Hello and welcome to The Download. I'm your host, Dave Richardson, and it is time, as it is once a month on Jobs Report Friday, to catch up with Canada's hardest working economist, Eric Lascelles, Chief Economist at RBC Global Asset Management. Eric, welcome. I'm colorblind, but if I'm not mistaken, that is a new shirt that you pulled out. A new color anyway.

Is it new? It's more me with my standards ever falling, wearing a golf shirt, arms bare. But you're probably right. It hasn't been on the show. What would we call it? Salmon color? This is a tease to the people actually listening to the podcast, not watching on YouTube. Nothing that exciting, folks. But it's summer and I'm embracing the one day of the week I sometimes work from home.

Wow. And yes, we're finding that most people are listening to the podcast, so they're clicking «follow» wherever they get their podcasts, but not subscribing as much to YouTube. I think I'm repulsing people with my radio face. But maybe you in salmon will bring some of those people back to YouTube. And of course, I just want to be sure— because we've got to stick with his branding— that Eric is not golfing today. He's wearing a golf shirt. That's the closest he ever gets to golfing because he's always working. He might even plan to go golfing, but he doesn't because he's working. He's working on a report like today's jobs reports out of the US and Canada, and fewer people are working in the US this month.

What a segue. By the way, I was going to mention, I normally consume this— maybe not my own conversation with you, but the other ones you have; I know you had one with Eric Savoie quite recently as an example— I normally consume those on Apple Podcasts. I was listening to a different podcast recently and to my great shock, even on the Apple Podcast, a video popped up. I feel like things are blurring together and who knows, maybe it won't take YouTube to see our handsome faces in the not-too-distant future.

Not too far away from the robots taking over everything though, Eric.

Oh, that's true. I'm sure we'll get into that. I've only golfed twice in my life, so that was a correct assertion that I'm not sneaking off to a golf course, nor do I have any interest in doing so. There are some jobs where you get a day off and you feel like you got away with something. I feel like I've got a job— you probably do as well— where you take a day off and it's just trouble because you got to catch up later. There's nothing saved. It makes life harder.

Thousands of thought pieces written. Millions of video hours. Lots of audio. Constantly working Eric Lascelles.

Okay, so now that we've wasted people's time, the job numbers. You hinted at this, these are the July 2026 job numbers, 23,000 jobs lost in the US. So that was not the expectation. The expectation had been a modest to moderate gain. The question obviously is, do we panic? It's negative and there would be times in recent decades where that would be cause for panic and recession calls, but I would say that's not the case today. There's two ways to go with this. One is to set the context for what did the broader set of numbers look like, and the other is what is the market's attitude toward this relative weakness. And the market's actually feeling pretty good about it. There's all sorts of unusual elements to this. Just in terms of the data itself, 23,000 jobs lost, and a big negative revision, 103,000 fewer jobs created over the prior couple of months. It was thoroughly weak, almost regardless of how you cared to slice it. I will mention, we say it's minus 23,000. What we never mention is, of course, next month, it'll get revised again. The month after, it'll get revised again. Not to say that the revisions are necessarily going to be even worse, but I will just observe that this is the 2-month rolling revision history over the last year and when you look at 11 of the last 12 times, they've been revising it down. So that minus 23, I don't know what it is. It could be minus 40. It could be something else. It is properly weak. I will say the private sector employment was up 30,000. Government jobs can be great jobs, but in terms of a signal of how businesses are feeling, it wasn't the businesses that were laying off. In fact, there was a curious local government education 50,000 decline that doesn't seem to really square with anybody's on-the-ground experience. Schools were not shuttered in any massive way in the month of July. And so, you could maybe be a little skeptical about that, but it was dangerous to cherry-pick. Of course, a couple of sectors seemed weirdly strong, and I struggled just as much to articulate why they were strong.

Eric, I'm just going to pop in because I think it's important. We talk about this every month when we record this podcast around the jobs reports: looking at that one snapshot that's out at 8:30 this morning out of the US is too narrow of view. You have to look over several months. What you're saying about revisions, it’s very important that we don't overreact. However, the report itself and the revisions do affect the market. And that is why we get on the Friday jobs report.

