Congrats

More evidence Friday that you can relax. Take the weekend off. Buy something. There will be no recession. If one sneaks past, it’ll be timid and brief. Take that to the bank.

The latest evidence was a muscular, but not-too-strong jobs report Friday. Canada added 10,000 paycheques, less than the crazy gains of October, but still robust. America chalked up 263,000 new hires. Hot, but not scalding. Tech giants are shedding workers after an incredible expansion, but the broader economy continues to smoke along. The jobless rate here dipped to 5.1% (lower than pre-pandemic) and in the US it’s 3.7% – considered full employment.

Wages are up over 5% in both countries. Been that way for months now. Labour is harder to find. Employers have to pay more. If you really want a job, just ask.

So the implications are this: CBs will keep raising rates to brake the economy and curb prices increases. So far, it’s working. Expect a half-point increase from both the Fed and our guys this month. More after New Years. The pause is now about 1% away. So by the spring the chartered bank prime will be just a hair under 7%. The apex.

This heralds a soft landing. It’s a rare thing. Your grandchildren will want to know about it later, so pay attention.

A soft landing is when monetary policy (which the central banks control through interest rates, bond-buying and other measures) results in an economy slowing down without crashing. In that scenario, rapid price increases (inflation) are dampened, income growth continues, asset values (real estate prices) are whacked a bit, yet the wider economy doesn’t shrink. And just look at some of the labour stats in Canada – of women between 25 and 54, for example, the employment rate is over 81%.

A hard landing, in contrast, is a recession. The economy gets smaller, unemployment spikes a lot, people are pissy, financial and property markets tumble, corporate profits are hollowed out, consumer spending tumbles and citizens who spent too much blame politicians, who they usually toss out.

In this environment, it’s reasonable to expect financial assets to chug higher, as they’ve been doing for a couple of months. Now mix in a resolution of some kind in Ukraine (it’s coming) and a loosening of Covid’s grip on China, and the prospects for 2023 are bight enough for shades.

Say the economists at TD: “Though we haven’t seen it in the labour market data as of yet, the impact of the BoC’s aggressive moves will eventually cool the labour market. With the recent momentum, this is expected to take pace in mid to late 2023.

And here’s what BMO expects: “We remain comfortable with our call for a 50 bp hike next week, with the combination of the surprisingly healthy Q3 GDP report earlier this week and a steady job report supporting that option.”

The message is simple as 2022 grinds to a conclusion – a year in which we saw the nation’s capital occupied and borders points choked by selfish crazies, in which a misguided dictator started the worst war in Europe since 1945, when inflation erupted and the most aggressive rate hikes in half a century resulted, when our bizarre housing bubble popped, when stocks markets dropped into bear territory and Abba crawled back from the dead – it’s okay to exhale.

We survived.

(There was never any doubt.)

About the picture: “I’ve been reading your blog for more than 5 years now,” writes Ryan, “before the affordability crisis was a thing, before Covid. You know it may have been even longer, I seem to have missed a few years there somewhere. I scan the comments sometimes if I can take it , it’s always entertaining. I saw the R.E. woes long ago. that’s how I found the blog. thank goodness it became an affordability crisis, my apprentices thought I was nuts !! Here’s our dog Benji, a double rescue. We saved him from a farm where he got a goat. He pooped goat hair for days, lol. Since been thoroughly domesticated by yours truly. Real sweetheart now but you still gotta watch him around goats …”