Hello and welcome to The Download. I'm your host, Dave Richardson. And it is Jobs Friday. Except it's not Jobs Friday. I guess it's Data Dump Wednesday, Eric. We've got RBC Global Asset Management’s chief economist—Canada's hardest working economist, just for the record—Eric Lascelles, with U.S.. Eric, it’s just like a giant snowfall. Well, like a blizzard that came through. Just a week of critical economic data that I know people wait on pins and needles, on the edge of their seat, to see those numbers come out and to hear what you have to say about them. What do you want to start with?

I guess the job numbers. Maybe that's where we should start, though you could say, which job number? There was an October and a November one, released simultaneously. We could just smush them together.

See, this is the thing. Why wait till Christmas when you get a day like this? Or I guess this was yesterday that those numbers came out. So all joking aside, Eric, we had the government shutdown in the U.S. Normally the U.S. job numbers are released on Jobs Friday, which is the first Friday of every month—unless the first Friday is the 1st, and then sometimes it gets pushed back—but generally, it's the first Friday of every month. And then we had the shutdown which pushed back the release of the last two months. Then they dumped both yesterday, which was Tuesday, December 17th. And what did you see?

Well, I would say on the net, it was a little soft. Now, all sorts of missing pieces. For example, again, they released October and November numbers at the same time, and the October number was not graced with an unemployment rate, so that's just a hole that persists. But you could argue, maybe we don't care too much because we know what the next month's unemployment rate is. And so maybe that's the main story. The unemployment rate going into all of this back in September was 4.4%. The unemployment rate coming out of this, two months later, is 4.6%. There has been an increase. I would say that in theory, we should be beyond some of the distortions you might have imagined from the shutdown itself. You could maybe debate whether a small amount of the increase was that. But it looks like the labour market did cooling to some extent would be the big takeaway. If you dug into the actual official job creation numbers, you would be misled for a moment. For instance, the month of October officially was minus 105,000 jobs, which, of course, we don't love to see. Do note, though, that there was something very special going on in October—and I'm not just talking about a government shutdown, though I guess that was special, too—but there were a non-trivial number of American federal employees who took early retirement back in the winter and spring, early exit deals, and for the most part, they stopped working, as I understand it, whenever they took the deal. However, they were paid through to the end of September. On October 1st, officially, there was a large number of people who suddenly no longer were employed. You look at that and there was a minus 162,000 number just from that. Actually, just crunching the numbers here, private employment was hardly great, but it was up 52,000 in October. Then the numbers from November looked a bit more normal. It was 64,000 officially. Private was up 69,000. In the end, you would say these are—I'm not sure what I'm saying—mid-double digits. So it was your 50,000, 60,000 jobs a month numbers would be the way to think about it, which is nothing like we were accustomed to for a long time. But in this era of very little immigration and very low population growth, it's not too bad. Just to add a further layer of complexity to this, there have been criticisms as to the quality, just in general, of these numbers for a while. And the idea that, not to get into the weeds, but they're asking companies, hey, how many workers did you have? That part is pretty straightforward. The problem is figuring out how many companies there are, if that makes sense. You're surveying a certain number, but how many little companies were being formed, how many were destroyed that didn't get surveyed. There are bits of math they're doing on the side to map out this very limited survey onto the big picture. In general, the critique has been, maybe the job creation is not quite as good as it looks. If you really want to get whipsawed, you would say minus 105,000 for October, but it was a 52,000 if you looked at private, but they think it's overestimating things by about 60,000, and so now we're at minus 8,000. In the end, a little bit short of what you would like to see on a trend basis, consistent with the idea that we at least have seen something of a decelerating U.S. economy. That would be how I would try to summarize the job numbers. Maybe to throw a little wage thought in there as well. Wage is still fine and fairly normal-looking, but decelerating still. Our early earnings down to 3.5% year-over-year growth, which, as it happens, is a post-pandemic low without being all that distressing. It's just we had seen some pretty remarkable wage gains catch up from that early phase of the pandemic and responding to high inflation, and it is settling back down.

Maybe this is the most important point—and of course, you can disagree with what I'm going to say as well, but I'm asking you to confirm it—it just seems to me, if you put everything in aggregate, even take into account that these numbers they're not legendary in their pinpoint accuracy, and certainly not over the last couple of years, which is for a lot of reasons. And if you actually go back to a podcast we did in August together, we got into the weeds of jobs reports and some of the flaws in them and the different types of job reports and somebody who's being fired at that point and all that. So we got all. But if we were to stand back and take a big picture look over several months, we'd have to say that the jobs market in the U.S. is soft.