Yeah, that's right. And so cutting to the point then, and to your point that really one month is a little dangerous to make grand conclusions off, the 3-month average with those revisions is now +30,000 jobs a month. We talk about this every time we do this. That sounds awful. It's not what we're used to hearing, but at a time of quite constrained immigration, of quite low population growth, that's about normal. That is about what you would hope to sustain. Maybe it's 40,000, not 30,000. I don't know, but it's about that. There was a period over the winter and early spring where it was 100,000. We were very clear at the time, this is really strong. This is stronger than you could hope to sustain. That was indeed the case, and revisions have nibbled away at that a bit as well. 30,000 a month over the last 3 months is okay. Actually, the unemployment rate, despite officially losing jobs, fell from 4.2% to 4.1%. This is now the lowest unemployment rate in a year and a half. It may be noise, and we've been really bopping between 4% and 4.5% now for quite some period of time. I would still broadly describe it as that, which to my eye is a healthy unemployment rate, about at the sustainable potential without overheating. Other job metrics: weekly jobless claims still coming in quite good. I would say there's some weakness in this one. On the net though, I still think the labor market in the US is fine. If you're thinking then about the implications for the market— and I'll stop and breathe in a second and let you frame some questions— but hourly earnings were up 0.1% month over month in this report. That's pretty soft. Often, you get a 0.2, a 0.3, a 0.4. Year-over-year hourly earnings, therefore, unsurprisingly decelerated a bit. They were 3.4 year over year, now they're 3.2. That's not weak, but that's weaker than we've seen for a little while. Of course, you look at this from so many perspectives. From a worker's perspective, I wish it was faster. Of course, maybe it means that consumer spending growth isn't quite as heroic next month. That's not great. The concern is actually a little more right now too much inflation and overheating. What you can say from this is that you're not getting a labor market that's overheating in a big way, and you're not getting wage growth that's pushing higher in a big way. Inflation has a number of problems, including an energy shock and a few other things, but the labor market seems not to be central among them right now, or maybe seems not to be accelerating the problems. Anyways, it's not reverberating the problems of oil prices back into the broader inflation mix.

Yeah, and we'll probably get to the war a little bit, but that was actually going to be my next question, around the average hourly earnings. In a really healthy economy, we're seeing good steady job growth, we're seeing good steady gains in wages. And that's in an environment with lower inflation. But we're not really exactly there. Which is probably why I thin on the ground in the US. A lot of people feel that the US economy is not performing for them the way they would like it to, even though it's been fine in the stock market and from an investment perspective. If I'm on the ground, I might not be looking at the US economy and feeling that good, which has obviously lots of political implications as we come up to a significant election in the US in November. But if we talk about the war, the one thing that's been interesting as I've been observing it— and we're in another period of they're at the table, the Strait of Hormuz is going to be open again— but each time it seems to be diminishing returns on the amount of a drop you get in the price of oil when things seem optimistic, in terms of some resolution. The last time there was optimism, it seemed like oil was down under $70 a barrel. And this time we're around $80 and it's had a hard time piercing through that. And even when you look at longer range, the price of oil has started to creep up in terms of how low it will fall as the market assumes that this at some point this conflict ends. You'd see futures down in the $65 range and now they're more up above $70 again, even when you get out a year and a half. So you're not getting the same bang for your buck when the president gets up and says everything's going to be resolved.

