The only major impediment to job growth is viral risk and containment measures. There is good news on this front – vaccination rates are set to pick up. For some of the hardest-hit industries, this will allow them to resume work and hire some of their workers in the spring and summer.
Broad government support meant that household incomes remained stable despite weak labor markets, including during the second wave of job losses in December and January. Household disposable income rose 10% last year, and Canadians increased their savings by more than $210 billion.
Not all of these savings will be spent immediately, but national Q4 balance sheets (also to be released next Friday) will confirm that households are emerging from the pandemic with significantly higher purchasing power than they would normally have after the recession.
We expect service spending to rebound as quickly as containment measures are lifted, and this is needed in the hardest-hit sectors of the labor market, such as the hospitality industry, which account for more than 2/3 of the remaining (massive) 860K to pre-shock levels.
The US dollar continued to rise towards the close of the week after upbeat employment data and rising government bond yields. In the US in February, 379 thousand new jobs were created, which more than doubled the market expectations, and the unemployment rate fell to 6.2%. Stocks rallied on the news, but government bond yields also rose. The 10-year Treasury yield hit 1.626%, a new annual high, ending the week at 1.577%.
Despite several recent positive news published (GDP, hours worked, building permits, etc.), we continue to expect the Bank of Canada to stand aside and maintain its position that the discount rate remains acceptable under current conditions. No changes are expected in the bank’s asset purchase program, and politicians are likely to postpone the slowdown in asset purchases (QE) until their next meeting in April.
The EUR was one of the worst, falling to 1.1892 against the US dollar and consolidating nearby. GBP/USD and AUD/USD also fell, but closed daily lows, helped by rising oil and stock prices. The USD/CAD pair declined and closed the week in the red on the back of rising oil prices, while WTI ended the week with trading above $66 a barrel.
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