Yeah, for sure. And again, then with the caveat that it should be somewhat soft because it's just not a high population growth environment. You don't make a lot of jobs when there aren't a lot of workers or the demand isn't growing as quickly because there aren't just as many humans, if that makes sense. But yes, it's been underwhelming. It's been a bit disappointing. In the end, that unemployment rate, we were looking at a number that now going back a couple of years was a mid-three, which was always unsustainably low. Here we are at a 4.6, which is still okay. I generally would argue that 4 to 4.5 is about a neutral, benign environment. This is not greatly removed from that. But we've drifted from the stronger end to now, I guess you could say, right at the weaker end of that. And so, consistent.

We bottomed out, I think, around 3.1, 3.2% in the U.S.

Yeah, it did touch low 3%. It was pretty astonishing. And again, we had not seen that period, certainly in my lifetime. I think you go maybe a couple of lifetimes even, maybe World War II or something. But in any event, it was astonishingly low. We're not quite as low right now. And again, that's part of the reason why the Fed has been doing some rate cutting. Obviously, the inflation side hasn't cooperated as much as they'd like. That's my little teaser, by the way, Dave, since we're going to get into that shortly and actually it looks a little better. But the economic side has said, you do not need to actively have restrictive interest rates right now. So they've been removing that restriction.

We will get your thoughts on whether he really is too late, Jay Powell, when we start to talk about the other number that was out today, which was the inflation number in the U.S.

That's right. And so for clarity on that one, we were missing two months. We did not get two months’ worth of data, though. We got one month worth of data. So they have just abandoned October. They will not tell U.S. that. I mean, they don't know what the number was because no one was actively canvassing grocery stores and this sort of thing. It's just left as a mystery. We've got the November number. It's okay, in the same way that the unemployment rate. Well, at the end of the day, you know what the level is. It doesn't really matter exactly the way that you got there. Similarly, we do have a new price level. I'm not going to spit out random index numbers to you, but the point being, we do have a sense for where we are without knowing exactly how we got there across October and November. But it was very soft. I mean, that was the takeaway. I seem to be Mr. Caveat today. There were a bunch of question marks raised as to this report, but just to start off on the top of things, the expectation had been an inflation print that would be 3% or 3.1%. It came in at 2.7% overall. This is annual change in U.S. inflation. Core was 2.6%. That 2.6, by the way, if you believe it—and I'm going to give you a couple of reasons to be cautious—but I was just looking, it's the best number in almost five years. It's the best number in four years and nine or 10 months or something. We'll take it certainly. The report said that the notable softness are a couple of things: rent inflation was softer, medical care services inflation was softer, food inflation was softer. I think it's too early to see the effects of this, even just in a pure chronological sense, given when it was announced. But of course, the U.S. did lighten some of the tariff burden on some food stuff. So maybe some of that is working its way in a little bit. More curious because we really haven't seen tariffs come off in a big way, some of the most heavily tariffed goods, a lot of the Asian sourced electronics and apparel and that sort of things actually was quite soft as well, somewhat surprisingly. But on the net, it was a softer print. The reason I've couched this with a little bit of caution and said, «if you believe it» a couple of times, is just that it does look like they were missing some data. The people who get really into the weeds are saying, there were an awful lot of 0.0s in these numbers here, which makes you wonder whether they didn't have quite what they needed. And do note that even though the shutdown ended in early to mid-November, that already had them running a little bit late just to get the November data. And so a bit of missing pieces. Arguably, their surveying was skewed to the second half of the month. Guess what the U.S. had in the second half of the month? Black Friday, Thanksgiving, all these sales that maybe played a little more centrally. And so the suspicion here is that maybe it won't look quite so amazing next month. I wouldn't reject the whole notion altogether. It looks like some things got better, and it's probably not all a grand illusion, but equally, I wonder if we might give a little bit back when we actually get the proper numbers. Here I am resetting expectations. These were not the proper numbers, Dave. Next month is really the big reveal, with the proper numbers. For the moment, though, here we are into the 2s. We'll take it. The fear had been with tariffs, in that we would ascend into the mid-threes, and instead you've got a 2.7 on one big number or 2.6 on the other big number, even if those are 2.8 next month, I don't know. But if there's something like that, I'd still feel reasonably good about it. As I mentioned earlier, I think there is a bit of room for the Fed to do some cutting, in my opinion, if inflation is in the 2s.