Yeah. It's just a function of we've heard this story a few times before. Of course, we thought we've had deals. Deals have fallen through and naively and ever the optimist, it sounds like maybe there is a plan here for Hormuz and it's Oman and Iran more than it is the US. The ships go in one way and they come out the other way. I think reading between the lines, there's a toll which none of us love the idea of, but we've been pretty pragmatic about this and realized that that would still be tolerable if your goal is only getting the economy moving and ensuring that the world is supplied with oil. A dollar per barrel of oil is not going to render the oil that comes out of the Persian Gulf uneconomical. It can be absorbed fairly easily. It sets bad precedents, but nevertheless, if that deal were to hold, then you would say, okay, this can work. I think the market is just saying, after having been fooled a few times by what appeared to be happy deals, that we'll need a little more evidence, and let's see the flow of ships actually fully normalize and stick around for a while, because it was a bit of a head fake there a few weeks ago when we got a partial revival, and then it went right back down. That's the thinking there. Simultaneously— not to get too distracted by the energy shock, though it is certainly very important— but if you look at some of the distillate, some of the refined products, their pricing is not looking nearly as relatively happy as oil is. The natural gas prices in Europe are just near multi-year highs right now, and the same goes for some of the other distilled products. There are still some challenges, and you can debate whether oil should be $70 or $80 a barrel. Maybe closer to 80 makes sense if you're not convicted that this is going to get resolved perfectly in the near term. But some other things are showing a bit more pain there. And so we're conscious of that. And we don't have inflation falling sharply in the next few months, just recognizing it is a bit of a trickier path. But ultimately, we do believe that you will see some energy products moving. So certainly not all pessimistic there. And then back, Dave, to the interpretation of these job numbers. You would say soft on the surface, though certainly very nuanced. Private sector was up, but unemployment was down. It was hardly disastrous, but nuanced. The market seems to be interpreting this in a «bad is good». So you would say, well, some weakness, but really, the market's concerned about the Fed hiking a lot and killing the golden goose. The market has taken out a fifth of a rate hike in response to this today by the end of the year. I think you had 1.3 rate hikes priced in by the end of the year. It's 1.1, 20 minutes ago. The market feels good about that. The stock market, last I looked, is actually up this morning on this as opposed to down. Saying, we don't want super strong growth, we want something that can be sustained. Maybe we had to take a little bit of heat out because although some people aren't doing very well in this economy, other people are doing very well indeed. The market actually taking this quite well and saying, maybe this extends the cycle as opposed to shortens it. So maybe we don't need quite as much rate hiking. A constructive interpretation is the conclusion.

Yeah, we've had several guests on recently and talked about just the incredible power of earnings right now across many sectors, particularly in technology and energy with the elevated prices as well. But, earnings are coming in— whether we're talking about the US or Canada— at near record levels of growth year over year in a non-risk environment— if you go from zero to positive, those are big percentage gains— but just in a consistent period of economic growth, we're seeing profits jump year over year, quarter over quarter, at very powerful levels. And that's another thing that's fueling the stock market. So if we can look out at the market, and we see, as you say, an extended cycle with rates not going up dramatically soon, or maybe not going up at all, that's going to move the stock market forward. And that's what we're seeing this morning. And that's at least the short-term interpretation. We'll see what carries through the next week. But I see a red shirt and that makes me think of my beloved country of Canada. And actually, we've talked about this for a lot and a lot, and we've seen little bursts and green shoots— I think is the expression you like to use— here in Canada around economic growth and employment. But the employment numbers out today in Canada are pretty nice, no?

