut next year, although Governor Poloz would likely prefer to see fiscal stimulus do the heavy lifting, particularly given the concern about out-sized household debt levels. 

By industry sector, construction employment continued to enjoy gains, mostly in Ontario and Quebec–notably, not in BC. Manufacturing continued weak with payrolls down -0.4% last month and down -1.5% over the past year. Natural resource payrolls were up on the month, but still down a whopping -5.6% year-over-year, dragging down the overall goods producing sector of employment.

Job gains in the service sector were better, although still lacklustre. Leading the way in this sector last month were trade, educational services, and public and other services. 

Regionally, jobs were up in Ontario by 25,000 last month as the jobless rate fell two-tenths to 6.4%. In BC, employment rose by 15,000, but the unemployment rate increased 0.5 percentage points to 6.2% as more people entered the labour force. Nevertheless, BC still boasts the lowest jobless rate among the provinces. Year-over-year, job growth in BC was the strongest in the country at 2.4% (+56,000). Employment declined in Newfoundland and Labrador, taking the jobless rate up to 14.9%–the highest among the provinces (see table below).

Despite the strong headline number for employment growth, this report continues to reveal a Canadian economy that is underperforming. All of the gain was in part-time work, the manufacturing sector remains weak, and there is no indication of more than a modest pace of economic activity this year, in line with this week’s fiscal update.

4 Days From Election and US Jobs Strengthen

Although the headline payrolls gain of 161,000 missed estimates slightly, the jobless rate fell back to 4.9%–the cycle low–and most notably, wage gains accelerated to 2.8% year-over-year, their strongest pace since the financial crisis. The prior two months’ jobs gain was revised upward by 44,000, another piece of good news. Most would argue that despite the continued long-term underemployment of some workers, the US economy is at or near full employment. The strengthening wage growth is an indication of this, and it will boost the Fed’s already-high probability of hiking rates in December.

There remains a challenge to fill highly skilled jobs. Workers have been in short supply for 13 consecutive months, according to the Institute for Supply Management survey of service-industry companies, which make up almost 90% of the US economy. 

On the disappointing side, however, was the fall in the labour force participation rate and the weakness in manufacturing employment. The number of part-time workers and the long-term unemployed remain higher than before the last recession. These disaffected workers are an important component of the Trump base of support. The US underemployment rate dropped to 9.5% in October from 9.7%, while the number of people working involuntarily less than full-time remained unchanged. An estimated 5.89 million American employees were among this group. 

Expect a Fed rate hike in December–the first one this year. The Fed last increased the overnight fed funds rate in December of 2015, and many had expected additional rate hikes this year. These were postponed repeatedly owing to weaker-than-expected GDP growth and low inflation. US inflation has edged up recently and the Fed signaled strongly earlier this week that a rate hike is likely when they meet next month.

What is the maximum mortgage amount one now qualifies for with the rules that came into effect on October 17th?

Short answer: LESS. A minimum of 20% less, in fact.

Before October 17th, the lenders calculated the maximum mortgage amount based on the contract rate of 2.49%, but now it is based on the Bank of Canada benchmark rate of 4.64%

Here are three random scenarios that I have created to outline borrowers’ qualifying power before and after the change. Note they are all based on  25-year amortization, the new qualifying interest rate (5-year Bank of Canada benchmark, currently 4.64%) as well as a GOOD credit score of 680 or greater. The first two are based on 5% down; the third is based on a 20% down payment, which does not require mortgage insurance.

In the Vancouver market, we often hear about the benchmark price, the average price, and the median home price. Usually that of a specific neighbourhood or municipality.

However, what buyers rarely hear is the average price of the bottom 80% of listings of the Greater Vancouver Area. Y’know, the properties that the overwhelming majority of us live in.

A review of this significant market slice is overlooked because it is boring. Boring, because when we skim the ultra high end sales off the top, and look at the lower 80% of properties listed in the Lower Mainland we arrive at an average sale price of ~$597,000. Such a property ($597,000) would today require household income of ~$108,000 using a 5.8% down payment ($34,700) to qualify for purchase.