Yeah. I suggested that the trend is that job creation is trending down. Those numbers are soft. When you take that step back, all the noise in the numbers, I think you can safely say that we're seeing that softness there. When you take that same step back with the inflation numbers, your initial view might be that we're trending down, but you probably want to see a little bit more data there before saying that we really are seeing that continuous trend down from 9% now pass through 3% and actually down towards the 2% target.

Yeah, that's exactly right. We think there's room for improvement across 2026, I should emphasize. We weren't really budgeting that. And this is a very inexact science. If you haven't figured that out by now, it's not precision work, unfortunately. It's just the nature of the beast and the psychological elements of decision making and so on are such that you can't pin it down precisely. We have been assuming that there would still be a little bit of inflation heat over the early part of 2026, and then you'd see a more material cooling. Maybe this is just coming ahead of schedule. Maybe we do need to wait a little longer. But either way, we do feel like in a year's time, we should be in a somewhat better inflation environment. I'm still of the assumption that it will not be a completely benign 2.0% and all is perfect in the world situation. I think there's been enough, you could say, scarring over the last four or five years. There may be a little bit of politicization of the Fed in terms of its decision making and indeed, perhaps some lingering effects of tariffs. I was just talking with my team recently and commenting on how in economics, usually things take longer to happen than you think they should. You can say, there's a tariff, why wouldn't prices go up tomorrow? The higher price is immediate. In reality, you're still seeing 18 months later, things trickling through in slightly mysterious fashion. But whether it's rate hikes or rate cuts or tax changes and so on, it is surprising how long it takes for some of this to show up. I wouldn't say I think that effect is completely settled at this point.

Yeah. And as you say, it's not absolutely precise and the timing isn't perfect, which is why I got an A in first year economics and a D in first year chemistry. And I gravitated towards economics instead of chemistry. Because I'm good in the gray area and nobody's better than you there. And then the other point, which we've made a few times, I'll embark on my diet after I gain weight through the fall and over the holiday period and through January. So I'll come out about 20 pounds overweight. The first 15 pounds aren't too hard because that was excess. The last five pounds are really hard. And inflation is the same way. 9 to 3 wasn't too, too hard. Well, we had to raise rates and there were a whole lot of things going on there. But the rate came down fairly quickly. And then the 3 to 2 is where we've been stalled for a long, long time. 3.5 to 2. And we're likely still going to see that slow drip down to where central banks really want to have inflation and where you'd like to see inflation. That'll be one of the stories for 2026.

That's right. Hey, Dave, two quick things here. One is, if you outgrow your shirt, could I have it? I'd like a shirt like that. I don't have any that looks like that.

I think you do have a shirt that looks like this.

We're wearing identical shirts, for those who aren't watching.

Although I'm colorblind, so I'm not sure. But I know Eric is always dressed for work. He's not really doing economics. He's chopping down trees somewhere. Again, adding to the economy.

Very anti-environmental.

No, no. Growing trees.

Number two: let's pretend you took the chemistry path for a moment. What's your chemistry podcast sounding like? Plutonium prices are up. Give me a 30-second.

Well, we're talking about uranium and rare earth metals because that's where things are at right now. A little antimony. That was my favorite element on the periodic table. Everyone should have a favorite element, right?

Yeah, that's right. Okay, back to the economics.

So back to what people really want to know. And this is, I think, critical if we're talking about real estate market in Canada, we're talking about a lot of people this year, interestingly enough, as we talk about 2026, one of the big themes—and we're already into it—is those really nice low rate five-year mortgages that are all starting to come up for maturity this year. So we've got the Fed, we've got the Bank of Canada. We've reduced rates a lot in Canada. Not quite as much in the U.S., but coming down. What do you think we see on the rate front, given the weaker job market and inflation behaving well, but we're not 100% sure?