More than nice. Too nice, maybe? I'm not sure. I shouldn't say this. 75,000 jobs were created, which is extraordinary. Well, first of all, the US lost jobs, so you can't even do the times 8 or 9 or 10 math that you might normally aspire to do. They're just going in different directions. That's a honking big number. That's the number where you say, that can't be sustained for long, and I don't think it will be, but it's a big number. Prior month was 18,000. Just keep in mind 2026 is still a year in which Canada's population is shrinking, a more challenging demographic story than the US, and so you would think that normal would be actually slight job declines, so any kind of gain is strong. A lot of it was private sector, so it wasn't all government edict or something like that. Employment rates for youth even— because of course, it's been harder on young workers or aspiring workers in recent years, really almost around the world— and so the employment rate, the fraction who are working, is a 2-year high now. That's something. The unemployment rate, unsurprisingly— this one lined up precisely with the job gains— was down, of course. The unemployment rate in Canada is down from 6.5% to 6.4%. You can view that in a few ways. You can say it's still 2.3% points higher than the US. That's not great. That's fair and may reflect some differences in the structure of the economy and incentives for workers and non-workers and so on. I think setting that aside— which isn't about to change tomorrow necessarily, and a different sector mix too; we have more seasonal industries and things like that— but 6.4% is an improvement. It’s the lowest we've seen in 2 years. We would still say normal for Canada is no more than about 6%. If you ask Josh Nye, he would actually argue high fives. I'm inclined to listen to him. It is still a little weaker than we'd like, and so actually, it is good that we're getting this strength for Canada because you're eating through some slack. But ultimately, still not quite where we'd like to be. Still, though, it does have implications for the Bank of Canada that seems not to be in a hurry, and I think that's okay because inflation is not too bad in Canada and there is still some slack here. What is the hurry? Maybe eating through a little bit of the slack right now between big job gains, and you may recall Canada's really tracking GDP for Q2. We don't have the official number yet, but it's looking like a 3% annualized gain, which is quite big. Remember, there were the two quarters in a row of Canada shrinking. That wasn't so hot. It looks like there's a pretty robust bounce back happening right now. We look at forward-looking metrics too. The Business Outlook Survey is one, and it's been looking cautiously optimistic as well. So we would say it does look like the Canadian economy is growing between job gains, between tracking GDP growth. It seems to be navigating the energy shock fairly well, which makes sense because, of course, Canada is an energy superpower, but not every party wins out of that. Despite that, we're seeing these pretty broadly based gains, including it was 10 of 16 industries that managed job growth. In a shrinking population country, that's something. I guess the takeaway is Canada is looking pretty good. Now, the question is, can it sustain that? Here we are with some new tariff threats that were announced a couple of weeks ago and set to be applied on August 19th. We're hoping that sounder minds and negotiations will prevail. There was some interesting news in the newspapers recently about maybe those steel and aluminum quota discussions being back on the table which the US had shelved last fall. That would functionally maybe lower some sector tariff rates. Perhaps if negotiations are going well, the threat of a 50% tariff on about 5% of what Canada exports. It's hard to summarize because it's just these targeted different things in different directions, but it would be significant if it does get applied on August 19th. We're working on the assumption that is avoided. Maybe that's increasingly a suspect assumption as we're 2 weeks away or less than that. Nevertheless, we're not convinced it's a permanent condition for Canada. I mentioned all that just to say, here we are, still with some questions and not necessarily in the complete free and easy growth here. We'll celebrate that we got some, and it's pulling Canada closer to where we want it to be. It might make the Bank of Canada think a little harder about hikes at some point, but I don't think that there's a great urgency there. Hopefully, this tariff situation can be navigated. That's been our assumption. We're assuming that tariffs are likely, if you fast forward a year, to be similar to where they are today, or maybe even a little bit better as per some of that quota talk. But we knew we'd be nervous at various points along the way, and there is a bit of nerves, understandably, right now as that 50% tariff is threatened.

The nice thing, though, is unlike the conflict in Iran, the US can just unilaterally decide to pull back. Unlike Iran saying, wait a minute, we're still going to keep things shut down, and we might charge a toll, etc., we're happy to let you take those tariffs off or stop what you're contemplating doing. And it just moves ahead. It's been interesting, we just taped a podcast with Stu Kedwell, and you mentioned we were talking about youth unemployment and that I've been out with a lot of investors over the last couple of weeks. And it's funny, most of the people that I end up out speaking with are in their 50s and 60s. They're just moving into retirement or starting to think very much about retiring. There was a time when the questions were pretty much focused on the investor themselves, the parents. Now getting a lot of questions about concerns about the economy for young people and when you were going to see things start to improve for younger people and get them to a point where they're feeling like they're making progress. You're a parent, I'm a parent. These are probably the all-consuming worries that we have about how life will be for our children. And it's good to see those numbers start to move. Do you think this has any legs, any traction?

It's a great question. As I said, we did see some improvement this month. But of course, the broader narrative, which your clients and colleagues are expressing, is very real. It has been a more difficult time for young workers and that youth unemployment rate is several percentage points higher than we're used to seeing. Not double or triple. The amount of comments I hear about it may be in excess of the true deviation from normal, but it is a more challenging time. Obviously, it often gets merged in with high housing costs and other things, which are just challenges that the young generation face. That's certainly very real, though getting a bit better as the rest of us gulp and see our home prices fall. Nevertheless, some societal rebalancing happening there that may be net positive, if not for everybody out there right now. I think we're all nervous about AI and the implications, maybe on two fronts. One is just jobs are changing rapidly and you need to learn this new tool and skill set, and so that's its own rapid thing. But also the extent to which workers may be displaced, and we have little bits of evidence that maybe quite young recent graduates in certain AI-adjacent fields are doing a bit worse. There may be an AI connection. I should emphasize, there have been other academics who have since pushed back and said youth workers started doing worse coming out of the pandemic. And maybe— unfortunately, just what I'm doing right now— the virtual working from home means that senior colleagues aren't mentoring young colleagues, and therefore, the value of a young worker isn't as high if they can't get up to speed. And so, there may be some change in attitudes there. Some real challenges here. Of course, no one really knows where all this AI ends and the extent to which it does or doesn't displace workers and the extent to which it does or doesn't do that at the economy-wide level versus particular sectors. It just really isn't known right now. I would just say, the consensus or the conventional wisdom maybe among the lay population is it's just obvious that there are going to be massive job losses from this. It's possible. I would say that's far from automatic because we've seen so many other technologies come through that have not yielded that, including ones that you would have thought would be no-brainers to get rid of entire cohorts of workers, and sometimes a sector goes away, but other others pop up. I would say, again, at the economy-wide level, we are not yet, at least, seeing evidence of that. I would like to think if we started to see things go in that direction, governments would have something to say about that as well. They would tax in a way or change regulations in a way that would limit that damage to the best of their abilities. We're on watch here, and it's a harder time than it's usually been. To answer your question finally, I can't say with great confidence that everything changed this month, and young workers are going to have it a whole lot better. I'm not sure that there's enough that's changed to make that claim, but for Canada, at least, always good when there are some jobs being created, and that tends to float all boats. To deviate a little bit and to give such a long answer to a short question, here we have baby boomers retiring in a big cohort, and that presents opportunities too. That's going to get a little more helpful, I think, in the coming years.

Yeah, I'm doing a panel next week with a large group of students who are on their way back to school after working through the summer and just a discussion about opportunities. And I like to keep it fairly positive. I think there's a lot of reasons to be positive about where we're going. Obviously, always changes and concerns and how you navigate that is critical. And I always try to reassure parents as well that in general, if we go through history, the future has been better than the past. We move forward, we progress. But it was just interesting, the comment about youth unemployment, because I have had so many questions about that recently. So, Eric, any other thing from anywhere around the world that you've noticed over the last couple of weeks that you think is particularly interesting? Or have we really covered the key points here?

I think the broader message is just that the global economy is looking fairly decent right now. It's holding together. We've all been pleasantly surprised by how it's weathered the energy shock. We didn't think there were recessions coming, but I think it's been a pleasant surprise how smoothly that has gone. We are seeing in the US productivity growth prove quite strong— this is one of the big theses that the new Fed Chair Warsh has— which can be a deflationary force. Actually, stay tuned. We are publishing on our next Macro Memo that comes out next week— this is Josh Nye; I'm just claiming credit here— he's publishing something on to the extent to which AI might be inflationary temporarily. Chip prices and this business. That MacBook you might be buying that student perhaps for the coming school year. Conversely, how it should be deflationary over the long run. As productivity picks up, that is very much a deflationary force. I find myself acknowledging that inflation is too high right now and realizing there's not a clear path back to normal in the near term with this uncertain energy fate and a few other things that are circling around. But increasingly, as I think about the demographic change, which I think is deflationary— not everyone agrees with me there, but I think it is— and AI, you start to stack together some deflationary forces. I'm certainly on team 2% plus inflation for the moment, but it has me wondering whether I need to switch teams in the next couple of years back to the 2% or less inflation story, which of course did prevail for more than a decade across the 2010s.

Yeah, I just want to jump in that for a lot of listeners and myself, we think that Josh Nye is just an alias that you have so that you can do twice as much work.

Not at all. I am an alias for Josh Nye. He's done a wonderful job. We've had him for just over a year and he's doing the real heavy lifting when it comes to a lot of the research, which I'm sure is patently obvious if you read those Macro Memos.

Yeah, we're going to get Josh on soon, I hope. So, Eric, thanks again for jumping on. You look fabulous in salmon. You should do more of that. Maybe get into some sage green. That would be another lovely color for you. And we'll talk to you in a couple weeks.

Okay, thanks, Dave. Bye, everybody.