This is a U.S. question, I'm assuming? So we've had downside surprises a little bit on the job front and the inflation front recently, those do both align with the same theoretical implication for monetary policy, which is you've got a little bit more room to ease. I can't say I've seen markets shift their expectations wildly on that basis, but it does look to me like the U.S. has a bit of room for rate cutting. In my own mind, I continue to think that it wouldn't be unreasonable to get down to 3% or some number of loosely in that range. In my mind—but maybe only in my mind—that is also probably loosely aligned with what you would describe as a neutral rate. It wouldn't be crazy stimulus, it wouldn't be going overboard. It would just be saying, we don't need to tap the brakes anymore when the unemployment rate is at or even maybe a hair above where we'd like to see it over the long run. We'll see how much it sticks, given some momentum in a favorable way on the inflation side as well. Not to suggest that it's all going to be politicized, but it does look like there'll be a new Fed chair. At this point, by the way, it's become a bit of a horse race. Suddenly there's Hasset versus Warsh, and we'll see who gets it. I have seen one betting market where they're both at just shy of 50% chance, so it's no longer quite a coronation. But either way, they do both seem supportive of more easing. You probably should assume some of that. That's what I'm thinking. I'm not holding my breath for longer-term yields to fall a lot. I would say that maybe that work is already largely done. And as we've talked about before, just given this imperfect environment in which pretty big fiscal deficits and inflation is getting better, but maybe not perfect. In a U.S. context, just some polarization going on and maybe some international investors revisiting their allocations a little bit and wondering whether they want to be quite as exposed to what has been an arguably volatile political and policy environment, if nothing else. And so all that would say, again, not the yields go up, not the yields go down, but maybe they don't get to go down at the longer end, even as the short term yields go down.

Yeah. And that longer end, I imagine, will be somewhat of a check on the Fed. Depending on which Kevin—I think we're pretty safe to say that the next Fed chairman's name is going to be Kevin—but if there's a temptation in a midterm election year to get a little aggressive on the rate cutting, there are vigilantes out there all around the world who buy longer-term U.S. bonds, who would frown upon a too aggressive a move. But you're talking then with that thought of somewhere like two to four more rate cuts within the year. And that will depend on the softness of this jobs market as we've talked about. And then if those inflation numbers are real and continue to fall back towards 2%, then you might get closer to four cuts.

Yeah. Something in that realm.

And we should come back to Canada, talking about what's going on thematically with mortgage renewals and interest rates and the housing market here. If the U.S. were to come down two to four times, does that give the space for the Bank of Canada to come a little lower, or do you think they're done, unless you see signs of continued weakness in the Canadian economy?

I think it is a bit of a different environment, and the reason is just the starting level is so different. Canada sitting at 2.25%, the U.S. is sitting mid to high 3s, and that's a pretty different starting point. I don't think there's as much room for easing unless we're surprised and there are bigger than expected problems in the economy. I have to be careful here. I can say the official firm view, and we've just put out our global investment outlook, so I shouldn't deviate from that too much just yet, Dave. Officially, the call is that 2.25 sticks. If you gave me the liberty to just say which way the risks run to that or which side I'd be on, I think there is maybe room for a little bit of easing. That's still my thought process. It's very much an economy that despite its own surprisingly good job number in recent months, it's still an unemployment rate that is a little higher than we'd like to see. I think there is some economic suffering that continues. So it doesn't seem inappropriate to me to get down to a 2% flat or even a bit beyond, depending on the circumstances, for sure. About the currency, indirectly, of course, when we talk about, can the Bank of Canada buy some cover when the Fed is cutting? We're referring to, does the currency behave in a way that lets Canada do more as well? As you well know, we do have a Canadian dollar that's a little bit stronger. And so on that basis, you think, again, you'd have a bit of room for easing without worrying of capital outflows or something like that.

Yeah. Our inflation picture is better. Unemployment, as you mentioned, significantly higher than the U.S., although more recent numbers have been better. By the way, we had Eric on a couple of weeks ago. The U.S. number didn't come out, but the Canadian number came out and it was relatively strong. You can subscribe to the podcast, follow U.S. on YouTube if you would like to get Eric's commentary on a regular basis, so you don't have to go looking for it. Eric, I was mentioning on the last podcast, we have a special holiday season offer on the price to follow and subscribe the podcast. It’s free! So if you're having any concerns about a affordability, putting presents under the tree, this is the thing that is chockfull of info and free. There's nothing better than free. But we have seen a Canadian economy that's showing some signs of life, but still isn't there. I was just looking at some other data that came up. The housing market in Toronto, fairly weak November in terms of activity. So you're still seeing in the primary markets anyways in Canada, Toronto, Vancouver, you still got a pretty soft market, even though rates have come down quite a bit.

Yeah, that's right. So as we talked about it in our last podcast, three consecutive months of mysteriously strong job gains. And so we're delighted, but maybe a little skeptical as well, saying perhaps it will be difficult to sustain or perhaps we will see some reversal in the future. But after tariffs came lower than feared, it does look like perhaps the economy has gotten its act a little bit together. Again, we'll take that. I would say other data isn't completely jibing with that. You see some business surveys that are still better than they were in the spring, for sure, but not exactly exuberant. Retail sales, not wonderful. Housing, not wonderful. Still thinking it's probably fairly slow go, but better than we were off in the spring and summer. It's hard to judge. We are expecting some acceleration in 2026. Got some rate cuts that have already been delivered. Whether or not we get more, some fiscal stimulus, some other things we think that are favorable, even potentially an AI productivity boost that the whole world enjoys. That's separate from the CapEx spend in the AI direction. We're hopeful we get some more growth, not expecting it to be an instantaneous light switch type situation at the very beginning of 2026, truth be told, but we think that there is a bit of room there. The question mark—many question marks—but an obvious one would be, of course, the USMCA negotiations. We think it can be a relatively benign conclusion, and benign meaning that the existing tariff regime largely sticks and it doesn't get a whole lot worse. But I would warn, we will be feeling nervous. I remember feeling a whole lot of nerves there earlier in 2025 at various moments as tariffs were bandied about. I think there will be some moments where we feel nervous again in the coming months just because we've already seen the beginning of the process of the U.S. saying, well, maybe we don't need to be in the USMCA. Identifying some things they're dissatisfied with Canada about. And I'm sure it'll be very difficult negotiations. I would be surprised if the whole thing got torn up. I don't think that's too likely.

Yeah. And we understand the negotiating tactics of the unofficial head negotiator in this process—which would be the President—that it's not going to come easy. There's going to be noise around it. But where we started back in late January, early February, and towards Liberation Day, we should end up in a better spot than that. Just the idea that you end up in a spot that's better than expected should be helpful. And then the other thing we've highlighted a lot over the four, almost five years that we've been having these conversations on a regular basis on the podcast is the Canadian economy has been an underperformer relative to the U.S. for a long time. And to be as far behind as we've been is not normal. And so you'd expect to see some catch up at some point.

Yeah, I think that's fair. It's easy to lose sight of that. The U.S. has been such a special place for so long that, yeah, historically, there's a very strong correlation between the two. It is unusual for Canada to have slipped to the extent that it has. And particularly, as some of the red tape is lifted. We are feeling a little better about the prospect of Canadian productivity growth moving a bit more quickly, setting aside AI altogether just on its own merits, essentially. Similarly, to the extent there were some distortions that arose when there was that massive immigration bulge all at once. Of course, we've seen that reverse. Indeed, officially, the latest quarter saw a slight population decline. I make no claims that that is the secret to rapid productivity growth in any sustained way. It's not clear that it is, but there were some distortions that are fading that could prove short term helpful.

Yeah. We talked about this a couple of weeks ago. What astounds me is in a weak economy—this almost bipolar economy that we have, or I guess the official term would be K-shaped economy—where I go to the mall and the mall is full. People are walking around with bags full of stuff. If I'm out at a restaurant in Toronto, the restaurant is packed. And the better the restaurant, the more likely there is to be people there. So people are out spending money, but it just doesn't feel outside of that like the economy is really running on all—I guess in the old days, we’d say eight cylinders or six cylinders—now, I guess more four cylinders, but all the cylinders.

How many batteries, Dave, is now what we say. To make this full circle of sorts, you were mentioning mortgage renewals a little earlier. I must confess, I'm team 2026 personally, so not particularly looking forward to that myself. But there are a significant number of Canadians I know in that same situation, and indeed many in 2025 and earlier years who have already grappled with some amount of resetting higher. There is a certain governor there. As per that K-shaped economy, there are people doing really well right now, and there are people not doing very well at all. It's holding together when you add it all up into one collective, but there is some struggling beneath the surface.

Well, we're always here cheering for everyone to do well. That's why we do the podcast, and that's why we have Eric on a regular basis to explain what's going on so that we can all make better decisions or the best decision possible in our financial plan, in our investment plan. And then when we talk about economics, we're big believers here, Eric and I, it's really about setting your whole life plan, because economics is really about maximizing what you have or getting the most out of optimizing everything you have and getting the most out of it and ultimately being happy. And with that, Eric, I wish you a happy holiday, you and your family. I know you've still got some relatively young kids. I'm sure it's still fun around the house, and I hope you have a great holiday season. We'll catch up with you in early January.

Thanks, Dave. Happy holidays, everybody. Talk to you soon.